Competing in the Digital Economy

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By Ade McCormack,Digital Strategist

This article is by Featured Blogger Ade McCormack from his LinkedIn page.

 

Peter Thiel, cofounder of PayPal and author of Zero to One, encourages organisations to steer clear of competition, what with its corrosive impact on margin.

The trouble is there is safety in numbers. It would appear to make more sense to open a new restaurant in a well-established restaurant district, than take a chance on being the only eatery on the block.

The compromise is to join the pack, but be unique. So for example, your restaurant offers a type of cuisine currently unavailable amongst your collocated rivals. So as well as attracting niche diners you might acquire some unfocused ‘plankton diners’ from the hordes descending on the restaurant district. And isn't it better to have a small slice of a big cake than etc etc.

The problem is that such incremental innovation, at best, delivers incremental margins. And in mature industries this has more or less been done to the point that it is almost impossible to see a difference.  The automobile industry being a case in point.

The trick in these mature industries was for the players to convince the buyers that their product conferred benefits that their rivals’ products could not, eg. enhanced social status. But the next generation of consumers are becoming increasingly conscious of such manipulation and do not buy the price hike / illusion correlation of previous generations.

Thus if we are to stand out, it is time for radical innovation. Accepting that any advantage you have today, might at best be thought of as a temporary monopoly, you might choose to open a restaurant that offers a programme of visiting chefs covering the gamut of eating options. Much the same way that nightclubs recognised that the DJ is the primary attraction, not the venue. So securing a programme of the best DJs become the differentiator.

Coming back to the restaurant idea. You might argue that once you have secured the best chef in your chosen cuisine you can sit back and watch the profits roll in. But the best chefs, DJs, technical architects, surgeons and writers know their value and do not need the security of a permanent gig.

So building your business around superstars is key. But the important question is not so much whether you can attract the superstars, but whether your business model can adapt to the reality that it is only a matter of time before they will be gigging for your competition.

Originally published on LinkedIn