The more efficient a business is, the lower its cost and, the lower its cost, the greater the competitive advantage it subsequently becomes possible to establish. This cycle is an indisputable business fact, applying to every business whether it’s large or small. However, regardless of cost, to successfully develop a competitive advantage it’s necessary for a business to be clear about the following three determinants:
- Target Market
To be successful, a business must be able to communicate the benefit it provides to its target market that is better than its competition.
A company must create clear goals, strategies, and operations to build a sustainable competitive advantage. There are three primary ways companies are able to achieve this:
- Cost leadership
Cost leadership requires the means to deliver a comparable value at a lower cost. Businesses are able to accomplish this by continually improving operational efficiency. This can be achieved by paying workers less or by purchasing materials at lower prices (i.e. through scale), or by preparing them for sale more efficiently than competitors.
Differentiation is achieved as a result of a business delivering products and services at a higher level than its competitors. This can be achieved in a number of ways; providing a unique or higher-quality product or service, delivering it faster, or perhaps marketing it in a way that enables it to reach its targeted customers better. A company with a successful differentiation strategy can often charge a premium for its products and services which usually means it then has a higher profit margin. Companies typically achieve differentiation with innovation, quality, and customer service.
Focus results from a management team understanding and servicing their target market better than their competitors. They are able to leverage their cost leadership or their differentiation, or a combination of both, to achieve this goal. As an example, local community banks use a focus strategy to develop a sustainable advantage. They typically target smaller, local businesses along with high net-worth individuals, with a personal touch, that their larger competitors are unable (or unwilling) to provide and for which their customers are willing to pay a little more for.
A small business usually operates at a disadvantage to a larger business because its lack of scale prevents it from achieving a cost leadership position. However, this is where the Internet of Things (IoT) can come into play. Leveraged intelligently, this capability can be utilized to help level the playing field and mitigate the otherwise unavoidable impact of higher material and operating costs that are usually experienced by smaller businesses.
- Leveraging technology to improve operational efficiency can help eliminate the disadvantage of higher costs that typically result from lack of scale.
- By connecting devices to the Internet, it becomes possible for significant improvements in efficiency to be made.
Of course, it’s not as simple as the mere act of connecting various devices to the internet and gathering data from them. The key to improvements in efficiency are the business intelligence applications developed to make sense of the data that’s collected. These permit management to make faster and better decisions while consuming less management time than was previously required to manually (and less effectively) manage those same devices.
Just like the business cycle defined in the opening statement that “lower costs lead to a competitive advantage” this is also the case for greater efficiency because improving efficiency also reduces cost. So, while a small business usually lacks sufficient clout for developing a material cost leadership position, this is not necessarily the case when applied to efficiency.
Efficiency can be improved through the use of technology, access to which is no longer restricted to large organizations. Therefore, as small business efficiency improves, it helps mitigate the disadvantage of lack of scale and its negative impact on material cost.
Larger, established organizations are frequently tied to legacy computer systems that make it much more difficult for them to adopt and deploy state-of-the-art technology applications, applications that are increasingly available to smaller businesses for free or by way of affordable subscription models.
Office products and business equipment may seem like an unlikely category to focus on for reducing cost and improving efficiency. However, the indirect spend on essential items necessary to run an office usually amounts to a significant proportion of the overall indirect spend of a business.
- Logistics (supplies replenishment)
- Paper consumption
- Document storage and retrieval
- Asset management
- Warranty management
To learn more about how it’s possible to reduce the indirect spend on office equipment and supplies, please click this link to access our free printer management business intelligence application.