Ring-fence your Competitive Advantage

In his seminal book, ‘Competitive Strategy’, Michael Porter talks about ‘industry forces’. Richard Rumelt challenged this and it has since become established thinking that business factors are more important drivers of performance than industry factors. The lesson here is that you can succeed in ‘difficult industries’, even during challenging economic circumstances.

Great you say, but how? Rumelt went on to coin the term ‘isolating mechanisms’ to refer to the “economic forces that limit the extent to which a competitive advantage can be duplicated or neutralised through the resource-creation of other firms”.

Essentially, isolating mechanisms are to individual companies what barriers to entry are to an industry. These include ‘impediments to imitation’ that prevent rivals from duplicating critical resources and capabilities, such as patents, copyrights, trademarks, licenses and importantly, brands.

Superior collaboration with customers and economies of scale also serve as strong impediments to imitation. Early-mover advantage can create a powerful momentum, increasing the quantum of that advantage relative to other companies over time, yet this needs to be managed carefully to perpetuate a truly sustainable competitive advantage.

What is clear is that intangible asset management will become increasingly important to marketers. How can you build ‘impediments to imitation’ into your business?

The current “Big Agency Model” is broken.  Today, behemoth agencies are as slow to react as their clients and have become institutionalised themselves.

The large agency networks have grown purely out of a succession of acquisitions, rather than organic growth. They have lost any personality they once had and have become as undifferentiated and impersonal as the huge me-too accounts they represent. They are not marketing agencies at all in reality, they are simply bigger ad agencies that consistently fail to deliver the integrated marketing promise trotted out so glibly by their top-heavy pitch teams. “Where”, as one large agency client asked, “are the directors that we met at the pitch when it really matters?”

Often described by the oxymoron, “ideas factories”, these agencies work on the basis of “industrialised creativity”. Like so many factories, they are burdened with massive overheads and a battery-hen management philosophy.

One creative director said that “if you give £100K to a typical ad agency, 20% goes to the shareholders, 25% goes on overheads, and 30% goes on planning and account management. Only 25% will be spent on the core product – a creative idea”.

With respect, ad agencies, web designers and Search Engine Optimisation (SEO) specialists are unlikely to have the market knowledge or creativity to develop market-shifting ideas for organisations, due to lack of product knowledge and industry immersion.

The reality is that only a specialist marketing agency can deliver all of these strengths: in-depth strategic knowledge gained from senior client-side experience, creative firepower honed agency-side, integration of marketing disciplines and mastery of online marketing techniques.

It’s the reason that hybrid agencies are powering ahead as the new breed of primary brand partner. I know where I’d rather be putting my budgets right now!