The Power of Six | Book Review — Rethinking Competitive Advantage: New Rules for the Digital Age by Ram Charan

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May 30, 2021 3:00 AM

A book outlines six principles which can be applied to any company that wants to be competitive

Jack Ma had no knowledge of technology, but was able to conceive algorithms to gather, process and transmit digital information of all products and customers across his network to create Alibaba ReutersJack Ma had no knowledge of technology, but was able to conceive algorithms to gather, process and transmit digital information of all products and customers across his network to create Alibaba Reuters

Management books talk a lot of common sense and often one looks back and asks a question: if the layman can make sense of what is written, why are CEOs not able to see the same? This is a common question which the reviewer would like to ask when reading any book on the subject. The book by Ram Charan, Rethinking Competitive Advantage: New Rules for the Digital Age, reiterates what all CEOs should already know.

The author talks about competitive advantage in the framework of digital companies, but these principles work everywhere as the world has turned digital whether or not we like it. It has to be accepted and all strategies adopted by companies have to keep this as the fulcrum. Those who are better able to leverage the digital world will remain ahead and, hence, get that competitive advantage. Gone are the days when one got advantage through, say, a physical product which tasted better or looked better, if we are talking of FMCG goods. That is passé and the new rules are different.

Let us see what Charan talks of in this context. He outlines six principles which are very insightful though sound simple enough. The first is to focus on consumer experience. This, one would have thought, should be given because, irrespective of the product or service, finally what matters is the consumer who buys the deal. Hence, the competitive advantage is not so much in having something than doing something. Here, mindsets have to change for traditional companies and the everyday example of e-commerce can be given to explain how this works. He gives the example of Kishore Biyani going to the shop floor and observing different categories of shoppers looking at different products and accordingly customising them on the shelves. A simple observation like watching village girls look at jeans in the store made him launch a different set of products as this became a part of the attire even while going to temples. This is enhancing customer experience.

The second principle is to keep looking at AI and ML and design algorithms to drive business and get that advantage. Jack Ma had no knowledge of technology, but was able to conceive algos to gather, process and transmit digital information of all products and customers across his network to create Alibaba. A digital platform fuses the ecosystem together and relays data to and from from a large number of sources.

His third principle is quite singular where he shows that companies actually compete with the ecosystem and not between themselves. Those that can take the ecosystem along and enable it to grow with the company tend to do better. Hence, if we are talking of e-commerce companies, they need to take the entire supply chain, as well as payments partners and the delivery chain to ensure that everyone has a share in the pie and has incentive to work with the pivot company. Therefore, it is not so much as Flipkart competing with Amazon as much as each of them with their ecosystems. Those that collaborate the best would stay ahead.

Fourth is to create value for the shareholder. Digital companies have to create new models for making money in ways that power their growth and allow them to serve customers and shareholders at the same time. Focus has to be on money-making rather than earnings per share. Here, he describes the models used by Uber, Netflix, Apple to grow this ‘cash rather than business’.

His last two principles are more on the human resources side where he talks of the importance of teams and leadership which are quite interrelated. In his words, people, culture and work design form a social engine that drives innovation and execution personalised for each customer. Teams move from being product-centric to customer-centric. This can be in terms of after-sales service, dealing with empathy to problems they face, prompt recourse to complaints, etc. Fidelity had its way of understanding financial novices and got to advise them on how to deploy their funds. This requires strong teamwork and understanding requirements of customers.

Last is leadership where leaders need to continuously learn, imagine and break through obstacles to create change. Here, it is absolutely important for them to take their team along and also accept the other four principles if the enterprise is to stay ahead. He gives some traits of a digital leader which can read like a textbook: think in terms of 10x or 100x, comfortable with data-based analysis, willing to create and destroy, literate with algorithms, willing to reconceptualise organisations and so on. He also warns that leaders fail when there is poor allocation of cash and there is failure to hire and train the right people. Leaders need to get out of the web of outdated theories and not go for incrementalism and short-term thinking.

This is a must-read for all CEOs who must have an open mind and be willing to introspect because that is the only way to go ahead. Traditional companies are also moving along this path and the pandemic has forced every company to look at the digital option. Therefore, there will be fierce competition which is why decisive quick action is needed to stay ahead.

Madan Sabnavis is chief economist, CARE Ratings

Rethinking Competitive Advantage: New Rules for the Digital Age
Ram Charan
Penguin Random House
Pp 202, Rs 799

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