How Agility and Customer Value Create Competitive Advantage
Agility and customer value for competitive advantage
In the chart of buzzwords, "customer value" competes with "agility." Businesses must understand, create, manage, and retain it to remain competitive.
We already tried to explain the different views on agility in previous posts, e.g., dynamic capability.
Customer value is another complex term that varies depending on context.
We will now try to understand the different dimensions of customer value.
Moreover, we will build a complex view of the competitive advantage involving agility and customer value.
The overview of customer value
Customer value is a complex term with many definitions. One is end-users ' opinion about a product or service based on their customer experience compared with the competitive offerings.
Multiple dimensions of customer value
There're two dominant logics of customer value: goods-centered and service-centered.
The first is the value of an exchange, and the second - is the value in use. Both types are reasonably objective, being defined on sensible criteria.
The customer-perceived value
The customer perceived value is the utility (happiness, joy, satisfaction) associated with the competitive product minus its price or utility of possible alternatives.
This value isn't objective and is not defined by the producer.
The process of perceiving value typically involves a tradeoff between perceived benefits and sacrifices (paying the price, saving money for the desired object, etc.)
Experts underline the dynamic nature of customer-perceived value.
Firstly, customers might perceive value differently in buying, during, or after use.
Secondly, it doesn't only vary across customers but also within customers over time. Consequently, companies must understand each customer's values and the reasons behind changing perceptions of value over time.
Customer value from the firm's perspective
Firms strive to create value and appropriate it to achieve a competitive advantage.
In other words, their task is to make the customers willing to pay for the competitive product and retain their payments by protecting it from the competition.
Some firms may choose to compete for value creation by tirelessly developing and innovating their products.
Others may decide to defend their position in the market (to appropriate value) by extensive advertising or continuous improvement of customer service capabilities. Firms start seeking customer feedback to adapt their value proposition to changing perceptions.
Most firms try to balance the creation and appropriation of value to achieve sustainable competitive advantage.
An integrated view of customer value
Let's look at the value with the eyes of a firm and a customer.
(a) a firm must be able to create value for its customers, i.e., stand out from the competition;
(b) a firm isn't making a value, if the customer doesn't perceive it;
(c) if a firm creates value and the customer perceives it, the necessary next step is appropriating that value.
Exploration and exploitation
Earlier, we covered the notion of organizational ambidexterity - the ability to both explore and exploit.
Exploration assumes competing in mature technologies and markets where efficiency, control, and incremental improvement are valued.
Exploitation means competing in new technologies and markets where flexibility, autonomy, and experimentation are needed.
Combining exploitation with strategic agility to stay responsive to a dynamically changing environment improves the firm's competitive advantage.
A complex view of the competitive advantage
Our attempt to marry customer value and ambidexterity create a complex view of building a competitive advantage.
The customer value elements suggest the importance of exploration and exploration for creating and appropriating customer value.
The exploration capabilities of a firm contribute to value creation. Exploitation capabilities help to appropriate value.
Strategic agility is the dynamic capability to rapidly change and rearrange the strategic orientation by adjusting quickly to shifting requirements, opportunities, and trends.
It is precisely what's required to appropriate value by adapting to changing market conditions and, most importantly, customer perceptions.
Ideally, this view would logically present agility and customer value as critical enablers of the firm's competitive advantage.
More information on this and other exciting topics can be found in "The Technology Procurement Handbook." It represents 23 years of experience, billions of dollars worth of successful sourcing projects, and 1000s of hours spent on research, analysis, and content creation for the most demanding professional readers.
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