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What does competitive advantage look like?

December 12, 2016

“Today, it seems to me, we are competing on our ability to take on risk.”

Those are the words of a Chief Operating Officer with whom I met last week. They encapsulate perfectly the trend in thinking that I have observed this year. To win in the market, organizations need to distinguish themselves through a readiness and demonstrated competence at risk acceptance.

Why is this happening and why does it matter? I think it is happening because of the growing shift to ‘as a service’ offerings – the continued extent to which suppliers are stepping up to responsibility for their customers’ operational performance. It matters because those services reduce costs, raise reliability and introduce innovation. In other words, they lie at the heart of the customer’s value proposition.

It is almost 10 years now since IACCM started talking about ‘the end of caveat emptor’ and this current trend is part of that continuing journey. The implications to commercial functions – buy and sell – are fundamental. They need to become highly proficient at understanding the factors that underpin competitive advantage and how, through their contracting practices, those factors can be enabled.

For those on the sell-side, this means it is not enough to identify the risks inherent to customer or market requirements or to monitor challenges to compliance. The role instead must be to identify how those risks can be contained and managed. It is about defining the capabilities needed to meet requirements and leading projects to deliver them.

For those on the buy-side, the need is to ensure understanding of market requirements and opportunities, then ensuring requirements and supplier selection criteria are developed accordingly. Procurement’s responsibility must be to confirm that they have assembled the right suppliers, on the right terms and with the right on-going performance and governance regime.

Essentially, for commercial teams, risk is opportunity. It represents a field that demands innovative thinking and where the prize is differentiated business capability and value.

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