Thread by @MarcellusInvest

Continuing our book recos on how companies can build competitive advantages for the digital age, this time around our Marcellus Book of the Month is ‘Rethinking Competitive Advantage: New Rules for the Digital Age’ by Ram Charan & Geri Willigan.

#MarcellusBOTM

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Competitive advantages have been traditionally built around controlled distribution channels, hard assets at scale, on established brands or patents. These are being challenged by new age companies. What are the new rules of the game that traditional companies must adopt?

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Rule #1: Personalize the consumer experience. Today’s leaders are so laser focused on the consumer that they can create a 100x market that doesn’t exist! They combine pieces of existing industries which the end consumer can’t connect by herself. Eg. Steve Jobs & the iPhone
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Rule #2: Algorithms and data are essential weapons. Having a digital platform is not a competitive advantage, but not having one is a big disadvantage. It is a set of algorithms which collect & analyse data. A digital platform is what fuses an ecosystem together...

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... the advantages a digital platform provides is dynamic pricing & detection of consumer behaviour patterns, which can be used for creating new biz models with almost no additional customer acquisition costs. Eg. Amazon’s multiple revenue sources from the same platform

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Rule #3: A company does not compete, its ecosystem does: Competitive advantage comes from focusing on how the ecosystem can improve customer experience, cut out intermediaries to lower cost, and share data, tech, & financial resources to help the ecosystem grow...

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... a well-conceived ecosystem creates a network effect which leads to exponential growth. On Amazon, it’s the 3rd party sellers who fight for the consumer, through higher ad spends or lower pricing. Amazon makes money irrespective of which 3rd party seller gets the order

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Rule #4: Moneymaking is geared for huge cash generation. Aggressive financial backing is necessary to forge ahead at a pace faster than underfunded competitors. These companies focus exclusively on Revenue Growth & Gross Margins rather than the traditional metric of EPS...

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...These companies pass on scale benefits to the end consumer which leads to increased loyalty + more consumers. The “law of increasing returns” then plays out, leading to non-linear “S-curve” growth. This cashflow is rapidly deployed to create further “S-curves”...

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...Capital allocation is agile & losses are cut quickly in unprofitable experiments for reallocation to profitable businesses. Another differentiating factor is that the opex like employee costs, R&D and ad spends to acquire customers is akin to capex for these companies

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Rule #5: Teams, instead of Organizational Layers. Digital companies have flat organizations, high-quality & high-velocity decision making, continuous innovation, superb execution, and a laser focus on aligning company’s efforts with serving the customer better

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Rule #6: Leaders who create what’s next. Digital leaders are motivated to create something new, are hungry for what’s next, constantly improving & experimenting, not afraid to cannibalize themselves and constantly create new Minimum Viable Products.

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See related #MarcellusBOTM:
The Brains & Brawn Company

https://twitter.com/MarcellusInvest/status/1467083162463260677

The Platform Delusion

https://twitter.com/MarcellusInvest/status/1490201526073425920

Competing in the Age of AI

https://twitter.com/MarcellusInvest/status/1401164669780303874

Buy "Rethinking Competitive Advantage" at a store near you today!

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