Good Strategy: The Commoditization Killer
Written by Jared Jamison
Whenever a group of architects and engineers get together, invariably someone will bring up the topic of commoditization and what it is doing to our profession. They talk about commoditization like it is a natural phenomenon that we can do nothing about. The truth of the matter, though, is that commoditization is a choice and it can be avoided through good strategy. To know what good strategy looks like, we need look no further than the teachings of the Harvard business strategy guru, Michael Porter.
Competing to be the best is one of the quickest ways to get caught in the trap of commoditization. Firms that try to compete solely on doing things better than their competition will achieve average levels of diminishing profit at best over the long run. The only way to consistently realize better than average profits is by providing unique value to your clients. If you are not providing value that is unique from your competitors, then invariably price becomes the only thing differentiating you from your competition. At this point you have become a commodity.
Providing clients with unique value that aligns with their needs is what good strategy is all about and is the key to avoiding commoditization. In order to provide unique value, there must be something truly unique and different about how you offer your services – the structure, processes, competencies, expertise, and culture of your firm for example. If you describe your differentiators as the best quality, the best service, or the best technology, you may be stuck in this mindset of competing to be the best. How many firms would say that they have below average quality, service, or technology?
One of the best ways to determine what unique value your firm provides is to think both about what you do extraordinarily well and what other firms do well that you do not. What is different? What are you doing differently than your competitors? Luckily, this is relatively easy to do because clients are already telling you where you provide unique value through what they are willing to pay for your services. If you are providing unique value that clients need, it will show up as higher profits.
If you are able to identify the unique strengths of your firm, you also want to be sure that your competition cannot copy them. You can be protected from imitation if your competition risks hurting its core business by trying to copy the unique way that you offer your services. The more unique ingredients you have, the more difficult it will be for competitors to replicate your special sauce.
The only way to escape commoditization is through good strategy. Determine how your firm provides unique value and make these unique strengths central to all of your decisions. Structure your company and your processes to magnify these unique strengths. Stop pursuing work where you cannot provide this unique value. Do not make decisions that will compromise or weaken these unique strengths. Remember that good strategy is just as much about what NOT to do as it is what to do.
Jared Jamison, P.E. is a senior vice president and director of operations at Hankins & Anderson in Glen Allen, Virginia (www.ha-inc.com). He is also a VCU Executive MBA program adjunct. He can be reached at firstname.lastname@example.org.