Is differentiation the best strategy for the current world?

Liverpool's European Cup. Photo credit Wikimedia Commons
Liverpool’s European Cup. Photo credit Wikimedia Commons

Differentiation is a classic strategy. You can read a lot of writings by Porter about the benefits of this classic strategy and how you can implement them. Yesterday, I was watching at the TV an interview to the manager of the Spanish soccer team Atletico de Madrid finalist of the Champions European Cup and he said that his team is the team of the people (the team of the masses). I always was a fan of his traditional neighboring rival, and other finalist of the Champions Real Madrid. This interview sounded very odd for me, as Real Madrid always had a more extended number of followers out of the city, and At. Madrid’s followers usually thought that they were the pure team of the city in front of a mixed team for the people from the countryside (searching for a disparaging argument thinking that those people have less education, culture and international vision).

If we look at the political world we can see how political parties build their strategies around the same concept. Defenders of the right side values present themselves as the parties of the people, although they usually are defending the interest of the capital and banks more than other political options (at least in theory).

This anecdote makes me to think about differentiation and if in our complex current world it is possible. It is well-known, all over the world, that Real Madrid represents the excellence of that sport in the sense that is always searching for the best players in the world and it has the highest number of European Cups (today Champions Cup), and it probably the most international soccer team in the world. If we translate this to the business world: There is not a relationship between the excellence of the product and the origin of their workers and clients. It is only a matter of business strategy. Soccer is a business where incomes depends more on the number of fans than on a marketing price strategy. Real Madrid and Atlético de Madrid are selling a very different number of T-shirts all over the world due to the different strategy and the different results of their business strategies.

Looking at Real Madrid we can find that nowadays it is possible to reach the masses through a strategy of differentiation, even searching for excellence, the only thing you need is the proper marketing strategy (related to price and so on). This is not new under Porter’s concept, in fact, leading companies usually follow this kind of strategy preserving their leadership through investments in R & D and innovation.

There are some reasons in order that we do not choose a differentiation strategy to lead an industry and they have been analyzed in classic strategy yet. But today there is a new element that it should be considered when we are choosing a strategy.

As complexity increases it is more difficult (and costly) to implement a differentiation strategy. Differentiation requires an identity, a brand with a set of associated values that let the clients to identify the benefits that our products are offering. The creation of this identity is not easy in a complex economy, the trademark Real Madrid is the result of more than a hundred years of history contracting the best players and winning more European Cups than anybody. Atletico will not be able to build this kind of identity in the next few years. He can only be “people’s team”.

A complex economy makes very difficult to implement a differentiation strategy because complexity makes very difficult to create the proper identity. Complex systems have the characteristics of having a lot of internal uncertainty and moving easily this uncertainty from one point to another one in a fast way. As identity is a synonym of certainty, the simpler the industry the easier the way to create an identity of excellence. In a complex organization masses will usually win.

For instance, how could I defend my own work if people think that it has been developed by a neighboring colleague because my organization gets a benefit if clients think so? How could I start a differentiated business if a government is interested in selling a country brand transmitting that all the people in my country are equal to my business in order that its public officials can seem similar and they can be accepted easier by other countries in international forums? How can I cope with uncertainty when certainty provides less money than uncertainty to the subsystem where I am?

Perhaps, Atletico’s manager is right. Perhaps, as only a few organizations have a similar history in its market to that of Real Madrid, the best marketing strategy in a complex world is to be “people’s company” (for instance a cost leading strategy). Perhaps, a differentiation and excellence strategy requires a history of many years in the market or an expensive marketing investment to assure certainty when the economy is very complex.

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9 thoughts on “Is differentiation the best strategy for the current world?

  1. This is a very interesting subject. Complexity means we don’t have a “linear strategy”. This requires new forms of doing things, and mostly learning by doing.

    Yesterday, I published a presentation on “Complexity Thoughts”.

    I wish I had read this post before I published it. I would have added that complexity in trees doesn’t differentiate leaves or branches. It is their moving pattern that counts. Differentiation may not be their best strategy.

  2. Thank you for this discussion…let me focus on one aspect…”As complexity increases it is more difficult (and costly) to implement a differentiation strategy. Differentiation requires an identity, a brand with a set of associated values that let the clients to identify the benefits that our products are offering. The creation of this identity is not easy in a complex economy…” I used to think the same thing, however I have been studying Coke’s 2020 strategy. Capturing Millennial segment spending requires an emphasis on individuality and highly tailored products (products with engagement and service included). To achieve this across its 500 unit product range, Coke is embarking on a series of very tailored packaging efforts. Not a change in package design but literally dozens of one time only, packaging runs, through associations with popular fashion designers. The theme is an expression of individualism… I believe it is going to work. (This is after all, the most valuable brand in the world, with some exceedingly competent and forward looking strategic thinkers.) Coke is pushing forward with what amounts to mass produced individualism… or in more Porter-esque terms…mass produced differentiation…. I don’t have a theory yet as to what this means to the market, and whether or not we could argue that Coke is following a differentiation strategy at the product level under the umbrella of mass production strategy on the manufacturing side. Clearly there are interesting implications to consider.

    1. That is an interesting concept, however I can give you examples of people that can consider it a very risky strategy. I recommend you the book “The Complexity Crisis” by John Mariotti if you want an opposite viewpoint to yours. I do not know if the strategy will be sucessful, we can see it in 2020, but it can become very costly. There many costs that appear if you increase the complexity of your production process extending the portfolio of products.

      Growing complexity means less manageability, and it is not a problem due to a lack of resources to implement a strategy although in general introduces additional costs to cope with uncertainty, it is a problem because provides a less manageable organization that can be very fragile under unexpected external events. This is the key point, you can be analyzing a strategy thinking in a stable market condition, however, in a complex economy things can change suddenly and complex organizations fit worse those changes. Unfortunately we have a lot of recent examples. Think about Lehman Brothers and their complex financial products.

      1. Interesting…in the case of coke, the marginal cost of increased complexity is probably negligible given the revenue growth from capturing more impulse buys of millennial consumers. (it might even be a net profit gain). I suspect Coke’s strategic planners have already figured this out – through a Gabor-Granger market research test among young buyers. I think we cannot generalize that increased complexity of production necessarily hurts profitability given the impact on the top line.

        Another aspect I would like to touch on is emerging markets settings where uncertainty and complexity are the norm… In such settings, the management system loop (the strategy-to-plan-to-operations) paradigm is different and, frankly, the assertion: growing complexity means less manageability, simply does not hold true. For those who live and operate inside complexity, manageability is a non-issue. However, an American style of “manage” and for example, a Russian style of “manage” is unlikely to be transportable. Americans can’t deal with Russian complexity, just as Russians can’t deal with US complexity.

        There is probably a theory in the making here….let’s sleep on it.

      2. First of all, I would suggest that you do not predict costs that you have not measured, and please read the book by Mariotti. And it is true that complexity is directly linked to functionallity and inversely to manageability. This does not imply that you cannot manage a complex organization, this only implies that you need to establish a proper control system, and this proper control system is more expensive as complexity grows. Systems and organizations have a maximum level of complexity and they are working in other different. What makes unmanageable an organization is not an absolute concept of complexity but the difference between the working complexity and the maximum complexity that the organization can manage. When you are working near the maximum complexity the system is working near its full functionallity, this can be seen as it is working taking advantage of all the resources in a very efficient way, however, it can be very risky because if the system peaks it collapse. Lehman Brothers is a good example of this concept.

      3. The discussion is warming up. I believe that complexity results in patterns that act as attractors. As long as we stay within the boundaries of these attractors no major change shall happen. If the differentiated product/service may play the hero role, it means it is able to move people out of their attractor to a goal that falls outside the original pattern where new behaviors shall be noticed. Differentiations that fall short of this shall keep the customer within the old patterns and in reality nothing changes to any significant level. So, I would conclude that “hero differentiators” are only of value.

  3. William Blake wrote: “without contraries is no progression”. It is in the fundamental nature of humankind to seek differentiation – whether as a deliberate strategy or an innate urge. If you couple that with the increasing complexity that is evident in today’s globalised consumerism, then we can undoubtedly expect that “sophistication” will become the key differentiator in the next decade. Patterns of memes and consumption continue to morph along complex waves of social interaction and meaning. Therefore, the key to tuning into this phenomena for brands will rest in increasing their depths of empathy, engagement and insights in order to define and subtly deploy these as part of product and service strategies. Big Data will to play a big part in defining the winners and losers in the next phase of consumer evolution.

    1. I can agree with your sentence by William Blake, however, you are using a dialectic stratagem that Schopenhauer named stratagem of enlargement . Differentiation in the field of strategy is a strategy centered on providing products that are perceived as different, but this does not mean that a company following a cost leading strategy is not different to other ones. A cost leading strategy can be developed through a lot of innovation. Not all the innovation activity is product innovation, there are process innovation and organizational one. Your concept of “sophistication” can be applied to the internal processes to get cost advantages. Your has substituted the concept of competition by the name of differentiation, and in the field of strategy they are very different.

      Related to differentiation as an innate urge of mankind, I can say many things but it will need a very large post. Many people would say that man is a social animal because most people get survival advantages establishing communities, of course, there are some movies about far west trappers. I can agree with you that perhaps to be a social animal is not “very human” as wolves are social animals too as they hunt in a herd.

      Differentiation can be an innate urge, however, survival is an innate urge more prioritaty. Competitiveness is more prioritary than differentiation, sometimes differentiation provides advantages, and sometimes other strategies provide better advantages, it depends on the business and the industry.

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