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Developing Competitive Differentiation - Linkedin
Leveraging Technology to Power Competitive Differentiation
There are many examples of organizations that buy operational systems for parity and cost reduction (e.g., point of sale, financial, human resources, sales force automation), but leverage new data sources coupled with deep analytics to build strategic applications that provide competitive differentiation.
Competitive differentiation is how a company’s product or service is distinct from what its competitors offer. It is based on what customers value, such as functionality, brand, pricing, or customer service. Digital systems can be one aspect of this differentiation, and better yet, human capital aligned with digital systems can further reinforce the level of differentiation.
There are plenty of typical tech examples, like Visa with fraud detection or Apple and iTunes. They created a tool or product from available technology to further differentiate themselves and their competitive advantage in their core business. In agriculture we see this with John Deere. They have JD Link and Operations Centre. They are further building this out with other services (connectivity) and hardware (sensors) to help inform decisions. These digital capabilities reinforce the utility derived from a John Deere tractor and even encourage a deeper switching cost to another brand, or encourage a more rapid upgrade to one of their newer models of equipment.
Deere has been doing this through service, financing and brand differentiation for years. Digital capabilities are further reinforcing this.
John Deere is also capturing value with the newfound stickiness of its product line. Because of higher switching costs between platforms – a farmer doesn’t want to add a new combine harvester from a different brand when she already has a functioning John Deere network, customers will continue to buy John Deere products, increasing customer lifetime value.Plus, analytics provide suggestions to customers on when to purchase parts from their dealer. Not unlike an Amazon recommendation engine, this data speeds up the flywheel of ancillary tools around core products, the result being more cross-selling and capabilities to build on:
Increase hardware purchases—John Deere has seen competition from low-cost competitors, but by integrating a software platform into its products, it can provide a reason for consumers to pay more for its hardware.
Prevent hardware multi-homing —one of the benefits of MyJohnDeere is connecting all equipment in one software database. Creating this unified platform gives incentives to farmers to purchase all equipment through John Deere instead of through multiple equipment providers.
Create barriers for agtech companies to enter the space and capture disproportionate value. As we saw in several cases including Nokia and Samsung, when software platforms gain marketplace control, they can push hardware margins down. By being a mover in this space, John Deere is preventing the emergence of strong agtech companies to become the market power. In fact, John Deere is making these agtech players complementors for its platform instead of competitors.
Data—Leveraging the data to deliver insights to the farmer to help support their decisions or actions is a differentiator for John Deere.See AlsoTop 30 Market Research ToolsMarket Research Tools For Startups - Imarkguru.comWhat is White Label Marketing? What You Need to KnowThe Best Etsy Keyword Tool That Will Skyrocket Your Sales - Outandbeyond
It’s compelling to look at Deere for a number of reasons: they are iconic in agriculture, one of the oldest companies in North America and as my friend Matt Coutts has pointed out to me, they are most like Apple with differentiated hardware (at a premium thanks to brand differentiation) plus unique operating systems. Apple while doing this has innovated and evolved their business, all while out performing the S&P 500 continuously.
The Deere stock price rise over the last ~year has been impressive as well, in part driven by success in the digital realm. This even brought on questions this week from the likes of Rob Leclerc of AgFunder:
So how does a company compete with John Deere, who has a strong integration and tech stack?
I think it’s worth noting, John Deere makes for a great example, but not all companies need to be cognizant of how they play on the same field as Deere. But, the logic that helped get Deere where they are today can benefit every organization in the agriculture space.
As an organization, especially for small-medium businesses, it can be expensive or just unrealistic to build your own technology internally. We are currently seeing rapid growth in the number of “software as a service” (SaaS) companies where agribusinesses can pay a monthly or annual fee to to access the tools and products. Just because that product is available to other organizations doesn’t mean you can’t create a source of competitive advantage.
The Tech Stack
I have talked about agribusinesses considering their tech stack before, but mostly in passing and typically in reference to ag retails.
A technology stack is defined as:
technology stack, also called a solutionsstack,technologyinfrastructure, or a data ecosystem, is a list of all thetechnologyservices used to build and run one single application
Or one single business!
The “stack” should be considered by a business through the lens of solving problems internally as well as creating a seamless service to customers.
What areas of your business are you looking to improve? What areas can benefit from a technology service? Where is there an opportunity to create a new service?
Traditionally, we have looked only at things like ERP systems, CRM or point of sale systems for example. But that is rapidly changing. There is a need to consider things like customer engagement portals, apps, e-commerce platforms, agronomy platforms, remote sensing networks and the list goes on.
Traditionally, the thinking has been to consider one as the need comes up. Now we are having to think 5 or even 10 years out about what is needed for the business or what customers will demand. From here we can work backwards, identifying the big picture needs and then filling those needs with services that will fill those gaps.
Service providers themselves are even going this route, look at what TELUS is working towards, they have strung together technology products to seamlessly support needs of farms, agribusinesses and food companies through the value chain. As an ag retail, farm or crop input manufacturer, the same needs to be considered. This is what will ensure you are set up to participate in the market place over the long term.
We are fortunate today to have the unprecedented ability to access technologies and platforms that work together through increased partnerships, collaboration, API’s or organizations like Leaf Agriculture. Albeit, there is still room for improvement in this space, but the demand will continue to grow and I am confident the needs will be met in the coming years - where there is money there is opportunity and investment and the industry is well aware of the challenges and opportunities within this.
Deliver the Tech Stack
There are two ways to differentiate yourself as a smaller business with technology. The first being your unique technology stack, but then there is a second dynamic you can leverage: Your go-to-market and organizational structure. This entails some concepts for The 7 Powers: counter positioning as well as cornered resources.
Counter positioning is going to market in a unique way. Cornered resources means you have a unique asset that others don’t, such as talent, agility and culture to implement a new initiative.
I had a discussion with an independent retailer in the USA a while ago that was telling me about their unique approach to building a service with multiple companies (stacking technology), pricing and supporting that service (using different time horizons) and how they were implementing that internally (unique staffing and integration into business incentives and programming). At a basic level this is the route to differentiation:
Understand and anticipate your customers needs
Identify what you can do within the context of your own constraints and leverage your unique strengths where they cannot be touched. You play a unique “game”.
It is often thought that digital tools or online pricing information will commoditize product or service offerings, while there may be some truth to that, it isn’t the full picture. What causes commoditization is being undifferentiated in the market place. If you aren’t differentiated all you have to compete on is price.
The opportunity to win in the market can be acquired in numerous different ways. As companies seek to further understand how digital systems and unique business models can be an asset in their pursuit to support customers, I am looking forward to seeing what sort of differentiated product offerings are deployed in the market.
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Some John Deere related posts below:
Related: Q&A with John Deere CTO - Agriculture.com