The internet, globalization, outsourcing, off shoring, workforce mobility and more have changed the way businesses operate. And for the small and medium sized business (SMB), these forces are creating new and dangerous challenges to their existing business models and pricing structures. Customers large and small are demanding more for less, squeezing margins and profits. Entire product and service offerings are becoming commoditized, further reducing pricing power. The SMB market must turn these challenges into opportunities. SMB’s can institute change within their companies faster than their larger competitors and must take advantage of this nimbleness to differentiate themselves in the marketplace, allowing for more and better opportunities and value added pricing.
Change can come in two primary ways. Companies can innovate and companies can institute best practices. A concurrent strategy of deploying innovations and instituting best practices is the most effective way for companies to institutionalize change and out compete their larger competitors.
Innovations come in many forms. Most people think of innovations in terms of a salable product or service. I would suggest a much more expansive definition of innovation. I have listed below seven different categories as a framework for you to manage innovations. When innovations are proven over time, they become best practices, and represent a key competitive advantage.
- A new or improved product or service-This represents the traditional view of innovation. SMB companies must be constantly striving to create new products and services and improve and differentiate their current products and services.
- A new business model-How can SMB’s structure their businesses to compete in the global, commoditized marketplace.
- A new brand experience-What is the message that you are trying to deliver to your customer to differentiate yourself from the competition and do your products and services deliver on that message.
- A new distribution channel-Are their other ways to get your product or service to market.
- A new strategic partnership-Can you partner with others who can help you in your supply chain, with your internal organization or in acquiring new and supporting existing customers. Are you completely focused on your core competency and allowing experts to handle the rest?
- A new customer segment-Have you identified all the potential target markets for your products and services.
- A new communication channel-Are you exploring and utilizing the most effective method to communicate with your customers and prospects.
As you can see, all types of innovations are focused on either the customer experience or the effectiveness of your organization. It is by focusing on the customer and improving the organization that you will be able to differentiate yourself from the competition and sustain margins.
Implementing best practices is a time-tested way to create breakthrough results in the shortest time. Look at your organization and see where you need the most help. If you do not have enough prospects, focus on implementing best practices in marketing. If you get in front of prospects, but your closing ratio is too low, focus on implementing best practices in sales. If you have enough sales but you cannot deliver the product on time or your quality is lacking, focus on implementing best practices in operations. And as you implement the best practices, you need to develop measurement tools to learn what works, what doesn’t work and when to make changes.
It is through innovation and implementation of best practices that you can take ownership of your future, compete and avoid the traps of commoditization.
Written by Alan Schatten