The Corrosion of Competitive Advantage

Tom Felt much like Jonathon Livingston Seagull.

He was surrounded by men wearing black hats, and they all smiled the same way, nodded the same way, shook hands the same way and made deals the same way. They ran on the same fuel and acted on the same thoughts. Tom knew he could be different. And in being different he could be better. And so one day he threw his black hat out and wore a blue hat.

Life changed almost instantly. Tom began getting noticed. He experienced a new success. People showered attention on him. They praised him and swore loyalty.  And during the nights, Tom’s wife noticed that lately he slept with a smile on his face.

For a good length of time Tom basked in his new found glory. But, none of it all went unnoticed, for Dick was taking note. And soon Dick showed up one morning under a Blue Hat too. As you’d expect, Tom and Dick were now the centre of attraction.

That same evening Harry left work early to shop for a nice Blue Hat.

In less than a week, Tom saw all his differentiation vaporise as more and more blue hats appeared. And pretty soon there was not a single black hat left. They were all blue now.

Tom was experiencing what Nicholas Carr calls the Corrosion of Competitive Advantage.

The problems of Tom are very similar to those that our technology consuming customers continuously battle –   most top market players have access to similar technologies, products and service providers; similar investments and budgets. In other words, all hats are the same colour. Therefore, where is the competitive advantage from IT investments?

Let me stretch the analogy a little further, if you promise not to lose interest.

While it essentially is about Tom’s quest for competitive differentiation, there could be more to the story.

Tom’s Quest for Differentiation

Tom would of course be relentless in his pursuit of differentiation, and every time the rest of them caught wind of what he was up to, he would soon have to think of the next Blue Hat idea. Given the situation then, you might expect Tom to appear one morning in, say, a bright Yellow Hat and maybe a shiny new Jacket while the others were content in their blue hats and dull white shirts.

And sure enough, the market for yellow hats and shiny jackets would go up and, eventually down, leaving the Jacket market, well, jacked. So each time Tom did something new, it would influence a market. A group of service providers with certain skills would sit up and feel their time has come. Only to feel disappointment soon.

The Hat Man

In the meanwhile, the friendly man down the road selling hats had seen a surge of business for blue hats but sales slowly died out after a while. In his excitement, the Hat Man had ordered a big consignment of blue hats and now had a problem too, for no one came to him in desperate need for a blue hat anymore. And then the demand for Yellow Hats seemed to be going up. And they now enquired about Jackets. That wasn’t quite his line of business, but the Hat Man did consider the temptation.

Look at his seriously limited single dimensional reading of the market. He sees his fortunes rise and fall on the singular force of market demand for hats. Blue hats, yellow hats, and now jackets. It rises, peaks and then rapidly dies out. He would feel confounded and flummoxed and might even call the market quirky and fickle. He doesn’t want to understand or question the drivers of the demand. He does not see beyond the actual sale. He doesnt ask what makes Tom, Dick or Harry want a Blue Hat, a Yellow Hat or a Jacket in the first place.

Oh, the Hat Man certainly may have the astuteness to find all the answers. But over time he finds a model which helps him adapt and create an agile supply of an assortment of hats and a few jackets that gives him his margins. Besides, he was soon sitting pretty in his comfort zone. So why bother?

The Problems of Dick and Harry

Dick and Harry have troubles too. They see why Tom is doing these bizarre things with his penchant for new hats, but are never able to understand how exactly it benefits him. They are not really sure that a Blue Hat would be the best idea for their own heads, but since Tom jumped into it, they feel compelled to follow. They look for someone who can help them think, and think laterally. Why should they grab a Blue Hat, could it be a Brown Beret? Would a new pair of Leather shoes be a better idea than a Blue Hat? Would a Rolex watch do?

And so they go to the Hat Man with a poorly understood need and the Hat Man tells them :”Oh you know what, you should think of a Yellow Hat. We are seeing a rise in demand and our past customers have been extremely satisfied with the results”

To the Indian IT service provider community, there is a moral from these stories. No actually make that two morals. One is, of course,  our own pursuit of the Blue Hat of differentiation. The other is catering to the demand for the Blue Hat.

Catering to the demand for the Blue Hat

Our (the Indian service provider community), position for long has been much like that of the Hat Man. How long have we catered to the market demand for ‘Java/J2EE resources’?  How many of our appraisals were measured on the number of SAP MM, SD, HR resources that were placed? How much of our energies went into worrying about depleting pipeline of Siebel resources?

We have been supplying the Blue Hat for long. How often have we stopped to ask ourselves why we should conduct business like the Hat Man? We do have customers approaching us for various solutions, services and products. If we continue catering to their demands in the same way the Hat Man does, we are in for trouble.

Fundamentally, I think it is because most of us prefer to see the market as a single dimension of demand, because it helps us commoditize our service offerings and is easier to manage and easier to deliver. And, oh yes, less risk. Much less.

Truth is, that competitive advantage as our customers see it, is no longer as plain as a Blue Hat. And so there is a huge gap between customer expectation and what we actually deliver. In a recent Forrester report, Navi Rajdou finds that customers continue to view Indian service providers as Order Takers. We look at customers to tell us what to do, and do it very well. And that’s really the Hat Man approach to doing business.

Over the last few years, thankfully, this mindset certainly is changing. We are now talking about moving up the value chain, and many of our top rung providers have made significant strides in that department.

Andrew McAfee and Erik Brynjolfsson offer a very interesting counter-point to Nicholas Carr in the Harvard Business Review, which is quite a strong coffee aroma for Indian service providers to take a whiff at.  Their article based on research finds that

  1. IT has sharpened differences among companies instead of reducing them. This reflects the fact that while companies have always varied widely in their ability to select, adopt, and exploit innovations, technology has accelerated and amplified these differences.
  2. Line executives matter: Highly qualified vendors, consultants, and IT departments might be necessary for the successful implementation of enterprise technologies themselves, but the real value comes from the process innovations that can now be delivered on those platforms. Fostering the right innovations and propagating them widely are both executive responsibilities—ones that can’t be delegated.
  3. The competitive shakeup brought on by IT is not nearly complete, even in the IT-intensive U.S. economy. We expect to see these altered competitive dynamics in other countries, as well, as their IT investments grow.

What they essentially say is that competitive advantage from IT is not as black-and-white as the Blue Hat I have been talking about all this time, although there will continue to be a market for the Hat Man. That’s certain.

But there is a bigger need for the Hat Man who is willing to change his business model and get involved much deeper in his transactions with Tom, and help him tackle his core need and sell jackets, shoes and ties too if necessary.

And so the indication for India based service providers is that the biggest action will be among those providers who are able to shift their focus from merely meeting requirements as defined by customers, to engage more deeply, offer more possibilities and address business problems of customers that drive IT investments and even influence it.

And the degree of transformation that each of our IT service providers can achieve in this direction can become our own Blue Hat.

The pipeline for Java/J2EE resources then will automatically fix itself nicely.

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7 Comments, Comment or Ping

  1. Neha

    1

    a rather interesting take on IT industry…. i specially like the way you have likened the competitive advantage concept to the current IT industry scenario….

    [Reply]

  2. Patrick

    2

    That was an interesting one. The challenge is that Indian software companies except a handful lack the consulting depth to be considered by companies for a role such as the one proposed by you.

    They will have to either invest in building those capabilities which takes a while. They can alternatively rely on building relationships with business consulting companies to represent them in such an endeavor.

    [Reply]

  3. Jagan

    3

    Sundar, “Wow” ……either a) I did not know you write as well or b) my competencies are fast dwindling marauded and vindicted by the strife for success of our so called “people centric” IT firms. It could all be mutually exlcusive too.

    Interesting but I believe that our IT is still riding on a wave where people do not know what to do – either with or without it i.e IT might add value but might not a whole lot.

    The whiff of Java that I would like the Indian cos take would be probably stepping into the business and redressing the drivers – this way the pipleline is just the conduit like it should be in the first place. Spends should be linked to performance and returns and this would definitely take the people and the IT orgs a great “byte” forward.

    The thinking HAT is what the clients want its suppliers to wear but not always and this is the line that we do not know how to tread…….its the same like playing the game of golf with the boss …..should I putt or miss……….

    [Reply]

  4. Jaisundar

    4

    @neha: Thanks for taking the time to read!
    Am curious to know how you, coming from the consulting world, look at this from the inside. How does your customer perceive you/your company ….and then, most interesting to know would be the reverse situation: how an IT buyer sees a consulting company delivering conventional IT solutions.

    @Patrick: yes, that sounds like a good start – through such a partnership you have the capability and yet retain your core competence – something Jagan has mentioned as important

    @Jagan:Thats true about the wave – especially considering all the Indian providers put together cater to only about 4% of the overall IT market in the US. I think you hit the nail on the head when you say that we do not know how to tread that overlap. I think we feel as awkward as a non-scot would when he wears a skirt. Patricks idea of combining forces with a consulting company seems right in that line of arguement.
    And thanks for visiting this blog!

    [Reply]

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