Paradigm shifts and moats

In my last post I discussed the issue of competitive edge, taking one factor to an extreme point while keeping the rest at par with market needs. I also started to discuss how to relate to competitors copying your changes and the fact that creating a long term competitive edge for a technology firm is very difficult. In the end of my post, I started to explain that if you are doing something that relates to another dimension such as service or logistics and if the change you embark on will be considered by your competitors as pure madness, they will not rush so fast to try to imitate it.

In this post, I would like to continue discussing this issue and I think that instead of delving into abstract theory, I should use an example.

Take a company that offers outsource solutions such as software projects. It is known in the industry that a software project rarely is on time or on budget, it is difficult to control, the client wishes for late modifications, specifications change, and so on.

In many cases, being late has a severe consequences on the business such as losing potential income, or letting competitors be in the market before you.

Now, suppose this company will offer to be always on time, every time and inviting their clients to change specification as many times as they wish.

Suppose the company will offer this to the market and say that it is so confident that it will deliver on its promise and hence for any day it is late, it will pay 1% of the project's value. (a week delay is 7%, 2 weeks delay is 14%, etc.) Lets assume that a typical project is 9 months, and competitors are typically late by several months, this is a huge penalty.

Naturally, competitors will think this is a bluff. But it isn't. There is a way of managing projects in such a way and also be able to finish them much ahead of time. The method is called critical chain and I wish not to explain it in this post. I may do so in another post

The thing is that such a method changes drastically the way the company operates. It is a different philosophy of managing projects and much of it is not in line with what people are used to do. Competitors will not rush to take this route, it is not intuitive to them.

In addition, it is a different way of selling and marketing. This means that a competitor that wishes to copy this, needs to make several paradigm shifts. Now this is real barrier, I would dare to say this is a moat.

The bottom line is that we need to seek how to create an edge not just by having a unique product feature, but also in other aspects of the business such as supply chain management, managing projects, etc. These changes should be paradigm shifts that no one will dare to mimic until it is too late for them. By then, you have won the battle

Best,
Amir