Don't Follow the Leader- A Different Path to Success

by Peter Duncan

The conference room was quiet as the year end financials were passed around the room. Glancing at the numbers confirmed what many had feared; another mediocre year. Revenues were slightly up and profits considerably down. How could that be? Everyone had worked hard. The team had begun the year with energy and bravado, with a plan to make vast strides at closing the gap on the industry leader. But twelve months later reports were in that the industry had had a good year with significant increases in revenue and profits for the leading firms.

"Where do you think we rank in our market?" the CEO prodded.

"Can’t be better than 5^th or 6^th," answered a glum VP of Marketing.

"Well, that will never do…so what are we going to improve?" challenged the CEO.

"The competition is winning with a better product at the same price, said the Sales Manager. "We'll have to improve our quality and match their service or lower our price if we want to take share."

"Is operations up to the task?" asked the sharp witted CFO.

"We'll give it our best," replied the VP of Operations. "As long as the competition doesn't improve too much we ought to be able to close the gap with a few capital improvements. But then sales has to sell what we make. No more excuses."

"Well, we are going to need to add a few field engineers and upgrade the marketing materials, if we really want to match the leaders", the VP of Sales chimed in.

"Now wait a minute," the CFO interrupts. "Our profit margins are already too low and these costs will just push them down more… this plan is heading the wrong way."

"So what's the alternative?", the Sales Manager asked. "Do we sit back and loose more ground? We need a full press to catch up to the competition. We've been slipping for years and we either invest to reverse that trend or go out of business."

"Okay, I've heard enough", said the CEO. I want each of you to put together a plan by next Friday to improve your department so we are better than our rivals. We'll work the profitability issues in the budget, but for now I need each of you to give me a realistic plan to become the best in the industry. We will accept nothing less than 'excellence in execution' from all departments. Within three years we need to be the best in our industry."

Ever heard a conversation like that? Do you think this company will substantially improve its position over the coming years? If they have a boat load of cash and other resources they might have a shot at catching up. But what is too often overlooked is that the competitors are not standing still. Each hears the pounding of the others chasing them, and so urges their team on to greater achievements. It is only a conceited team that assumes that their rivals are incompetent or blind to the need to continuously improve. In today's competitive world, striving for and realizing substantial improvement is only table stakes in the survival game.

When Southwest Airlines entered the East Coast markets in the mid- 1990's many incumbent airlines felt the heat of competition. First Continental, then US Airways tried to copy Southwest's low cost approach to air travel. For a while they were able to blunt Southwest's advances and keep them out of a few markets. Continental tried to offer "lite" service on routes that competed with Southwest. The service was not much different from regular Continental flights, but they sold it at a lower price point. With much higher costs than Southwest, it only took Continental a few months to realize they were gaining almost no share to spread their costs and losing a ton of money. Continental threw in the towel in less than a year. US Airways then tried a "smarter" approach, "Metrojet". But they also failed to capture the substance or the low cost position of Southwest. Like Continental, Metrojet failed to close the gap on Southwest and was discontinued after about 24 months.

While it is certainly possible to catch an industry leader, it is in practice very difficult. Year after year companies "in the pack" try to break out with grand intentions to overtake the leaders in their industry by playing the same game that worked for the leaders. AMD has been trying very hard to catch Intel for almost two decades. Each time AMD gets close they discover that Intel has also been working on advances that sustain Intel's leadership. Only when Intel stumbles (a fairly infrequent event) does the gap close in a sustainable way.

There really is nothing wrong with trying harder to catch a leader. It is a very human response to mimic success. And if you are in a very distant position (perhaps a start-up or a battered turn-around), then you may be able to make up substantial ground following the leaders for a while. At some point, however, that strategy is likely to reach diminishing returns. Everyone needs to be continuously improving, but honing skills that have made the leader great merely keeps us in the game, it is not a strategy for vaulting into a winning position.

A "market", whether industrial, not-for-profit or consumer, is made up of a variety of buyers with different needs and preferences. The market leader has, by definition of leadership, figured out an offering that will attract a dominant share of those in their market. If we were able to duplicate all aspects of the leader's offering, the best we could expect is to dent their market share as some percentage of indifferent buyers would remain loyal to the first in the market. At the worst we could force customers to choose between identical offerings on price, turning the market into a commodity market where only the lowest cost competitor can prosper after a bruising battle to consolidate the market.

Long distance telephone service was a good business until MCI tried to copy AT&T's national network and launch a price war for market share. The personal computer market is fraught with tales of "me too" machines offered at a lower price in a vain attempt to secure enough volume to make a profitable business. It is very common for the leadership to look around at successful companies in their industry and set as their goal to be better than the industry leader. A regional bank might aspire to be better than Citicorp. American Airlines seeks to be outgun United. You might aspire for your company to top the list in its industry.

There is nothing wrong with a goal to be "better" as long as you can really deliver on something that makes a difference. You need to have substantially lower total costs, or a whole new technology, or a completely new sales channel or something else that changes the value equation in your market. In too many cases, however, the challenging company is not better and has no realistic plan to be better than the leader. The aspiration to be superior translates into a plan to merely attempt to match the rival on all dimensions.

Being "better" means changing the value equation- offering more at the same price or offering the same at a lower price. Either way you are appealing to customers looking for a superior value. These customers will only stick with you as long as they believe they are getting the best deal. If you don't have the sharpest value offering, they'll be off to whoever they perceive has it. The only way to retain these fickle customers and grow to a dominant share is to offer what is perceived as clearly as the "best deal" bar none. This often requires the lowest cost position and a passion for relentlessly driving to ever lower cost.

Having established its market position and lowest cost operations in rural America, Wal-Mart has been able to utilize its substantial advantage to successfully attack suburban markets and grind down market share of incumbents Sears and K-Mart in a two decade long battle. There are few businesses that have such a substantial cost advantage and have sufficiently deep resources to open about a hundred stores a year in a relentless campaign to better the competition at their own game over nearly twenty years.

We could aspire to be better than our competitors. But, as we have seen, that is very resource intensive and fraught with failure as most market leaders (those we hope to beat) are continuously improving themselves. Or we could try to be different.

Being different is not easy- it requires extreme creativity. It feels "risky" because it is likely not to have been done before. Being different does not mean you have to be eccentric or brash. It is all about seeing what the market leaders are doing and finding some other way to attract their buyers to your offering. This is the essence of sound strategic thinking. If you are not making choices, frequently tough choices, you are probably not crafting a successful strategy.

Being different does two things for you. First, it leads you away from the temptation to expend vast resources to duplicate those of the leader. Second, by selecting a different position, you can potentially select an area that plays to your strengths (not your competitors' strengths) and gives real possibilities for you to become the best in the world (which after all is what you wanted any way). Finding a way to be unique in a market can allow you to create a dominant position or possibly a "virtual monopoly" - either of which is usually a recipe for strong profitability.

So who is breaking out with a "different" approach to their market?

Let's go back to the airlines. Alaska Airlines didn't aspire to be the best airline in the whole industry (as so many of its competitors did). It simply wanted to be the "best airline for Alaskans". That simple twist, made all the difference in how it approached business. It's routes, its schedule, its operations, and its service all had to be valuable to Alaskans. Following from that simple statement Alaska Airlines grew from a few planes to be the dominant carrier for travel from Alaska.

If you wanted to start an airline for the high demand New York to Florida routes, how would you do it? Would you copy American Airlines? Would you copy Southwest? No, you'd do something different. You'd create JetBlue to carve out a dominant position from day one in the premium market on those routes- new planes, leather seats, 24 channels of DirectTV for every passenger and high quality service. JetBlue's premium service is priced at about 15-30% over Southwest and 50% under American. According to their own marketing materials, "JetBlue offers a different kind of air travel experience."

It is not only well known companies that win by following a different path to success. Small and mid-sized companies following Simplified Strategic Planning have also found dramatic success. A small machine shop came to recognize that they didn't just machine parts, but that they could be the leader in machining "hard to handle" metals like titanium. A furniture company stopped trying to chase the big brands with a full product line. By focusing on one style category where they had clear superiority, they went from being one of many full line suppliers to the retail dealers, to being a "must have" line for any upper end furniture dealer. A courier company abandoned the crowded "rush" market and avoided direct competition with UPS and FedEx by becoming the leader in customized "time-specific" logistics services.

In each case, a company chose not to follow the leader. They looked at their situation and defined a space in which they could be the winner. The goal of strategic thinking is to develop a simple clear image of where you can in fact be different from anyone else and in that difference achieve position as best in world.

Finding a unique concept for your business is a creative process. It is unlikely that it will come in an instant and it is unlikely that one person can develop the idea alone. It emerges from a cauldron of debate and discussion- sometimes in months, but often in years. You need to generate a set of possibilities and weigh each carefully to select the one that gives you the best chance for success. It should be a stretch for the business, but not a wild dream we hope to achieve. It needs to be grounded in the realistic probability that over time we can become the world leader as defined by our unique proposition.

This task is best approached with a small team-the best 6-12 strategic thinkers in the company. This should be a diverse team of leaders. To heighten the creativity, you want diversity of function, and you want a variety of thinking styles (e.g. left and right brain). Plan to meet for short periods at regular intervals.

Begin by addressing the following key strategic questions:

What do our customers want to buy from us? What can we offer that they can't get elsewhere? Demand specific answers. The responses have to be more than "convenience", "quality" or "service"- doesn’t everyone claim to offer those? For example, what do you mean by quality? For Mont Blanc it means a high fashion, gold tipped writing instrument. For Bic it means consistent writing for millions of pens at for a low price. Both compete on quality, but it means something very different in each case.

Who should be our customer? The more broadly you define "what" you will sell, the more tightly you must define "who" you will sell it too in order to have a coherent focus for the business.

What one or two capabilities should we build to bring great value to our customers and distinguish us from our competitors? These capabilities should be tightly defined so that we have a realistic probability of being among the best in the world to offer them.

From the answers to these questions move a simple, clear statement (no more than a phrase or sentence) that defines the unique proposition for the business. It should be specific, attainable and drive excitement and economic results in the business. Strive for consensus, without compromise.

Dare to take a bold stand, and then try to live it for several months. The team should evaluate the consequences of the selected strategy over time to reinforce or refute the concept. Keep working the vision. There may never be a time, except in hind site, that the team feels they arrived at the final concept.

Which do you want to be, better or different? Most want to be better, but what are your odds? Can you really be best in the world? Too often companies look at other firms in their industry and seek to be "just like them, only better". This is a common pitfall that traps many companies into mediocrity as they strive to win by charging head on into competitors strengths. If you choose to be different, you are also likely to be "better" as you can choose a focus that eliminates competition and favors your strengths. And it costs you nothing, but the time to make the decision. The most successful strategies find some way to be different. Everyone can do it, if they just take the time to craft a simple, clear vision.

… The sun was setting as the solemn faced executives rose to return to their departments to search for yet another way to improve the operation and catch the industry leaders.

"Wait a minute," the VP of Marketing commanded. "What is this the 4^th ? 5^th ? 6^th year we have tried to catch the industry leaders by trying to out perform them at their own game? I may have only been here a year, but I'm already tired of doing the same thing and expecting a new result. We need a different plan."

"So what do you suggest?" asked the CEO.

"We need a small group to take a fresh look at what we do and who we are trying to sell. We need to lead this company to a new vision." With rising energy, the VP of Marketing went on. "We need to define a simple, clear concept of what this company will do that gives it a realistic shot at being number one, that will drive economic profits and that will charge this group with excitement."

The CEO looked around at the team frozen in place. "You know, I think you're right. We are stuck in a rut. Tomorrow morning we'll begin to craft a new vision for this organization- bring your most creative and unique ideas. I'll see you then."

Peter Duncan is a consultant with Center for Simplified Strategic Planning, Inc.

Peter can be reached via e-mail at duncan@cssp.com

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