The increased corporate regulation brought about by the Sarbanes-Oxley Act of 2002, and the increased demand for legal compliance programs, coupled with the trend in using litigation as a tool for business reform, have increased organization’s regulatory obligations. This increased scrutiny means that legal and regulatory issues may be one of the most important determinants in a organization’s external operating environment.

Compliance is quite possibly the last great source of untapped competitive advantage available today.

To download the latest research from University of Connecticut Asst. Professor Robert C. Bird, the paper that started it all, click below.

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The activities that support the creation, production, sales, and delivery of a product or service are the fundamental constructs of competitive advantage. The term operational effectiveness is Porter’s way of describing how an organization performs these activities better (read as: faster, cheaper, higher quality, etc.) than market rivals. As we have discussed in presentations across the US, it was through operational effectiveness that Japanese companies, most notably the auto makers, dominated the US in the 1970s and 1980s. They used practices many of us are already familiar with, such as  Total Quality Management (TQM) and Six Sigma. Make no mistake, companies can gain tremendous advantages from operational effectiveness, but from a competitive standpoint, the best practices developed in this vein can be, and often are, easily emulated by rivals.

As the market begins to shift, adopting the same or similar best practices, the competitive advantage is eroded. Porter refers to this phenomena as the productivity frontier. The productivity frontier is a function of the application of the best technology, skills, and management techniques available to the organization and is the high water mark of value attained through this method.

As more and more companies adopt these operational effectiveness and efficiency measures, they become less and less differentiated. The marketplace then is essentially rebalanced, favoring no single player and reducing the past gains to simply a barrier to entry in the market.

As Porter sees it, the only way to achieve sustainable competitive advantage, is to do different things or to do the same things, but in a different fashion than your competitors.

What are you choosing to do differently?

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