With all the talk about competitive advantage in the business world today, especially in the IT sector, a significant portion of the focus has been on differentiation. Organizations spend so much time delving into how to establish that competitive advantage through offering unique products and services so they can be different. The idea is to essentially blaze a trail and hope the competition does not catch up with you.
While this is a tried and proven strategy for many organizations, it seems that most of us forget about the other side of competitive advantage which is achieving low cost. Namely building core competences that allow the organization to offer products and services at a lower price because their value chain is more efficient than the competition.
In fact HP’s announcement of their interest in getting out of the PC business and potentially spinning off this division is yet another reminder, similar to IBM’s a few years ago of its sale of the PC business to Lenovo, of the continuos desire for differentiation. While this may be indeed a sound business decision, it is wise to remind ourselves that striving for a low cost strategy is just as important. Again looking at HP is a great example of this. Within the printer division for instance, despite the fact that this market segment is highly commoditized we still see strong sales of HP printers and ink.
Based on my observation of leaders around the globe it seems that there is a fear of operating in a commodity market, yet if the organization has a strong supply chain, efficient processes, and an integrated approach to delivering value to the customer, they can find their cash cow, as HP has done.
Ultimately I believe that there comes a point in the product life cycle where it shifts from being a cash cow to becoming a declining product that is on the brink of replacement. This is perhaps what is leading HP to moving out of the market. And while history will only tell if IBM and HP have made the right decisions, when it comes to achieving competitive advantage, long term organizational success depends on finding that right balance between low cost and differentiation. Equally important though is to master the timing of when to get in or out of markets.