SNw 002 Measuring Competitive Performance Created by James on 6/13/2013 2:40:06 PM
Competitive advantage is something that is determined by customers.
It is sometimes (inexactly) measured by bottom line performance.
In reality it is determined by non-tangible "gut" issues and must frequently be discovered
How does one go about measuring competitiveness?
Recap
In the last issue I outlined some key considerations in terms of the global economy and outlined a method for determining critical factors.
In particular, it was noted that the World Competitiveness Report had highlighted market focussed strategy, utilization of the human resource and effective management decision making as critical issues and it was mentioned that all three of these areas could be enhanced by effective use of information technology.
In this issue I take these items further and examine what is required in order to measure competitive performance.
Financial Performance is a Proxy for Value
The ultimate measure of competitive performance for many organizations is the financial bottom line -- if there are greater financial volumes and greater margins this is taken as an indicator of competitive performance.
Is this an accurate assumption?
At times it may be but in many cases financial performance is a proxy for measuring real competitiveness. True measures of competitiveness offer the potential to generate much greater financial performance if well understood and measured.
In other cases, such as Government and not for profit organizations generally, financial performance is not a relevant measure at all, even though it may be viewed as one of the most important performance measures available.
Other hard measures may also be taken as measures of competitive performance and, again, may indeed be good indicators of performance by current standards.
However, I would like to suggest that the hard measures are mostly poor proxies for true competitive performance.
Why do I say this?
The "Irrational Buying Experience"
I am sure that you have had the experience of going out to buy some significant capital item such as a house, car Hi-Fi, TV, etc and ending up purchasing something that did not conform particularly well to a carefully thought out list of what you were looking for?
The music, travel, art and "spiritual" industries are examples where people spend huge amounts of cash on non-tangible benefits -- benefits which a hard financially based analysis would indicate as being "irrational". This supports the assertion that much of what people do, although nominally based on hard criteria is, in fact, based on soft "gut" criteria.
That this is so is further evidenced by the soft, frequently emotive, "touchy feely" content of much advertising and marketing material, even for relatively hard, unglamorous and theoretically undifferentiated product.
Soft Issues Drive Hard Consequences
Relationship, trust and personal credibility are frequently criteria that drive buying decisions, including decisions contrary to hard parameters.
Other soft measures if closely analysed may also be found to be measures of competitive performance.
Given that much, and in many cases most corporate performance measurement is driven by hard measurements, the above conclusion challenges many of the beliefs about how investments in information technology pay for themselves.
The Harsh Reality of I.T. Investment Failure
The harsh reality is that 70% of I.T. investments fail totally and a further 20% fail to meet expectations.
The Financial Mail reports that "19 out of 20 E.R.P. implementations fail to deliver what was promised".
Eliyahum M Goldratt in his book "Necessary but not sufficient" suggests that historically very few E.R.P. implementations have translated into business outcomes that are positively measureable on the bottom line.
How does one respond to this conclusion?
A Key Opportunity
One option is to ignore this reality. Another is to recognize these findings as a KEY OPPORTUNITY for creating competitive advantage that generates tangible bottom line benefit.
If one can measure competitive advantage at the "gut " level rather than at the hard level then I would like to suggest to you that you are well on the way to measuring true competitive performance.
The sections that follow give some headline introduction to an approach to measuring the soft side of competitive performance which will be discussed further in subsequent issues of StratNews.
Technology is Value Inert
In considering the method remember that ONLY human beings create and destroy value and technology is value inert -- a gun is not good or bad of itself, the value one ascribes to it is dependent on the value you ascribe to the person who is holding it and the person it is pointed at. A gun is bad if pointed at you, good if pointed at someone you regard as bad.
Information technology is the same -- its value is determined by the people who use it NOT by the technology itself.
Measuring Soft Performance
Once the principle that value is intrinsically soft and "gut" not hard and technological has been recognized and integrated into one's thinking then one can start developing measures of soft performance and correlating them with the hard measures in order to develop a true measure of competitive performance.
Measures of soft performance include:
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Customer and market critical success factors -- why your customers REALLY buy from you
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Alienators -- what your organization does that drives customers away
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Shareholder / owner critical success factors -- why owners and investors REALLY invest
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Employee critical success factors -- what generates loyalty, enthusiasm, initiative, etc amongst employees?
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Supplier critical success factors -- what engenders loyalty and willingness to go the extra mile in suppliers?
Some Traps to Avoid
In considering these factors and others which may apply, there are some fundamental traps to look out for. For example, a person purchasing a drill is not purchasing a drill but holes accurately and reliably formed. A patient at a medical facility is not purchasing professionalism or hygiene but HEALTH -- an inner conviction that the practitioner and facility will to the right things to bring about healing as quickly and effectively as possible.
Identifying these hidden values is an essential part of establishing what it is that really gives rise to a solid perception of value that will result in improved competitive position.
Strategy is NOT Invented
In this context it is important to recognize that strategy is NOT invented, frequently it is an intuitive discovery of a fundamental human response to a given competitive offer.
Accordingly, measurement of competitive performance requires a "voyage of discovery" -- the identification of the fundamental factors that cause customers to buy or not buy.
These factors are the factors that should be measured in order to establish and enhance competitive performance.
How To Measure Competitive Performance
In the next issue I propose to outline a method based on the method that I outlined in the previous issue whereby the above mentioned soft issues can be measured, captured on computer, correlated with hard measures and used to statistically evaluate areas of improvement and strengths to replicate.
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