Article The Strategy Accelerator - Which businessmodels and strategies are valid in the internet age?

The strategy accelerator
Strategies for sustainable competitive advantage

Alfred Griffioen

Abstract:
There are a limited number of models that give
direction on how to achieve competitive advantage,
and all focus on differentiators or on portfolio
management. However, these models do not take into
account the increasing availability of all kinds of
knowledge through the Internet and the globalisation
of the financial markets. This article investigates how
a company can make an above-average profit in the
current market. It proposes a directive framework
based on market relevancy and on whether the
company has a unique product. Based on these
parameters, a company should either consolidate its
position, aim to excel further in its products,
effectively combine products, or ally with another
company to differentiate or profile itself more.

Introduction

The question ‘how to be successful in the market’ is among the most relevant for
business economics, but only a few researchers and authors have formulated
directive rather than descriptive answers. A better direction can be found in basic
economy teachings: If you can differentiate yourself from your competitors, you
have a sort of monopoly. In a monopoly you can choose your own price and
quantity optimum on the demand curve. As soon as you encounter competitors, the
power shifts to the customer: the price is set by the market and you can only follow.
The only way to outperform your competitors is through differentiation.

Especially in the early life cycle phases of a new product or business model,
profitability will be higher due to the fact that there are few competitors. In the
development phase, turnover will be limited and clients need to be persuaded of the
usefulness of the product or service. In the acceptance phase turnover increases,
but it is still possible to sell the product at a premium price. Eventually this price
premium will erode.

Profitability

market average

0

Development Acceptance Generalisation Decline

Figure 1. Profitability in the different life cycle phases of a product or business model

Alfred Griffioen – The strategy accelerator 1

Companies need to develop and adopt new products and business models in order
to differentiate themselves from their competitors and to outperform them. These
new opportunities can be found by evaluating the needs and competences of the
companies in your value chain, or rather, the value network around you. Hardly any
company has a single supplier and a single customer group (see Figure 2). On the
basis of a needs analysis, you can identify entirely different ways of servicing your
direct customers or their customers. Alternatively, by integrating activities from one
of your suppliers, customers or the other suppliers of your customers, you can
adapt your business model.
Supplier Consumer

Supplier Customer
Consumer

Supplier Company Customer Consumer

Supplier Customer Consumer

Figure 2. The value network around a company

Models for competitive advantage

On a more abstract level, there are two models often referred to that give direction
on how to get your customer value proposition to stand out: Porter's model1 on
product differentiation, cost leadership and focus strategy, and Treacy & Wiersema's
model2 on product leadership, operational excellence and customer intimacy.

If you have more products, the Boston Consulting Group portfolio matrix offers
guidance on how to direct the cash flows in your company: depending on market
growth and market share, one should invest or divest in certain activities. Although
corporate finance has changed significantly over the last decade (see below), the
model is widely used because of its conceptual simplicity and the clear answers it
provides.

However, Porter’s strategies were first published in 1980, and Treacy & Wiersema
introduced their model in 1995. The BCG portfolio matrix was first used in 1959.
Since then the world has changed considerably, and some of these changes have
affected the validity of these models.

If there is one development that has dominated how consumers and companies do
business in the last decade, it is the ever-growing availability of information,
facilitated by the internet. Consumers, purchasing companies and governmental
institutions have increasingly better knowledge of the market and can compare
products from several companies. A few mouse clicks and phone calls is all it takes
to fulfil their needs with suppliers from all over the world. Internet search and even
online auctions are steadily replacing the relationship-based purchasing process3.

Thanks to this availability of information, it is also easier for small innovative
companies to offer their services and to compete with larger players. This leads to
faster product rationalisation. Through the faster distribution of technology, the
number of competitors for a certain product increases while prices decline. A good
example is offered by two comparable products: the video recorder and the DVD
player, as shown in Figure 3. The video recorder was developed in a time when
information exchange was slow. It took competitors a long time to develop a
comparable product. With the DVD player this was already different.


Price (€)

1500 Video recorders
DVD-players

1000

500

0

Figure 3. Price development of video recorders and DVD players4

These developments force companies offering products and services to concentrate
on those activities where they can offer real ‘value for money’. Distribution channels
can only add value by presenting relevant combinations of products or services
within the right sales concept.

A second important development in the last decade is the increased transparency of
financial markets. In the twentieth century, the main objective of practically every
company was growth. Growth provided economies of scale, made a lucrative
position as market leader possible, and above all: growth and the associated
investments were a logical way to reinvest profits. The BCG portfolio matrix is based
on these assumptions.

As the financial sector globalised as well, it became easier to reinvest profits from
one company into another if that company had a better performance or lower risk
profile. In recent years and under the influence of large private investors,
transparency has increased, moving the investment decision from a company level
to an activity level. The added value of a holding company or corporate head office
is now debated more frequently.

Both developments make the resources available in a company less relevant.
Knowledge can be obtained more easily, relevant components and partners can be
found all over the world, and financial resources can be obtained more easily for a
good idea. Active investors can choose in which company to invest and which
capabilities to combine. This allows small but specialised organisations with high
added value activities to lead the new economy, instead of large corporations.

Facilitated by the increasing transparency of information and markets and
increasing competition, more specialised players arise, creating a larger supply of
highly differentiated products, and thereby further increasing competition. This self-
propelling dynamic is displayed in Figure 4.


Increasing transparency
of information and markets Increasing presence of
small specialised
companies with high added
value activities

Increasing
competition for
existing companies

Broader offering for customers with more
differentiated products and services

Figure 4. The self-propelling dynamic of increasing specialisation and competition

How to make a profit in a transparent world?

Given that the availability of information has continued to increase, pay-back times
of new products have shortened and the globalisation of financial markets has
rerouted cash flows, the question arises: how to make a profit in such a transparent
world?

We can look at the strategies suggested by Porter and Treacy & Wiersema and
evaluate them for their current validity (see Figure 5).
The three strategies of The three directions of What happened in the
Michael Porter (1980) Treacy & Wiersema (1995) internet age? Current validity

Cost leadership:
having the lowest costs
Operational excellence:
having the lowest total costs,
including costs of your client
Cost advantage is easily
copied or leveled down.
Scale can be bought 
No sustainable strategy


Product leadership: The enormous diversity of
Product differentiation: (Continuously) having
continuously introducing new products makes it hard to
having a better product unique products
products stand out


Customer intimacy: There are many suppliers Market relevancy:
Focus strategy:
having a complete offering for with a broad offering. being seen as relevant by
targeting on a niche
specific customer groups Customers can choose your customer group

Figure 5. Evaluation of generic strategies of Porter and Treacy & Wiersema

Strategies for cost leadership or operational excellence can easily be copied as
much more information about companies and their suppliers is available than
before. The globalisation of financial markets has caused that, if scale is called for,
funds can be arranged to buy this scale. Therefore the validity of these strategies
has decreased.

Product differentiation alone is not good enough anymore, as product choice has
increased enormously and the differences between product variants are becoming
smaller. Product leadership, in the sense of continuously being at the cutting edge
of technology and creating a really unique product, remains a valid strategy.

Focusing on your customer, described by Treacy and Wiersema as customer
intimacy, is a strategy seen from the company. Of the three, it is actually the most
market-oriented type of strategy. However, with the growing diversity of companies
and brands, the perspective from the customer becomes more important: how
relevant is the company for its market? If a company has multiple products or
markets, the analysis should be performed per business activity.


This evaluation results in two strategies for achieving a sustainable business model:
 Having a unique product
 Having market relevancy

Empirical evidence

The relationship between strategy and actual profitability has been researched in a
number of papers. The most important studies from before 2000 have been
combined in a meta-analysis by Campbell-Hunt5. From these 17 studies, six general
strategies can be derived, each with components (such as high prices, intensive
promotion or operating efficiency) that are often used together. For each of these
strategies the correlation with financial performance can be measured.

Campbell-Hunt finds that two generic strategies have a positive influence on
profitability: he defines them as ‘Innovation and operations leadership’ and ‘Broad
quality and sales leadership’. ‘Cost economy’ has a significant negative influence on
profitability. The most important components of each of these strategies are shown
in Table 1.

Innovation and Broad quality and sales Cost economy
operations leadership leadership
High prices Promotion Economies from/in
New products Sales force - new products
Specialty products Service quality - low prices
Operating efficiency Product breadth - advertising
Customer breadth
Table 1. Components of generic strategies as researched by Campbell-Hunt

Another finding is that the strategies do not exclude each other, whereas Porter for
example claims that combining Cost Leadership and Differentiation leads to getting
‘stuck in the middle’. The innovation and the quality and sales leadership strategies
have their own effect on profitability. This would suggest that a company can
successfully strive for both unique products and market relevancy.

One of the most frequently used models to measure ‘relevance’ is the Brand Asset
Valuator of Young & Rubicam6. In this model, brand differentiation, relevance,
esteem and brand knowledge are measured and combined to form one score. Brand
strength (the combination of differentiation and relevance) is seen as a predictive
measure, brand stature (the combination of esteem and knowledge) as a resulting
measure. The relationship between the various components and the financial
performance of a firm has been researched by various scholars. All research
highlights the predictive relationship between brand strength and financial
outcomes.

In a study with 115 companies, Jonathan Knowles7 demonstrates the relationship
between a company's brand strength and market value, attributing the effect mainly
to brand differentiation. Frank H.M. Verbeeten and Pieter Vijn8, in an empirical
investigation of 70 Dutch brands, predict a ROI growth between 0.1 and 0.3% for
every 10% of competing brands that a company leaves behind in terms of brand
strength. They also show that brand strength has long-term effects on profitability.
Natalie Mizik and Robert Jacobsen9 also conclude that financial markets mainly
value brand relevance, followed by the expectation that a brand will meet
customers’ needs in the future.


Mehmet Bert Ataman10 examined concrete measures to improve profitability in his
study of 295 brands over the course of five years. He found that discounts have a
positive impact on short-term sales, but a negative impact on long-term
profitability. Advertising only helps up to the moment that a brand is sufficiently
recognised. The length of the product line and the extent to which its composition
helps differentiate the brand is a very important driver for profitability. However,
the effect of the number of distribution points and the share of a brand at these
distribution points exceeds all other effects and is crucial for all brands.

Wooseong Kang and Mitzi Montaya11 researched the impact of product portfolio and
innovation strategy on financial performance in the medical device industry. They
found a positive correlation between the number of products with which the
company was the first on the market and its profitability. Scott Newbert12 confirms
this profitability from innovation. In analysing the relationship between value,
rareness, competitive advantage and performance, he finds that especially rare
resources have a significant impact on both competitive advantage and
performance.

Combination in the Strategy accelerator

The literature review shows that having unique products as well as having market
relevancy can lead to higher profitability, and that these effects are independent of
each other. Therefore the two criteria can be set out in a matrix (see Figure 6),
yielding four possibilities. This matrix is hereafter referred to as the strategy
accelerator.

Why an accelerator? Just as with a car one doesn’t start a company in fourth gear;
instead, you need to build up your sources of profitability. The route either runs
through a unique product or high market relevancy, and in either case an alliance
with partners can help. And also: switching gears when driving a car is a deliberate
action that takes time and effort. It is no different when running a company.

High 2 4
Market relevancy

Low 1 3
No Unique product? Yes

Figure 6. Structure of the strategy accelerator

The various options are discussed below.


First gear: No unique product and low market relevancy

The majority of companies move forward in first gear: they do not
have a unique product and have low relevancy for their market.
Their profitability is limited and mainly determined by the force field
of supply and demand in their market. With increased knowledge
transfer and transparency in financial markets, profitable niches can
be discovered and appropriated even faster than in the past.
Examples are manufacturers of steel or bulk chemicals, non-branded
clothing, accounting services or non-differentiated supermarkets.

So what should this multitude of companies do? They can either remain resigned to
their fate, or start moving out of this quadrant. Generally having limited resources,
they should either choose to broaden their customer reach and relevancy (switching
to second gear), or invest in creating more unique products (moving to third gear).
This does not mean directly transforming into an ‘Ebay’ or ‘3M’. Even minor steps
can help, like guaranteeing compatibility with another product to increase your
customer relevancy, or offering a free annual service inspection to make your
product unique in your market, at least for some time.

Second gear: High market relevancy but no unique product

There is a larger group of companies operating as a relevant
supplier for their customer group, yet without having their own
unique products. These include, for example, a number of grocery
stores, well-known hotel chains like Hilton, or Internet portals like
Ebay and Amazon. Internet search engines can also be companies
enjoying high relevancy, even though they don’t sell products
directly. Not every company has to be widely known: especially in
the business-to-business market, companies can have a highly
relevant offering for a limited customer group only.

Market relevancy is connected to the company name or its individual brands. The
product width, distribution model, service and marketing communication contribute
to the relevancy of brand or company. Even packaging, complaint handling or
added services can have their influence. Market relevancy prompts the customer to
buy a certain product from this particular company, and not from its competitor. It
can be defined as the congruity of the brand promise with the customer's needs.

One could argue that it is the brand logo on the clothing or on the packaging that
makes the products offered by these companies unique. But once you see that even
brand-free products are sold better through these channels, for example because of
the guarantees, purchasing ease or the certainty of their compatibility with one's
lifestyle, then the difference between the product and market relevancy becomes
clear. Starbucks, for example, made a handsome profit selling the music they play
in their stores; here, the fact that it is selected by Starbucks is what produces the
value, not the music itself.

The best strategy for companies in this gear is to further enhance their market
relevancy by combining the right products in their offerings. This requires market
research, portfolio management, investments in store development and marketing
communications. The value created often lies in the combination of attractive
products in the offering. In the clothing industry, brands like Burberry, Polo, Ralph
Lauren or Boss have to provide a complete collection for men, women and children


to increase their reach. Shops become relevant by combining these brands under
one roof. For a well-visited shop it is tempting to introduce more and more items of
its own brand, where margins can be higher. However, if this is pursued too far, the
store's relevancy and customer reach will decline.

Third gear: A unique product but low market relevancy

Product differentiation has increased significantly in the last
decade, and so has the number of companies offering unique
products. What is unique in this sense? Unique is that it has a
significant advantage that cannot be copied or substituted easily.
Bang & Olufsen, the manufacturer of music and video equipment,
has a unique product in terms of quality and design. These
design characteristics are protected by enforceable intellectual
property rights. However, Bang & Olufsen has only limited outlets
and distribution partners. The brand awareness is on average
low, and the turnover does not justify large advertising campaigns. It is important
for them to be part of the collection (= product combination) of companies with a
large customer reach. This includes being found easily by Internet search engines.

As even a unique product can become out-dated, be copied or substituted,
companies that focus on having unique products constantly have to modify,
improve and innovate their products and to excel in their line of business. This can
be achieved by regularly updating their knowledge, conducting customer research,
investing in good personnel and patenting their innovations. It is obvious that, to
some extent, you have to market your products, otherwise you will be out of
business soon. But this can be restricted to bringing your product to a good
‘combiner’ with a large customer reach, rather than investing in a top-of-mind
brand name yourself. In the pharmaceutical industry there are various smaller
companies, like Galapagos, that develop new medicines but license their findings to
big corporations like GlaxoSmithKline to clinically test and market the product.

Fourth gear: High market relevancy and a unique product

There are only a few companies that have both a customer group
that perceive them as positive and relevant, and a continuous track
record of delivering unique, hard to copy products. Apple is
certainly one of them. With first the Mac, later the iPod and now
the iPhone, Apple has a keen sense of what customers want and
the ability to translate the newest and patented technology into
unique products. Although one may argue that there are multiple
MP3 players on the market, only Apple has its patented click wheel
and its intuitive customer interface. By being a relevant supplier for
its customers, Apple can combine its own products with a range of
software products and music and video from various artists and amateurs in The
Apple Store. Philips is another company with a strong brand name and distribution
channels on the one hand, and products with a unique design or patented
technology on the other.

The best strategy for companies in this gear is to consolidate their position. Product
leadership as meant by Treacy and Wiersema can only be sustained by constant
investments in innovation and product design. Maintaining your relevancy as a
supplier requires active portfolio management and regular marketing


communications. Companies should be sure to not take their position for granted,
and to be keen on pursuing their competitors.

Ways to increase your profitability

Especially for companies in first gear, without a unique product or large market
relevancy, it is necessary to move on from this position. Also for companies with
unique products it can be worthwhile to increase customer reach, or for companies
with market relevancy to develop unique products. Basically, there are four ways to
create such a movement:

 Invest in it yourself, by hiring the right people and dedicating their time to
either product development or marketing activities.
 To outsource these activities, and in that way obtain the necessary
competences for product development or marketing. The question is: can
your competitors easily do the same, or haven’t they done so already?
 To take over a company who has the right market position or product
portfolio, or merge with it (if they are willing). But then: why haven’t your
investors already divested in you and invested in them?
 To ally with such a company, partly combining your resources, sharing your
knowledge and approaching customers with a broader offering.

The choice for one of these ways can be made on the basis of the boundary
conditions that exist in every company:

 Available time to market
 Investment size
 Acceptable risk

Investing in development activities yourself generally takes a lot of time, certainly if
you want to bring in new competences. Outsourcing is quicker, but has a larger
investment size because of extra overhead and profits for the supplier. Both carry
the risk of investing in a non-responsive customer group or in a failing product. A
takeover or merger guarantees access to an existing customer group or an existing
unique product portfolio, but in many cases it also means investing in overlapping
or non-strategic resources. An alliance with a complementary company is preferred.
This makes possible a short time to market, with a limited investment and low risks.
However, it requires having at least some in-house assets to be attractive to your
partner.

An effective alliance broadly requires three components:

 A joint business model, which makes clear what the benefit can be of
combining resources
 A contractual basis, describing the organisational form and the conditions of
the alliance
 A good balance between the partners, in terms of contribution and of
influence.

The selection process of a partner should address these components.


The strategy accelerator completed

To complete the strategy accelerator model, we need to elaborate the strategic
directions proposed for companies in each gear. This model offers direction on how
to outperform in a transparent world. Companies can develop a higher profitability
than their peers by continuously developing unique products and by combining
relevant products. If they already engage in both activities, they should seek to
consolidate their position. If they do neither, they should choose a way to move
away from this position by allying with others.

Similar to changing gears in your car, to move from one strategy to another is a
deliberate step that requires either large investments or some form of cooperation
with other companies. Marketing alliances can bring a company from the first to the
second gear, but also from gear three to four. Development alliances can bring a
company from the first to the third gear, but also from gear two to four. If we add
the possible types of alliances per development direction, a concise model emerges
(
Figure 7).

High market relevancy High market relevancy
and no unique product: and a unique product:
Combine several Consolidate your
matching products position by constant
under your brand and renewal and by keeping
become even more close watch on your
High relevant for your
market
competitors

Move this way with
development alliances

Low
Move this way with
Low market relevancy marketing alliances
and no unique product:
Ally with others as the
quickest way to build up
the right competences or
product portfolio Low market relevancy
and a unique product:
No Excel in what you do to
make sure that you can
Yes continue to develop
unique products and
services

Figure 7. The strategy accelerator completed with development directions

The model combines aspects from ‘outside-in’ theories that primarily focus on
market opportunities with ‘inside-out’ theories like the Resource Based View, which
takes the capabilities of the company as a starting point. From an external
viewpoint, an assessment is made whether a company has clearly unique products
and/or high relevancy for its customer groups. This reveals whether a company has
zero, one or two types of sustainable competitive advantages. From a more internal
viewpoint, a strategy is suggested how to enhance existing advantages or to create
new ones.


Neither a model like this nor an article can provide a comprehensive answer on how
to manage your company. But the value of this model is that, on the basis of a
simple assessment of the firm’s position, it gives clear directions on how to further
develop the company towards profitability. The concept of the accelerator
emphasises that this is always a step-by-step approach.

About the author:

Alfred Griffioen (1972) has a background as strategic marketeer and business
development manager. After a period as manager with a strategy consultancy he is
now partner of Alliance experts, advising on strategic partnerships and matching
companies that are looking for an alliance partner. He is the author of the book ‘Het
Senseo-effect’, which is a practical guide on alliances. This article is based on his
second book ‘De Strategieversnelling’. For more information see www.strategy-
accelerator.com.

Literature
1
Michael E. Porter, Competitive Strategies, 1980
2
Michael Treacy, Fred Wiersema, Discipline of market leaders, 1995
3
Andrea Ordaninni, Stefano Micelli, Eleonora di Maria, Failure and success of B-to-B exchange business
models: a contingent analysis of their performance, 2004
4
Bob Hoekstra, Innovation@Philips, Innovative environments, lezing IMR Conference, 2004
5
Colin Campbell-Hunt, What have we learned about generic competitive strategy – A meta analysis,
2001
6
Young & Rubicam Group, Brand Asset Valuator, 2003
7
Jonathan Knowles, Value-based brand measurement and management, Interactive Marketing, 2003
8
Frank H.M. Verbeeten, Pieter Vijn, Do strong brands pay off?, Nijenrode Research Group working
paper, 2006
9
Nathalie Mizik, Robert Jacobsen, The financial value impact of perceptual brand attributes, 2008
10
Mehmet Berk Ataman, Managing brands, dissertation, University of Tilburg, 2007
11
Wooseong Kang, Mitzi Montoya, The impact of product portfolio and innovation strategy on financial
performance, June 2008
12
Scott L. Newbert, Value, rareness, competitive advantage and performance: a conceptual-level
empirical investigation of the resource-based view of the firm


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