While most executives realize the truth that a company or business must create a clear competitive advantage in order to grow and be profitable in the long run, many people have only a vague idea of what it really means. They are confused by the esoteric language of strategy or trapped in the technical details of analytic tools.
The first circles:
We often meet these leaders during our consultation work and in our classrooms. We tell them to draw three circles. These circles, placed in a correct relationship to each other, provide a good visual representation of what the strategy – internal and external – means. Hundreds of leaders and future leaders have quickly adopted strategy concepts using this simple tool and carried them back to their organizations, where they are often part of the decision-making process.
Suppose this exercise is performed by a management team. The team must first think carefully about what customers like and why. For example, they may work directly because they want to control their time or have other family members or relatives. (Exploring deeper values can open managers’ eyes and reveal new opportunities for value creation.) The first circle represents the team’s consensus on everything key customers or customer segments want or need. (Other segments can be analyzed later.)
The second circles:
This represents the team’s perspective on how customers perceive the company’s offer. The extent to which the two circles overlap indicates the extent to which the company’s offering meets customer needs. Even in many mature industries, customers don’t express all of their wishes or concerns in conversations with companies. They had mistakenly named Procter & Gamble for the invention of the Swiffer, the category of which is now a major contributor to increasing sales of personal care products. Swiffer was born from P & G’s careful observation of the challenges of home cleaning. Unspoken customer problems can often become a source of relationship-building and growth opportunities.
The third circles:
This represents the team’s perspective on how customers perceive competitors’ offers.
Each area within the circles is strategically important, but A, B, and C are essential to building a competitive advantage. The team must ask questions about each. To A: How large and sustainable are our benefits? Is it based on discernment? For B: Are we delivering effective equality results? For C: how can we counter the advantages of our competitors?
The team has to make assumptions about the competitive advantages of the company and test them by asking customers. The process can evoke surprising perceptions, such as how many opportunities for growth there are (E). Another insight could be the value the company or its competitors create that customers don’t need (D, F, or G). Zeneca Ag Products found that one of its key distributors would only be willing to do more business with the company if Zeneca gave up on the lengthy promotional programs that executives see as an essential part of its value proposition.
But the biggest surprise is that area A, considered large by the company, ends up small in the eyes of the customer.