Castles and Moats: I greatly admire Warren Buffett and have...

Sat, 22 Jan 2011 05:10:00 -0500

Castles and Moats:

I greatly admire Warren Buffett and have spent many hours reading his books as well as sharing them with friends and colleagues. One of the more interesting points that Buffett talks about in his books and annual reports is the concept of castles and moats. He uses these terms as metaphors for describing the concept of competitive advantage. Competitive advantage (the moat) results from the unique mix of resources, capabilities, and core competencies that organizations develop or acquire to protect the business (the castle) from invading competitors. Warren Buffett is always on the lookout for companies that possess a sustainable competitive advantage. The concept also explains why he stays clear of industries where competitive advantage is difficult to create.

Competitive advantage is a concept of necessity in today’s hyper-competitive business environment. It drives growth while simultaneously increasing a firm’s ability to sustain above-average returns. Competitive advantage gives an organization an edge over competitors and in turn leaves investors very satisfied with their investment. Lose a competitive advantage without recreating one and the organization will not be around for long.

The list of possible competitive advantages is long and varied. Geography can give an organization an edge in terms of access to raw materials, cheap labor, or distribution. Technology can drive costs down while enabling the organization to better understand and respond to the unique wants and needs of their customers. A global mindset allows an organization to successfully navigate the complex sea of trade issues, regulations, and societal norms. Competitive advantage can stem from meticulous research or strategic intuition. It can be acquired or developed, but regardless of how it is obtained, sustaining competitive advantages is crucial for long-term growth. My favorite competitive advantage, and perhaps the most difficult to replicate and sustain, is organizational culture.

Intentional Culture:

Organizational culture encompasses the beliefs, norms, workplace practices, and behavioral regularities driven by the written or unwritten values of an organization. Culture drives integrity, accountability, senior management relationships, speed of decision making, level of collaboration, and just about everything else that links an organization’s brand to its employees. If an organization happens to be in a business that leverages employees to drive the brand through visible and regular customer interactions, then organizations had better have their act together with respect to culture.

Organizational culture must be deliberate and intentional. It can only serve as a source of competitive advantage when it becomes intimately linked to the desired brand experience and strategies of an organization. There is an old adage that says, “people will listen to what you say, but they will believe what you do.” An organization can advertise great service all they want, but if they fail to deliver on that promise, then the advertising message does not ring true to the consumer or employee. Consistently and beautifully delivering on a brand promise every hour of every day is what makes culture a competitive advantage.

(Brand + Strategy + Culture) x Execution = Growth:

The harsh reality about competitive advantage is the very real fact that there is no guarantee in regards to its sustainability. As business models and strategies change, so must the culture required to execute them. The world has witnessed a huge economic reset that will undoubtedly continue to reshape the economic landscape in which we do business. In response, a CEO cannot purchase culture off of the shelf and expect to see positive transforming results. Investing in “canned” programs that attempt to instill one company’s culture into another does not stick and can have cynical affects. Bob Nardelli found this out when he tried to force fit GE’s culture into Home Depot. Jim McNerney came to the same realization at 3M. Yes, delivering the brand promise at a high level requires commitment and dedication from the organization, particularly from the CEO and other senior leaders; however, many other key drivers must be moving in unison to increase the likelihood of success. These drivers can be, but are not limited to: clarity of purpose, obsessively teaching employees the businesses playbook, attracting and aligning the right talent, ongoing training and development, well executed performance management, and work place branding activities.

While transforming a culture into a competitive advantage may be one of the most difficult changes an organization undertakes, it can also mean the difference between survival and failure. Those who are held accountable for inspiring and leading culture must have total clarity in regards to how brand, strategy and culture are aligned. Establishing culture as a competitive advantage requires consensus from leadership about messaging and a cultural infrastructure to reinforce it.

Inspiring Growth!

Castles and Moats: I greatly admire Warren Buffett and have...