Co-creating unique value with customers.

The Future of Competition, by C.K. Prahald and Venkat Ramaswamy, offers bad and good news. But the bad news is not so bad (you've experienced it all before), and the good news should be heartening.

First, the bad news: competition is becoming tougher, pressuring businesses to make difficult changes. The casting industry has grappled with this for years, and weak metalcasting facilities have been weeded out by market forces.

But, the good news is that leading metalcasters have been strengthening relationships by "co-creating value" with their customers at a time when the trend has been to commoditize castings. The best metalcasters are now experts at creating unique value, although many of them may report that they are simply listening to customers and responding with energy, competitive vigor and a spirit of innovation.

One key point of The Future of Competition is that tomorrow's successful firms will co-create value though "personalized experiences." But that is what customers of even slightly engineered castings have been receiving from suppliers for years. The interaction--or, more specifically, the quality of the interaction between customers and suppliers is what creates and sustains value for both parties. It's likely that any metalcaster that is currently profitable has figured out how to perform this essential interaction.

For this reason, successful casting firms are well positioned to benefit from The Future of Competition. The book does a valuable job of showing all the ways customers are changing. The internet, industry networking and the aggressiveness of suppliers competing for business have contributed to making today's buyer more informed, more demanding and less loyal. The book explains why these trends are growing and intensifying. It then offers fresh thinking for strategies to compete effectively.

The authors promote a company-wide approach to the co-creation of value. Value is something that is created through multiple channels. Committed sales and customer-services people are not enough. Everyone who has direct or indirect contact with customers must be aware that competitors are striving to differentiate themselves through multiple channels and will outpace you if you do not answer their challenge.

These channels are likely to involve people from every department of the organization. All employees should be aware of their role. For example, if the customer's view of value impacts departments that support new product development, the personnel in that area should view themselves as playing a leading role in long-term customer satisfaction. If the customer needs support that is non-traditional, the people in those departments should recognize how critical it is to adjust to that need.

This is where the authors shine. Showing managers how to understand customers at each transaction point in a process opens up new ways for companies to respond to competition, they say. The visceral understanding of customers that comes out of focusing on the personal experience the customer is having, spread across multiple departments of an organization, can raise each individual, and ultimately the entire organization, to new levels of effectiveness.

The authors also emphasize the importance of rapid knowledge creation. This process is two-fold. First, give managers insight; second, give a high percentage of the work force the same information. The authors' idea is to let information bounce around the employee base to spark interaction and exponentially more insights. "As the socialization of sharing and learning expands, vertical and geographical boundaries can break down," the authors write. The result: "opportunities that transcend current organizational limitations can emerge."

The payoff for following this persuasive line of thought, supported with credible case-history examples, is outlined in the chapter, "Strategy as Discovery." This approach leaves behind the out-dated idea that strategy is something companies control "more or less autonomously." It introduces the new idea that customers and networks now play a stronger role in shaping strategy.

The emergence of Supplier Excellence Alliance (SEA), a consortium of OEMs, exemplifies this point. SEA seeks to improve numerous supply chains by promoting best practices and playing a role in education and training. Companies that have customers who are members of this consortium would be well-advised to have business strategies that take the activities and goals of this organization into account. Suppliers to these companies cannot retain the goodwill of their customers if their strategies have goals that are not aligned with the goals of this network.

This is a useful book; buy it, read it and act on it.

William J. Libby, Libby Communications, Muskegon, Michigan