In technology, competitiveness is as important as innovation:
- Customers, whether public or private, rationally and carefully compare the price, value and costs of using the product or service they intend to buy
- They are very rarely prepared to pay any price for a product, service or solution, whether innovative or not
- Competitors are always on the lookout and may be able to catch up and offer as good or better for less
There is therefore just as much risk of losing a foothold in a technological market through lack of competitiveness as through lack of innovation.
What kind of competitiveness are we talking about?
This explains why competitiveness is a constant obsession in B2B/B2G high-tech, as much as innovation. But which competitiveness are we talking about?
- The media and sometimes the public authorities are constantly talking about costs, and more particularly the cost of labour, as the key factor or handicap in terms of competitiveness.
- In companies, there is also often talk of costs, and quite typically in divisions or subsidiaries, of excessive structural costs levied by the head office.
- Again, companies often talk about putting pressure on suppliers to improve competitiveness by buying at lower prices.
Would competitiveness then only be a matter of costs, especially labour costs, overhead costs and purchase prices from suppliers?
These common approaches to competitiveness have some truth to them, but are at best limiting and at worst wrong, for at least two reasons:
- Competitiveness is not just about costs. Cost competitiveness is only one of its two dimensions. The other is value competitiveness, which means that competitiveness is really about cost-value balance
- Although it helps, cost reduction is not just about containing hourly rates, reducing overheads or buying cheaper
They are further belied by the many examples, in the high-tech industry as elsewhere, of companies that are both ‘competitive’ and profitable and that charge high prices because they have a better understanding than others of what is ‘valuable’ to the market, i.e. what customers are willing to pay for or not.
Defining the competitiveness of a product or company
For a product, competitiveness means offering the market and customers a price-value ratio that is preferred by customers while remaining profitable.
For a company it means having a competitive portfolio of products and offers.
Seen in this way, competitiveness requires thinking not only about costs but also about the value proposition to customers and the relationship between cost and value.
It also requires thinking separately about costs and prices. The words “price competitiveness” often used to refer to cost competitiveness are misleading in this respect, as cost competitiveness does not necessarily imply price competitiveness, as the two are different in nature.
What does competitiveness depend on?
At the level of a product or an offer, it depends of course on its cost competitiveness. But this does not only come from hourly rates, structural costs or the prices at which we buy:
- It depends heavily on the cost of the technical architecture of the products or systems, as well as on the “volume effects” resulting from the sharing of components or “building blocks” between products or projects. This is a matter of product engineering
- It also depends on the full cost of operating the product throughout its life at the customer’s premises: installation, commissioning, training, maintenance, destruction or recycling. A product may be more expensive at the time of purchase but ultimately be very competitive due to a lower total cost of ownership
- Finally, it depends on the cost of any services that the customer will be obliged to acquire in addition to the product itself
But it also depends on its value competitiveness, i.e. its ability to offer the right features, technical performance, services or even image that customers will be willing to pay for. This is a matter of marketing understanding of customer needs
At the level of a company, its competitiveness will depend on its ability to create competitive products and offerings on the one hand, and on its ability to maintain competitiveness over time on the other.
It should be noted that value competitiveness is related to what is sometimes called “pricing power”, i.e. the ability to make customers pay the right price for the value offered in order to be profitable. This point is at the same time a matter of customer value, of promotion or communication of value and of commercial negotiation capacity.
Monitoring competitiveness and maintaining it over time
How will competitiveness be monitored in practice and maintained over time?
- Firstly, by introducing the notion of “target price” at the very beginning of the thinking about the product concept and its technical design
- By carrying out detailed analyses of what customers are actually willing to pay in a given market segment: functions, performance, revenue model, services, image
- Of course by looking for technical architectures that optimise costs
- Then by systematically seeking, even if they are not always possible, the effects of lowering costs through volume, i.e. by reusing the same element in several products (or projects)
- By parameterising and simulating the different cost hypotheses according to the overall volumes and the volumes of each poolable element
- By making the product “serviceable” at lower cost, which does not necessarily mean at lower price
- By working collectively on the theme of “pricing power” not only for the product in isolation but for the product + services + transaction model as a whole.
An ongoing effort
The ongoing effort to be competitive will be reflected in the internal processes by two types of action:
A “business as usual” exercise designed to maintain the competitiveness effort on an ongoing basis. This will involve a review of the competitiveness of each product and product family, at least annually: this review will not focus solely on costs but on the relevance of the cost-value ratio. It will lead to adjustment actions relating to one or other of the two elements.
This is not a “business as usual” exercise, but rather one that is triggered on demand, depending on specific situations. When a competitive disadvantage is too great to be resolved in the annual review, it will be necessary to completely restructure both the value and the costs of the product by re-examining all aspects of the product’s competitiveness from top to bottom: value proposition, positioning, price, technical design, suppliers, etc. This type of action can be successful:
- Either to completely redefine both the positioning and the value proposition of the product, as well as its technical design, in order to make it competitive again
- or to note that a return to competitiveness is not possible and to abandon the product
- Or to keep the product despite its lack of competitiveness if the product plays a strategic role in the product portfolio (requirement for selling another product, maintaining contact with customer operations, gatekeeper to the competition, etc.)
