The cloud undermines the competitive advantage of scale

or so says Maxwell Wessel of the Forum for Growth and Innovation at Harvard.

As Wessel points out, some companies have been able to leverage scale rather than innovation as a point of sustainable competitive advantage.

Advantages of scale, such as discounts through the buying muscle of retailers and the scale of  distribution for packaged goods, have made it easy for big brands to control price and market share.

Wessel argues the cloud is making scale a commodity. The cloud means the IT smarts to enable business efficiency are no longer under lock and key. The cloud gives access to applications, that were once the domain of only the largest organisations, to the smallest of organisations.

Today, cloud applications are available through out the value chain, including: planning, human resources, design, research, procurement, warehousing, manufacturing, logistics, sales force efficiency, customer relationship management and asset management.

So where does that leave competitive advantage now scale is diminishing in importance?

Sustainable competitive advantage will lie in the brands ability to keep innovating to increase the value of its brand promise. Brands need to be light on their feet, customer focused and have a willingness and appetite for innovation. Look no further than Zara for a great case study of a brand that has cracked the code on sustainable competitive advantage through innovation.

With over 10,000 unique products in store every year, Zara’s ongoing research into “micro trends” means it can turn around clothes from concept to shop floor in 14 to 21 days. In contrast competitors take 9 months from concept to shop floor and they are limited to only changing styles seasonally.

Zara’s business model has been described  as “fast clothes”, as stock is constantly changing. Customers have something new to see every week at a Zara store.

Zara also manufactures in Spain, has a centralised control model, using applications throughout the value chain that allow it micro manage the pathway of a garment to customer. So thirsty are Zara to capture a trend at its first pulse, they visit all the fashion shows and universities to get the first mover advantage.

To me all of this distills down to one pertinent thought, creativity and speed to market based on new trends, are still the engine of growth and sustainable competitive advantage. In that respect, as Seth Godin says, I guess we are all in the fashion business.

Louise Kelly

Managing Director

Hearts and Minds

www.heartsandminds.com.au

Thought Leaders

Maxwell Wesell

Read for more  on this at:

The Commoditization of Scale

http://blogs.hbr.org/cs/2012/03/the_commoditization_of_scale.html

Resource document on Zara

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