Here's a way to figure out the strengths of your big-company competitors -- and how you can beat them at their own game
You always hear about the natural advantages of big companies. But let me assure you, in my world -- the world of big-company consulting -- the Goliaths I work with think it's the Davids who are winning the battles. They feel you nipping at their ankles. That's not to say the big companies don't have advantages. Of course they do. One is scale -- they're big. The other is resources -- they're rich. But I honestly believe that small companies have natural advantages, too. And that while there's no place you can run to hide from big companies, if you can figure out your own leverage points, you can win.
Over the past seven years my colleague Fred Wiersema and I, with the consulting firm CSC Index and the research organization CSC Alliance, have studied 80 companies to learn more about the characteristics of market leaders. What we've found is this: three distinct types of companies emerge as leaders, and what distinguishes them is how they've chosen to serve their customers. That choice has shaped every subsequent plan and decision the companies have made. The choice colors the entire organization.
Let me run briefly through the three successful orientations to the market -- three value disciplines -- that we've identified, and then we'll take a look at the natural advantages of big and small companies within that framework.
The first type of market leaders are focused on operational excellence. Those are the companies that, like Wal-Mart, are dedicated to providing low prices or, like Federal Express, concentrate on hassle-free service. The second kind of market leaders are companies that zero in on product leadership. They're companies like Intel and Nike that offer the best products in their markets and, through innovation, stay on top of product lines year after year. The third kind of companies that rise to the top star in what we call customer intimacy. Such companies promise to provide the best solution to whatever the customers' problems may be. They understand that the best product or the best price isn't the best value if the customer is unable to use the product effectively. Those companies live the customers' problems. Because of their close relationships, in fact, they are often the only ones in a position to recognize their customers' needs. Airborne Express and Nordstrom are good examples.
Does that mean that if your company focuses on customer intimacy, you can ignore operational efficiencies and product quality? Not by a long shot; you have to maintain a competitive threshold in the other two areas. But no company can succeed today by being all things to all people. Instead, the market leaders have organized themselves to achieve outstanding performance in only one area while remaining competitive in the other two.
There are a couple of general rules for companies going up against the market leaders. One is about how to survive. The other is about how to thrive.
The survival rule is this: If a large company is committed to providing unmatched value of a particular kind, to one of the three value disciplines, get out of its way. Pick one of the other two. If the large corporation is well managed, it will get what it wants. But it can't excel at all three. Focus on a different type of value. If the big competitor is driven by low prices, pick hassle-free service or product innovation, or offer a total solution to the customers' broader problems. To survive, you must focus on and innovate in a different type of value.
If I owned a stationery store, for example, I think I could sustain it in the face of an Office Depot's moving in, but I wouldn't compete on price. I wouldn't have to beat the superstore on price, but I'd have to stay close. What I could do is identify the 20 or 30 core items that are most price sensitive -- copier paper, notepads, and so on -- and always keep them within close range of Office Depot's prices. Even if I had to buy them at Office Depot, it would be worth it because I'd be going into a different type of business.
My store would become customer intimate. We'd become the one-stop total solution for all the equipment and supplies needs of a midsize office. No longer would my customers have to go to Office Depot. We'd take over the supply cabinet and keep it permanently replenished. We'd assess the kinds of supplies the office was using and recommend better products to improve its image and efficiency. We'd link up with low-cost dealers in office furniture, copiers, and coffee service, and take responsibility for administering their services. With us as their supplier, our customers wouldn't need someone at their company to deal with those issues.
If you are already surviving, the critical question is how you can thrive in the midst of big-company market leaders. The rule for thriving: Look at the natural advantages of big companies and those of small companies to see where your leverage points are for each of the value disciplines. The fact is, we're not talking about a battle of unequals here; we're talking about a battle of differences and how to play them to your advantage.
Let's start with operational excellence. Say you've chosen that value discipline to get out of the big guy's way. Now you must excel. Good isn't good enough. You must be outstanding in price or hassle-free service to attract customers away from the large competitor's best product or total solution. Keep your operation supersimple. Strive for zero overhead. Use absolutely no-frills assets. Buy used equipment; find the better real estate deal. Invent the next generation of efficient operations -- you can't afford to mimic the big guys. Large companies leverage their scale and information systems, but they get all tangled up in expensive bureaucratic organizations. Your advantage is your outlook: "Keep it simple, stupid!"
What if your goal is to use product leadership to beat a large competitor's offering of a better price or a total solution? There is no way you can afford the elaborate research and development large companies can, nor their larger-than-life product launches. But you can create advantages here as well. Focus on a high-profit niche. Live with the users to better understand their product needs. Attack product development with total commitment and focus. Move at blinding speed. The big company, with all its resources and prowess, simply can't move that fast. Remember, you don't want all your competitors' customers, just the profitable ones.
If you are using customer intimacy to battle an operational-excellence player like Office Depot or a product leader like Starbucks, you have the home-court advantage. Big companies have huge difficulty being customer intimate, because it means crafting different solutions for each client. Big corporations are flexibility challenged. Also, the goal of a customer-intimate company is to take over responsibility for some part of the customers' operation. That often requires your top management to act as the key salespeople. Those of you who own and run your companies probably make sales regularly. In large companies selling is often an unnatural act for people at the top.
So don't listen to the stories about the wealthy Goliaths bludgeoning the poor, defenseless small Davids. That's not how the story goes. Small growing companies that stay out of the path of the focused market leaders, choose another value discipline, and leverage their natural strengths to deliver unprecedented value to their chosen customers will beat Goliath every time.
Michael Treacy is president of Treacy & Co., based in Cambridge, Mass. He is coauthor, along with Fred Wiersema, of The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Market (Addison-Wesley Publishing Co., 1995).