Today’s competitive environment is no longer about simply being successful in an isolated part of the market. Companies who dominate today’s competitive landscape are no longer attempting to squeeze margin from inside of an isolated market segment. Instead, they now extend their scope from products to ecosystems.
The focus today is one of competition across different markets. To do this successfully, companies need to use a “carrot and stick” approach. Essentially, firms locate key areas of strategic control, obtain capabilities in these areas, and utilize competitive tactics to not only extract margins in one part of the market, but also leverage them in other markets.
In the carrot and stick strategy, the “stick” is a part of a market that, if controlled by one party, can be leveraged for higher margins. Such strategic control points are a common theme of successful companies today. The “carrot” refers to the concept of aligning the incentives of both buyers and suppliers. Control and influence of incentives are essential to managing and running businesses today.
Consider these few of the many sources of strategic control.
1. Distribution/access. Distribution is perhaps one of the most common sources of strategic control; lock up distribution and it can be exceedingly difficult for someone else to gain access to the market. It is also an area ripe for disruption.
The identification of strategies for overcoming a rival’s distribution-based point of strategic control can often be the difference between success and failure in many industries today.
2. Information -- hardware/software. In today’s interconnected world, the control of information is often an important point of strategic control. There is a battle raging to “own” our internet connections. Whatever company owns the data coming off a device (e.g., a smartphone, router or interconnected machines on a factory floor) will own a huge point of strategic control in future competitive value chains — within and across industries.
The company that “owns” your connection also has access to the information coming off of you, such as what you do, where you are, how you drive, what you buy, how often you move and what views you assert. The possibility of leveraging this information via relationships with insurance companies, healthcare providers, plumbers and service technicians and more is almost limitless.
3. Key manufacturing component. Retailing is intensely competitive with requirements to get on the shelves (“slotting allowance”) and performance guarantees (“failure fees”) once on the shelves — both tough barriers to overcome for a small manufacturer that could potentially face overwhelming competition. Some companies need a 10- to 12-month head start to build up enough of a brand presence and shelf space allocation to maintain at least a one-third market share once the “big boys” entered.
Utilization of strategic control points and aligned incentives — in concert — can provide unique competitive advantages for you and your organization. Firms who utilize these two key principles will continually outperform firms who don’t.