Commodity Software, Best Practice and Competitive Advantage

  • Written By: Olin Thompson
  • Published On: August 7 2003



Introduction

If application software has become a commodity, how can a company be better than the competition? Commodity software means all or most of the products have the same functions. Since the vendors strive to provide best practice, practices based on the product will mean a company will have the same practices as their competitors. So, if both you and your competition use software, and application software is a commodity, how can you be better than your competitors?

We need to face the fact that commodity software means everyone can have best practice. We cannot assume that competitors are doing less with than best practices because today, it is easier to use best practice than not to. We need to assume that application software makes us as good as our competitors at best. This is true unless we take a conscious step to be better.

But where in the business do we need to be better than best practice? The answer comes from the company's core strategy. Business schools and consultants tell us that only three strategies exist:

  • Low cost producer
  • Superior customer service
  • Innovation

A company must focus on one of these three to be successful. That does not mean they can be weak in the other areas, it means you have to at least be average in those areas. As one executive related, "We need two C's and an A+". Can a company get two or three A+ grades? Yes, it is possible, but business schools tell us that this means that the company could have been even more successful if they had spent more time on only one instead of two or all three.

So, what does this mean to commodity software, best practice and competitive advantage? It means that application software can provide best practice but that only gets a company even with the competition. Best practice does not mean an A+ but it may mean a grade of B or C according to your industry. A company needs application software to give them a passing grade in two of the three areas, but for their core competitive strategy, they need more. What they need for an A+ is "industry-leading practice".

Can Software Lift You Above Your Competition?

Can industry-leading practice be found in a software package? If we accept that application software is a commodity, by definition, the answer is no. If a vendor claims industry-leading practice, then it is available to your competition. If we really want to have practices that lift us above the competition, it cannot be in a standard package.

But can we get to industry-leading practice with an application package? Yes we can, but not unless a conscious decision is made to go beyond what is provided in the software. Getting industry leading practice starting with a package means excelling in how the package is used, or extend the package into new areas. For example, if a company's core competitive strategy is to be the low cost producer, how can they use the base provided from packaged software to drive cost even lower? How do they make better decisions and make them faster. How can they communicate better, lessen cycle times, remove non-value added steps, etc.?

Alternatively, a company could get to industry-leading practice though a custom development effort. This is a viable path but often proves expensive in both the short term and the long term. If a company has truly unique and superior business practices to further their core competitive strategy, they may have no option other than the custom path. Note, if they convince the vendor to add these practices to the base product, they are giving away their hard earned competitive advantage.

All competitive advantages are temporary. Therefore, unless something is done to stay ahead a company falls behind. Staying ahead means continual improvements. Therefore, think of the software that supports the core competitive strategy as an on-going work in progress. If the software cannot change quickly enough or at an economical cost, any competitive advantage will be lost as the competition improves. The long-term ability for the software to change may be as important as what it provides today.

Recommendations

End-user enterprises Understand your competitive strategy. Identify the core strategy (low cost producer, superior customer service or innovation). You need best practice (at least a C) in the two areas that are not your core competitive strategy. Continually focus on projects that improve your core competitive strategy to get an A+ in that area now and into the future. Packaged software is an excellent place to start, but you need to go beyond the inherent practices in the package by using it better, expanding its functions or even developing custom, industry-leading functions. To stay ahead of the competition, view the software and practices that serves your core competitive strategy as an on-going work in process.

Vendors - What do customers want from you? They want to be a C or better in some areas and an A+ in others. Always understand your customers' competitive strategy and sell to that need. Highlight how your products and services can make them better than the competition by serving as a base for their search for an A+ in their core competitive strategy area. Discuss and demonstrate how your products, services and technology can give them the ability to stay ahead by quick and economical evolution of their industry-leading processes. Your products still need to be best practice in all areas in insure your customers get their C or better grades. Should you pick the areas to get a C and focus on a single area where you allow your customers to get an A+? This will mean you do better when the customer's core competitive strategy matches your chosen area but less well in other deals.


About the Author

Olin Thompson is a principal of Process ERP Partners. He has over 25 years experience as an executive in the software industry. Olin has been called "the Father of Process ERP." He is a frequent author and an award-winning speaker on topics of gaining value from ERP, SCP, e-commerce and the impact of technology on industry.

He can be reached at Olin@ProcessERP.com.

 
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