Extinction is the rule. Survival is the exception.
—Carl Sagan
Some would say that businesses are like plants: if they’re not growing, they’re dying. While businesses and plants in reality have little or nothing in common with one another, it’s true that companies have to grow and change to remain vital and strong. In his book Leading the Revolution, Gary Hamel writes about the importance of establishing and nurturing a competitive gap.1 Competitive gaps are innovations that companies create to separate themselves from their competitors.
The moment you create a competitive gap, you’ve constantly got to find ways to maintain it. This requires either creating new quantum leaps that dramatically widen the gap or practicing incremental evolution, which maintains your competitive gap through smaller changes and improvements to your products, your selling proposition, and your delivery vehicles. Quantum leaps are rare, so incremental evolution is the name of the game.
When we established our first concept store in Roseburg, Oregon, in 1996, we opened up a competitive gap for our company that revolved around a unique product delivery system that we call “bank stores.” The success of our store design created a tangible competitive advantage for Umpqua, which almost overnight created a huge separation between us and the rest of our competition. Customers who were used to shopping banks based on interest rates or monthly fees (or the lack thereof) were attracted to our value proposition—one that offered the sights, smells, and amenities of a retail experience combined with competitive interest rates and a one-of-a-kind customer service experience. The moment prospective customers stepped into one of our stores, they knew they were in for a unique banking experience.
However, if all we did was bring a retail experience to banking, our advantage might not have lasted long at all, and our competitive gap could have quickly closed. To succeed in the long run, we had to execute the basics well: we had to be the world’s greatest bankers working for the World’s Greatest Bank. Combining our innovative banking stores with associates who really care about their customers and do their jobs exceedingly well has made it extremely hard for competitors to close the gap—if they even try.
Differentiation is not a new concept in business; every company is looking for ways to stand out from the competition and create competitive gaps. However, these gaps aren’t always easy to find, and they can be even more difficult to develop and sustain.
As tough as competitive gaps are to create most of the time, every now and then one lands in your lap or is staring you right in the face. For Umpqua, it wasn’t about technology and more branch locations. It was all about how we delivered our products and services. And because the approach we decided to pursue was so unique—and to some naysayers, even corny—it created a significant competitive gap for us. This built our reputation, which helped build our unique Umpqua Bank culture, which created our value proposition. Momentum! These intangibles were stepping-stones that enabled us to take advantage of when things were good and to rely and depend on when times became challenging.
While a competitive gap is wonderful to have—essential, in fact, for long-term growth and success—it can also be a burden, since you have to constantly manage, reinforce, and see that it evolves. Fail to do that, and you can lose it. As Hamel points out, competitive gaps can lose their appeal, they can be copied, they can get worn out, and over some period of time they will erode if you don’t constantly repolish them.
Our competitive gap came from the unique delivery system we created in the banking industry—our stores—that helped us get out in front of our competition, gave our customers a clear differentiated choice, and, as it turned out, became a stimulant to many other institutions within the banking industry. It was a quantum leap for us that continues to be successful.
As we expected, other banks have tried to close the gap we created by copying our approach. Our challenge now is the same as any other company that has created a competitive gap: to sustain it. In my experience, there are two ways to accomplish this.
The first approach is to create new quantum leaps of change that are specifically designed to create and develop entirely new aspects of the competitive gap you’ve already built. The second approach, which I believe is usually the direction most companies take, is to make incrementally smaller changes on a regular basis that breathe new life into your strategy.
It should be no surprise that everyone is looking for the quantum leap of change that will launch their company far ahead of their competition. The reason is that quantum leaps are significant game changers that can be meaningful and long lasting. Think of IBM’s original personal computer (which brought small desktop computers first to businesses, then to individuals worldwide), the Xerox copier (which made photostats, carbon paper, and mimeograph machines obsolete), and the Apple iPod and iPhone (which took the world of portable music players and smart phones by storm). Each of these products represented quantum leaps of change in their respective industries, and each gave their companies a huge competitive gap that lasted for years. In each case, they weren’t the first such product in their industries, but they were the best. They captured the public’s attention—and their dollars. But finding something new and innovative in your industry that constitutes a quantum leap is not easy, and many companies never do it.
Maintaining the competitive gap that results from a significant innovation in a company’s products or services is a full-time job; you can’t afford to rest on your laurels. If it’s that good, people are going to copy it. And if you keep doing the same thing over and over again, people are going to get tired of it. To maintain your competitive gap, you have to constantly tweak your product and service offerings, and you’ve got to make changes that will keep your customers interested in what you offer while you continue to look for new ways to stay ahead of the competition.
In my experience, one of the best ways to do this is to study industries outside your own.
There’s a very good reason that I seldom hire bank consultants: they are going to tell me exactly the same thing they’ve told ten other banks, and that advice isn’t going to be life changing for our company. Instead, I like to hire people from outside the banking industry to help me because they’ve got different ideas and bring with them an entirely different base of experience. It reminds me of the old advertisement for Apple computers: Think Different. When you take a look at your business through the lens of a different industry, you can see a lot of things that you would never otherwise see and come up with new ideas that you can tailor to your own purposes.
One way to practice this is to find a company that’s beating their competition soundly and then study it in great depth. What makes it a success? Why can’t its competitors respond? What’s its secret?
At Umpqua Bank, we’ve studied a variety of companies outside the banking industry over the years, including Disney, Ritz-Carlton, the Gap, and Nike. In addition, we’ve talked to the people running and working in these companies about the way they do things and what it is that allows them to routinely beat the pants off the other companies in their industry. To make an idea from a different industry work for us, we’ll bring it into our company, talk about it, beat it up, change a few things here, modify a few things there, and then give it a try in one of our stores.
If it works, we keep it. Otherwise we toss it.
What’s particularly interesting to me about the concept of studying industries outside our own is that for the most part, our competitors aren’t doing what we’re doing. In the case of the banking industry, most banks are busy studying and comparing themselves to other banks—not with businesses in completely different industries. I believe this is true for most businesses. Few look outside their own industries for ideas, either because they don’t see the value of doing this, or they think the best answers are in their own industries, or they simply don’t even think about it—it’s not within the boundaries of their paradigm.
If I owned a car dealership, I could very well hire an efficiency expert and have that person come in to help me figure out ways to improve the way we handle car repairs. That could certainly be very useful, and it might make my business somewhat better. But why not also consider bringing in someone from the hospitality industry who could help me improve the way I handle customers while they are waiting for their cars to be serviced?
Ten years ago, the customer waiting room in most car dealerships in the United States was a pretty dreary place. The room was usually small and filled with hard plastic chairs with a few car magazines scattered around and a television bolted high up in a corner (usually running at full volume with a channel changer nowhere to be seen). If you wanted something to drink or eat, there was a vending machine around the corner for employees that you were welcome to use too, assuming you brought the proper change. And if you wanted to relax for a while or try to get some work done, forget it. There was nowhere to stretch out and work, and besides, that TV blaring in the corner of the room wasn’t exactly conducive to doing anything that might require concentration.
Today, however, it’s not uncommon for customer waiting lounges in car dealerships to be much larger and stocked with comfortable chairs, desks on which to plant your laptop computer, Wi-Fi, complementary refreshments (coffee, tea, and water), and maybe even freshly baked cookies. And as you find a place to plant your laptop and yourself, there’s a good chance that a new car salesperson will wander over to see if you would like any useful information about the dealer’s stock of trucks, SUVs, and automobiles and the hot deals that just happen to be going on while your car is in for service.
This is obviously quite a far cry from the car dealership waiting rooms of old. Of course, the dealership still has to execute the basics well—it needs to do a great job fixing your car at a good price—but the best companies in this industry have figured out how to turn what was once a fairly unpleasant experience into one that is, dare I say it, enjoyable.
Most people hate taking their cars to the shop, and little subtleties like this can make a huge difference in the way your business is perceived by customers and whether they tell their friends and relatives about the experience. Studying industries outside your own can go a long way to help you either incrementally change your own value proposition or perhaps even stumble on one of those game-changing quantum leap innovations that could transform your industry—and your company.
There’s no question that it’s easier to make incremental updates to your company in good times than in bad.
First, in tough times, most business leaders have their attention fully focused on simply surviving, not on making minor tweaks to their business model to build or maintain a competitive gap. And if there are additional costs associated with incremental changes to your value proposition, then they’re hard to justify.
Second, when times are good, you naturally have plenty of elbow room to maneuver and can take time out to think of creative, nutty, corny things that will make a difference. When things are difficult, you don’t really have the luxury to do this. It’s kind of like someone with a parachute who jumps out of a plane at ten thousand feet. At that altitude, the parachutist has time—thirty seconds or more—to maneuver around and enjoy the sights before pulling the ripcord. However, the same person with a parachute who jumps out of a plane at five hundred feet is going to be scrambling to pull the ripcord the moment she clears the airplane. If the parachutist wants to land safely, there will be no time to enjoy the sights on that short trip to the ground. The only thing that parachutist will be looking for is the handle to pull the ripcord that will deploy her parachute.
In business, you’ve always got to deal with the problems at hand, but when times are good, you have more time to focus on doing the things you want to do instead of just the things you have to do.
Nevertheless, when times are uncertain, there are ways to give yourself more elbow room. Some things are life-threatening to a business and must be dealt with immediately, regardless of the economic climate or the competitive environment. But if the problems aren’t severe, you can have confidence in your people and give them the authority they need to deal with the problems so that you can move on to something else.
Imagine for a moment a small business that’s faced with a customer service issue at the same time that the owner knows that she’s got to get sales up the next quarter. The owner can get her customer service team together and say, “Okay, you’ve got to get this fixed; here’s your time frame. Now get going and let me know if you have any questions along the way.” If the owner has the right people assigned to the task of addressing the customer service issue, then she can turn her attention to doing whatever is necessary to improve sales. By leveraging her people, the small business owner created the elbow room she needed to address the issue while also working on the company’s lagging sales.
I tell people that if you’re going to apply part-time resources to something that’s important, you’re going to get part-time results. So when you see things that need to get done that are important to your business, make sure you’re applying the resources necessary to get it done. I’ve watched too many people trying to tackle five or six or seven different projects at once and getting strung out because they can’t finish any one of them before something else happens to another one. I’d rather have them get one task done and then come back for the next one. I’ll give it to you then, but I want to see progress made first.
Note
1. Gary Hamel, Leading the Revolution: How to Thrive in Turbulent Times by Making Innovation a Way of Life (Boston: Harvard Business School Press, 2002).