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Differentiating your business: strategies at-a-glance
A business can strengthen its position with differentiation strategies in four main areas: supply; research, development and innovation; manufacturing; and marketing and sales. "Depending on the business, these strategies can be applied together or separately, and to varying degrees," Halde says.
Supply:
- adopt a "just-in-time" approach
- improve your information systems
- outsource certain components
- develop a shipping strategy focused on speed of delivery
R&D and innovation:
- continually improve technological know-how
- develop new research-intensive products
- be on the lookout for new trends
- protect and patent your technology
Manufacturing:
- review business processes
- invest in productivity and continuous improvement
- customize production with short runs
- produce specialized products
- outsource the mass production of high-volume or low-added-value products.
Marketing and sales:
- develop your branding
- increase product-related services
- improve your distribution network
- develop and enhance the capabilities of your sales force
- explore new markets
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Today's small businesses compete in an increasingly complex environment, where many of the challenges of the global marketplace, including technological advances, emerging economies, and access to skilled labour, can also represent significant opportunities. How can Canadian entrepreneurs stay ahead of the curve and capitalize on opportunities to maximize productivity and become as competitive as their counterparts in the United States?
One of the most significant byproducts of globalization is a worldwide pool of potential suppliers and customers. For Canadian SMEs, management of global supply chains is becoming increasingly important in terms of competitiveness. With the impact of free trade, the Internet and the rising Canadian dollar, among other factors, many businesses have begun to break out their production processes and spread them among suppliers who are often based in other parts of the world. Modern technology has made supply chain management – essentially, the management of all resources throughout the "value chain" – both easier and more efficient. As a result, savvy supply chain management has become a key factor in improving productivity and overall competitiveness.
In addition to smart supply chain management, small businesses also need a globally competitive "value proposition". Increasingly, it's not enough to have a value proposition based solely on cost. Globalization, in particular, is pushing developed economies to become more knowledge-based and innovation-driven, which implies that businesses of all sizes will have to move up the value chain.
"Put simply, your value proposition is how you differentiate yourself in the market," says Jean-René Halde, President and Chief Executive Officer of the Business Development Bank of Canada (BDC). In many cases, this value will emerge from combining things like customer service features, logistical support, information systems and product branding. "In order to be able to move up the value chain, and enhance their competitiveness, entrepreneurs must invest in 'intangible' assets like knowledge, people skills and innovation."
By way of example, Halde points to a Canadian company that produces slate roofing tiles. Its manufacturing processes are rooted in traditional expertise passed down from master workers in Europe. Its competitors are not from neighboring provinces but are found rather in Spain, Brazil and China.
To stay competitive, the owners invested in R&D to improve productivity and quality control. This company increased its productivity twenty-fold and is now exporting to the Unites States, Europe and Australia. "You don't have to be a large company to compete globally or to offer value to global clients," he adds.
A recent study by the Organization for Economic Co-operation and Development (OECD) found that intangibles represent more than 10 per cent of the U.S. GDP, and contribute as much to the growth of labour productivity as fixed assets. Canada, by comparison, has historically under-invested in intangibles like information systems, innovative technologies, management training, process re-engineering and networks of new clients. While larger companies have been investing in these for some time, Halde says it's imperative that smaller businesses follow suit and make the investments they need to succeed in today's marketplace.
What businesses should do
The first thing to do to improve your competitive positioning is to view your business from four different axes – supply; research, development and innovation; manufacturing; and marketing and sales. For each axis, a number of differentiation strategies are possible, depending on the company's situation (see sidebar).
For SMEs in general, Halde offers a few practical suggestions: find out how others in your industry are innovating; upgrade customer relationship systems; invest in employee training and product development; reduce delivery lead-time by improving your processes; invest in a marketing plan; and rethink your manufacturing model.
Entrepreneurs can also work with a BDC expert to examine how their company can become more innovative. BDC also offers loans to support these investments. "Intellectual property, goodwill and client lists are just as real in terms of competitive value as tangible assets like buildings and equipment," Halde says. "These intangible assets build future value in a company by identifying new markets, rethinking processes and developing the company. The results are not always immediate, but they will make your company stronger over the longer term."
