We all spend an inordinate amount of time, dreaming up ways to get more customers, close more sales, make more money… OK, I do, anyway. This creation of competitive advantage is vital. Of course, protecting that competitive advantage is the other side of the game. Even football has both offense and defense. I hear that tennis does too. OK, for those who hate sports analogies, entering your crochet and your prize cow in the fair has both offense and defense. Well, I suspect it does… Fine, dating has both…
Barriers to Entry
One of those defensive competitive techniques is to put up barriers preventing others from entering into competition to you. They tell me this is called competitive “barriers to entry”. If you are in mining, for instance, holding the leases on large tracts of highly attractive exploration real estate is a barrier to others interested in mining the same area. McDonalds offers their product so cheaply that it is difficult for other potential competitors to enter into competition with them – their price is a barrier to entry. Of course, you might consider adopting a competitive strategy based on perceived quality, but we can argue that another day.
What if your product includes some component of intellectual asset? Suppose you make furniture, and your designs are highly regarded – those designs are a barrier to entry for others. Perhaps your furniture uses a special fastening system that makes it possible to ship the product “knocked down” for assembly by the consumer. That fastening system is intellectual, and its use in the products needs special design considerations that are supported by your CAD designing software, using some form of lisp programming. These IT assets are a component of your competitive advantage. If your manual design skills used in designing your furniture are suddenly available in some piece of software, then, why anyone – even the consumer at home - can suddenly replace your skills. Sound a little contrived? Look into the design platforms for sailboat hulls – suddenly this design skill is available to most anyone.
IT can reduce Barriers to Entry
So, one last source of IT risk that is all too often overlooked. IT has an uncomfortable habit of making key skills or competitive assets available to other businesses. Lets discuss, for a really clear example of this, the tax preparation business. You are a trained and credentialed accountant who does a great deal of tax preparation work, and made a good living from this over the years. About ten years ago, some people in Seattle (just suppose) decided to go into competition with you, but you didn’t know it. They developed and marketed a piece of software that assisted in tax preparation, and began selling it to consumers. Over a period of five years, you found that a lot of your clients began doing their own tax preparation, because the help and advice incorporated in the tax software made you replaceable. In effect, IT took away a big component of your competitive advantage – training and expertise. Sure you still have clients whose requirements exceed the software capability, and yes, you yourself have experienced productivity gains from the software – nevertheless, you have lost business!
Fact remains, you were protected for years by a barrier to entry – expertise. To a large segment of the potential market for your services, that barrier has been lost. IT has an unpleasant habit of doing such things.
This is true to a degree for many forms of intellectual work – studio recording, landscape design, accounting, publishing, and printing. Marketing, advertising, public relations, purchasing, logistics – all have been dramatically effected by IT.
Have you taken some steps to protect yourself from this potential threat?
Bear in Mind –
- Make your IT commitments on a tight time window
- Preserve your flexibility
- Protect your competitive advantage
Question for You
Anyone experienced the “You can be replaced” by a machine syndrome? I hear that it is a new DSM X entry proposal for psycho-therapeutic intervention!
3 Comments
Hmm…this reminds me of a story I was telling you about with the rise of accounting software Pilot. Fortunately, for a lot of people, sending your books off to an accountant is much more trustworthy/safe and reliable.
For a corporation or business that is obliged to keep well-maintained books, yes. Getting professional help is likely the best choice. What I was talking about in the post PennyLost, was the fact that IT innovations (namely personal tax software) have eaten into your market share as an accountant. I use tax software for my taxes and as the post pointed out, it’s straightforward enough that it can in some scenarios replace your expertise.
I’d say one of the best examples of IT affecting competition in other markets was the rise of the MP3 players and music as a file rather than an LP or a CD. Consider that before iPods and other MP3 players, Sony had a stone cold lock on the portable music player market and there were huge barriers to entry into that market for any other electronics company. When MP3s became commonplace and technology made music exist on your hard drive rather than your cd collection, Apple and other technology firms jumped on it and Apple has made billions off the iPod. A few years ago, I was asking one of my nephews what he wanted for his birthday. I was expecting him to say a Sony Walkman or something like that, instead he tells me about the iPod. I remember buying a Walkman for my children and thinking it was pretty cool (a stereo you could put in your pocket!), but then an entire music library you could put in your pocket?
IT and IT innovations, to me are both a blessing and a curse for most businesses. They can help you compete or make you more productive in ways or areas you thought impossible or unlikely, or a new innovation can render your entire business obsolete!
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