Differentiate in the market place

Differentiation is the essence of strategy, the prime source of competitive advantage. You earn money not just by performing a valuable task but by being different from your competitors in a manner that lets you serve your core customers better and more profitably

The sharper your differentiation, the greater your advantage. Consider Tetra Pak, a company that in 2010 sold more than 150 billion packages in 170 markets around the world. Tetra Pak’s carton packages extend the shelf life of products and eliminate the need for refrigeration. The shapes they take—squares and pyramids, for example—stack more efficiently in trucks and on shelves than most cans or bottles. The packaging machines that use the company’s unique laminated material lend themselves to high-volume dairy operations. These three features set Tetra Pak well apart from its competitors and allow it to produce a package that more than compensates for its cost.

All successful companies have this kind of well-defined and easily understood differentiation at the center of their strategy. Nike’s differentiation resides in the power of its brand, the company’s relationships with top athletes, and its signature performance-focused product design. Singapore Air’s differentiation comes from its unique ways of providing premium service at a reasonable cost on long-haul business flights. Apple’s differentiation consists of deep capabilities in writing easy-to-use software, the integrated iTunes system, and a simplicity of design and product lines.

You can find high performers like these in most industries. The cold truth about hot markets is this: Over the long run, a company’s strategic differentiation and execution matter far more to its performance.

But differentiation tends to wear with age, and not just because competitors try hard to undermine or replicate it. Often the real problem is internal: The growth generated by successful differentiation begets complexity, and a complex company tends to forget what it’s good at. Products proliferate. Acquisitions take it far from its core. Frontline employees, more and more distant from the CEO’s office, lose their sense of the company’s strategic priorities. A lack of consistency kills economies of scale and retards the company’s ability to learn.

The entire last week was spent in sales reviews, forecast meetings and building a new business model for a new market, where the thought process was to differentiate in the market place.

The outcome of that thought process is this article...