(This is Part 2 of a 3 part series about how companies gain competitive advantage by creating real differentiation in the marketplace, how advantage is lost, and what must be done to get it back.)
I have a Macbook Pro, an iPad, an iPhone, and an iPod (which I don’t even use anymore). A little while back I bought a (very) small amount of stock in Apple (aapl). Thanks to great performance and a recovering economy, it’s now up over 110%. Wish I had invested more. And if I had any money 35 years ago and could have invested in Oscar Mayer, I would have experienced relatively high performance results then, too. But high performance like Apple’s and Oscar’s doesn’t last forever. The Black Hole pulls everyone in.
As mentioned in Part 1, Oscar Mayer had distinctive advantages in the design of the business that produced real differentiation in the marketplace thirty-five years ago: product quality systems, packaging, proprietary manufacturing technologies, a national sales force, and industry-leading marketing, for example. But four ‘C’ forces, two external and two internal, pulled Oscar Mayer inexorably toward “The Black Hole of Indifference”.
1. Consumers – Over time, features and benefits that initially delight consumers become expected and routine. Differentiators become subtle. Switching increases. (E.g., 60 years ago, Oscar Mayer hotdogs were differentiated by putting a simple yellow band around the links but that’s certainly not sufficient today.)
2. Competitors – Category participants copy, create new internal capabilities, add new features and benefits, and fund switching costs to attract consumers. (E.g., Oscar’s competitors invested in efficient production technologies and in some product categories sold 60% or more on promotion.)
3. Capabilities – What was once proprietary and advantaged becomes commonplace and insufficient to hold onto competitive advantages. (E.g., Oscar’s advantages in proprietary manufacturing technologies, packaging superiority, national distribution systems and industry-leading trade management virtually disappeared.)
4. Culture – Shared values, experiences, and underlying assumptions that drive behaviors leading to success are reinforced and become firmly embedded in the culture and subcultures and create invisible barriers to change later on. (E.g., At Oscar, adapting to meet new price points or responding to consumer trends in health led to subculture battles: marketers vs. “guardians of quality”.)
Of course, this takes place slowly in companies and there’s a lot of debate about what’s cause and what’s effect. Regardless, products, services, capabilities and cultures are drawn inexorably toward the Black Hole of Indifference. It happened to Oscar Mayer and it’s happening now to Apple. At this year’s consumer electronics show, you could see tablets that compete with iPad, smart phones that compete with iPhone, and media players that compete with iPod Touch from competitors like Samsung, Google, and Motorola (Apple wasn’t there).
So how do companies escape the pull of the Black Hole? As you already know, there is no single or easy answer. But there are strategies and a “fuel” for high performance. That’s the subject of Part 3.