Friday, September 09, 2011

Postal Service Blues: Substitution is Always the Biggest Threat!

Over the past few weeks, we have heard a great deal about the troubles at the US Postal Service.   The USPS experience offers a crucial lesson regarding threats to competitive advantage.  Many firms spend enormous amounts of time conducting competitor analysis of various kinds.  They worry constantly about how their rivals might overtake them.  However, the most dangerous threat to competitive advantage really does not come from direct rivals in your industry.  Instead, it often comes from substitutes.  In other words, different goods or services emerge that address the same customer need, thereby supplanting your product in the marketplace.  Think digital photography undermining instant cameras, NetFlix destroying Blockbuster, tablets eroding the position of traditional PC makers, mobile and social gaming undermining the position of traditional console-based video games, and clearly... email and other electronic forms of communication threatening the sustainability of the USPS business model.  In sum, companies should spend much more time scanning the external environment for the rising threat from potential substitutes, as opposed to fixating on their existing direct competitors.  Of course, in so many cases, companies fail to acknowledge the threat from a substitute until it's far too late... even though they are aware of the emergence of this alternative good or service.  Unfortunately, existing mental frameworks often make it difficult for executives to get their arms around the very different business model associated with the substitute.  


Andy Kaufman, PMP said...

I don't know when the day will be, but I'm sure it's out there.... Instead of bringing in a speaker like me to a company, technology will allow us to be remote or recorded in a way that it's just as rich as being there. It's exciting and disconcerting, but the substitutes are already here. It drives much of what I'm doing with e-learning, podcasting, and other tech initiatives.

What about higher ed, Michael? My 17 year old has 90 college credits through distance learning, CLEPs, etc. What substitutes are difficult for university administrators to see on the horizon?

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Michael Roberto said...

Andy, you are so right that there is a disruption coming to higher ed. See Clay Christensen's new book, The Innovative University, for more on that topic.