Leaders produce far higher profits, maintain better quality, better satisfy their most demanding customers, enjoy 
lower employee turnover, and handle change much better than laggards. They have more fun and adapt to volatility and competition far better than their laggard competitors. But it’s not easy getting there.
Leaders:
Leaders are typically synonymous with “pioneers” or “first movers”. Investors’ Business Daily describes leaders as high-growth companies that stand out among their peers in an industry or the whole market. Leaders have been shown empirically to experience greater market share than their competitors (Robinson and Fornell 1985; Robinson 1988). The “absolute pioneer advantage hypothesis” (Lieberman and Montgomery 1988), states that firms seek to be pioneers because of their superior skills and resources. Leaders obtain first-mover advantages by progressing along the experience curve (Spence 1981); by preempting competitors’ use of scarce assets or space (Main 1955; Prescott and Vissher 1977; Eaton and Lipsey 1979, 1981), and/or by creating high customer switching costs (Wernerfelt 1985; Klemperer 1987).
Laggards:
Conversely, Abell (1978) proposes the “comparative advantage hypothesis” which suggests that market evolution changes the requirements for success. This theory puts the advantage in the hands of the market imitators (i.e., laggards). Comparative advantage stands in direct contrast to learning-by-doing or progressing along the experience curve (Spence 1981; Lieberman 1984) and instead suggests that a firm should strive to capture and apply outside knowledge (presumably from leaders) to compete against its peers (Cohen and Levinthal 1989). Put more simply, firms can freeride on the actions of their industry peers (Oster 1990). Therefore, under the comparative advantage hypothesis, market laggards will display superior future operating and market performance relative to leaders. To that point, Hoppe (2000) develops an analytical model demonstrating that laggards have a competitive advantage over leaders, because leaders must expend resources on innovations where success is uncertain, while laggards are able to restrict their investments to only technologies that have been proven successful by the leaders. Moreover, laggard firms can divert their resources from product development to marketing and potentially bypass the profitability of the leaders. Lilien and Yoon (1990) find survey evidence that laggards possess significantly greater marketing expertise and efficiency than earlier entrants into the market. In fact, using small sample survey data, Robinson et al. (1992) document that firms that excel in technological innovation will be leaders, firms that excel in production efficiencies will be average performers, and firms that excel in marketing will be laggards. Yet, Boulding and Christen (2008) empirically examine the cost structure of leaders and laggards and find mixed results. To summarize, leaders may have the advantage for input markets, but laggards likely have the advantage in terms of production and selling, general and administrative costs.
Creating and Sustaining the High-Performance Business:
With the exception of profit motive, desire for growth and an inability to predict the future, all companies are unique. Every industry has its leaders, followers, stragglers and innovators. And in every field, differentiation stems from a multitude of sources: manufacturing, marketing, merchandising, supply chain, customer service, cost management and many more. Moreover, within a particular category, industry or market, very different approaches can drive strong performance.
Companies that consistently turn insights into action may not be unique, but they certainly are a minority. Yet these high-performance businesses do have several identifiable characteristics. At a high level, their strategic mission is crystal clear; yet they are willing and structurally able to refocus and redirect as business conditions warrant. They also fixate on mastering the core competencies needed to excel in their industry, while functions that are not core competencies are outsourced to service providers for which the work is a core competency. And nearly all high-performance businesses are collaborators: They know that a tight relationship with business partners can enhance financial strength, increase their own uniqueness and make their market positions less vulnerable.
High-performance businesses are particularly adept at using information to make the right decisions at the right time. Compared to less-effective organizations, they:
- Gather more and better information about their business and competitive environments.
- Analyze that information more thoroughly, and make better decisions based on the results of their analyses.
- Act more quickly and decisively on the acquired information.
- Monitor their performance more closely.
- Improve and innovate continuously.
Lastly, high-performance businesses truly understand the drivers of current and future value, and they translate those insights into differentiated operating models and business architectures. One such driver often is supply chain management, a process that still is viewed by many as a cost center or, at best, a means to extend companywide efficiency. The reality, however, is that the benefits of exceptional
Leveraging the Supply Chain to Improve Business Performance:
Supply chain excellence clearly has the potential to drive—not just influence— business performance. But most supply chain managers still see “greater efficiency” as their principal mission. As a result, they propagate an inward focus on cost control, rather than spearheading supply chain strategies that seek to improve overall business performance. Senior executives often fall into the same trap: Few think about how they might position supply chain mastery as an engine of differentiated market positioning and sales growth.
Still, there are exceptions: companies that put the supply chain centre stage when defining, enabling and executing business strategies. More often than not, these are the leaders and transformers identified in the previous section. And in all probability, they also practice many—if not all—of the following supply chain behaviours:
- Recognize the strategic possibilities that innovative supply chain strategies and operating models do enhance shareholder value and competitive differentiation.
- Embrace end-to-end process integration—across firms, systems and people—as the key to aligning demand and supply.
- Execute supply chain initiatives selectively using common processes and technologies to achieve uncommon results.
- Challenge the status quo regularly and aggressively to drive supply chain and business strategy innovations within and across companies.
- Leaders Recognize the Strategic Possibilities
Most companies regularly envisage supply chain opportunities, but they also limit those visions to operating cost efficiencies and, perhaps, service enhancements. Leaders and transformers look at the same supply chains, but they come away with novel possibilities for new, market-changing value propositions. Often, those innovations result in more favourable trade-offs. For example, there might be less need to increase costs in order to ensure premium delivery. Redefined trade-offs make it possible to offer new product/service varieties to customers at lower costs and with greater speed. Meticulous development of integrated operating models go hand in hand with those visions. Basically, integrated operating models help companies define how they will leverage supply chain management to maximize competitive advantage. As such, they consider:
- Channel relationships, channel and network strategies, product flow strategies, and the degree of operational integration with channel partners.
- Inventory and service strategies across the extended supply chain.
- Linkage with pricing and customer development.
Most companies spend far less time on the design of integrated operating models than they do on business strategy development or process design. However, the research team discovered that supply chain and financial leaders spend a larger percentage of time on the design of their operating models. Those models vary significantly by industry, but they always incorporate world-class business processes— particularly customer relations, supplier management, new product design and core logistical operations. They also are the product of a management culture that encourages supply chain mastery and insists that its people understand and flawlessly execute supply chain processes.
- Leaders Embrace End-to-End Process
Integration Leading supply chain companies “do the basics well” by ensuring that processes are designed to be easily executed, that strict performance standards are met, and that key processes are integrated end to end—from supplier to customer. The latter capability—effective end-to-end integration—is particularly important because it helps align supply with demand. Companies with superior supply/demand-matching capabilities generally are more responsive to changing market conditions. They also may require less operating capital than their peers. And like Zara and Seven-Eleven Japan, they often leverage this capability by expanding product variety and increasing speed to market, as well as reducing costs.
- Leaders Execute Supply Chain Initiatives Selectively
Supply chain leaders are particularly careful about choosing and implementing supply chain initiatives. They understand that, to be effective, those initiatives must mesh well with the company’s business strategies and operating models, and have clear potential to generate above-average returns and yield new sources of competitive advantage. Supply chain leaders also are selective in their deployment of information technology— often opting for systems with distinct or proprietary features to support critical parts of their operating models. Dell, for example, developed a sophisticated “dynamic pricing” application that helps the company manage demand by frequently changing the prices of configurations and components. This capability makes it possible to shift demand to available and committed stocks of supplies, thereby stabilizing supply chain operations and reducing costs.
- Leaders Challenge the Status Quo
No supply chain leader ever defaulted to “that’s the way it’s always been done.” Instead, leading performers constantly challenge the status quo and revisit the assumptions that underlie their supply chain approaches, business models and technology infrastructures. Look at Tesco—the largest and most successful UK supermarket chain—which did careful, yet imaginative experimentation when piloting online grocery shopping through pick-and-pack fulfillment of orders from its stores. Refusing to follow the lead of Webvan and other online grocers, Tesco did not invest initially in expensive, dedicated distribution centers for online grocery. Instead, it learned how to refine its online grocery offerings in concert with its store assets. Or consider Dell’s refusal tostand firm with its highly successful build-to-order business strategy. In July 2002, to promote sales during back-to-school and holiday periods, the company opened its first mall kiosk. However, the approach was so successful that Dell made many kiosks permanent and then began putting them in Sears stores. Several months later, Dell began leveraging its supply chain prowess even more by offering build-to-order, unbranded PCs through resellers. Leaders don’t just revisit their own operating model assumptions: They push their insights and innovations throughout the company, drive them out to suppliers and actively promote them to third parties. They also embrace new technologies and implement them (when suitable) with key partners in the supply chain.
