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Differentiation Is Essential in Business, but Comes at a Cost

January 17, 2020

Differentiation in business

On a social level, humans are hard-wired to be part of a tribe. Growing up, we want to fit in with our peers whether in attire, interests, or ambitions. As adults we tend to seek out like-minded people to hang our hats with. But in business, blending in with the crowd can be the kiss of death; if you don’t differentiate to stand out in today’s highly competitive marketplace, your organization will be at a significant competitive disadvantage.

But that’s easier said than done. As Austin McGhie writes in his book Brand Is a Four-Letter Word, “Strong products and services are highly differentiated from all other products and services. It’s that simple. It’s that difficult.”

Differentiation is the principle of setting a company apart based on specific elements such as pricing, product offerings, or organization. When implemented as part of an overall strategy, differentiation can propel a company to the next growth level. But as with any initiative, differentiating your organization will require planning and trade-offs. For example, a leader might decide to differentiate the company through innovative product offerings that can provide an advantage over competitors. But that strategy will require spending more money on research and development, production, and marketing. Affording that strategy will require trade-offs in both time and resources.

Rather than trying to do everything now, as if each task is of equal importance, leaders will need to prioritize what can reasonably be accomplished at maximum quality with the time and resources available. The ability to choose and prioritize will inevitably create a more positive outcome.

How trade-offs help to differentiate offerings

Every organization struggles to achieve differentiation because leaders want to be everything to everybody, even if they rationally know that’s impossible. Ultimately, they need to create more focused paths that lead to differentiated marketplace positioning, prompting trade-offs that are difficult but necessary.

Here are three ways a trade-off leads to more differentiated offerings:

Creating simplicity and cutting through complexity. Narrowing the company’s focus allows you to leverage different skills and abilities across the organization. These synergies pay big dividends in efficiency and cost reduction by freeing up valuable resources for more strategic activities.

Communicating where the organization should place its energy and focus. When you make and communicate trade-offs, it’s easier for employees, leaders, and the organization overall to know where they should focus their energy to create market growth for the company. Trade-offs allow everyone to know where the organization intends to focus and win.

Putting greater impact on the things that will help you win. Not all areas of a business are strategically equal. Trade-offs help identify the strategic areas and allow an organization to put their resources where they will have the biggest impact.

Not all trade-offs are created equal

Effectively differentiating your organization doesn’t mean making just any trade-off; it means making the right trade-offs that will bring the greatest value. This isn’t done by flipping a coin; these decisions must be based on careful consideration and a deep understanding of the market to anticipate the consequences of a trade-off. Failure to do so can result in unintended consequences.

A trade-off that is taken too far or misjudges the market reaction can cause more harm than good. To get the most out of a trade-off, keep your fingers on the pulse of the marketplace and be willing to adjust accordingly.

Leaders must also avoid the path of least resistance. Making an easy trade-off may feel less stressful in the near term but will likely cause more pain when it fails to achieve the desired market advantage. The best trade-offs are tough to make, typically alienate some customers, and often require organizational realignment. But they will have the desired outcome, so resist the temptation to take the easy way out if you want to create true marketplace value.

Differentiation does come with a cost, but organizations that rigorously make and adhere to the necessary trade-offs can focus their resources, simplify their organization, better communicate a strategic direction to employees, and ultimately achieve growth in the marketplace.

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About The Author

Principal of AlignOrg Solutions, Reed Deshler specializes in developing strategic organization designs and helping companies bring them to fruition. As an organization consultant, he works with executive teams and HR teams to define winning strategies, align their organization and business models for success, and mobilize employees and stakeholders in the desired direction. He’s guided Fortune 500 companies—including 3M, Abbott, Hertz, Chevron, Cisco, and General Mills—as well as middle-market businesses and nonprofits through change successfully and helped them solve complex organizational challenges. Deshler is co-author of Mastering the Cube: Overcoming Stumbling Blocks and Building an Organization that Works, a guidebook that outlines AlignOrg Solutions’ organization alignment process. He regularly writes and speaks on issues related to organization transformation and ways to implement—and create buy-in—among stakeholders for new business designs. Learn more about becoming an Alignment Leader.

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