A graveyard of empires.
Common responses of executives going through Commoditization:
“Our company is lost.”
“We're just trying to survive.”
“Work is harming my personal relationships.”
“We're trying to be all things to all people.”
“We can't seem to make a decision.”
“We are struggling with employee turnover.”
Commoditization is no fun. Price pressures leave you eking out razor-thin margins while your discouraged staff jumps ship for a buck or two more from a competitor. Still, you’re not in an unwinnable position. Global brands make billions selling commodities, and you’re likely in the best possible position of expertise to disrupt your category (even though you’re incentivized against doing so). Whether you fight it out here or find a new way, success will demand sophistication and grit.
Good company. Bad news.
You’re in good company. Most of the world’s largest and best-known brands live in the Commoditization Phase. Still, this is an unpleasant place to be.
Companies in this phase are in many ways just trying to survive. They’re constantly battling price pressure due to an increasingly crowded marketplace and are often taken advantage of by customers or clients who know they can ask for a deal. As a result, margins grow slim and relationships strained.
In a commoditizing environment, revenue can become more important than profitability, as “keeping the lights on” (or the layoffs to a minimum, or the debt service covered) is evermore challenging. Budgets for training, R&D, customer service and/or marketing get increasingly pinched. Workarounds become more common as people seek shortcuts to get done what needs to be done. False starts also become more common.
Inevitably, internal cultural dynamics begin to deteriorate as people lose sight of (or confidence in) what the company used to stand for (and probably still touts on its website or in its employee handbook). Office politics start to get in the way. Gossip grows, as does internal division. Factions can develop as differing groups bet on different internal horses and compete for dwindling resources. Decision-making becomes increasingly dysfunctional. Discord becomes the norm. The best people on staff realize they have other employment options and begin to seek them out. Those who remain can’t help but take the company’s problems home with them, causing work to infringe upon their personal relationships and often ricocheting right back to the office. The vicious cycle bursts into full bloom.
Your company may not be in as dystopian an environment as this sounds. But it’s coming. Commoditization changes markets and the companies that comprise them. Commoditized companies lose sight of what they once were and slowly become apples competing with other apples to be picked. Repositioning is critical. Disruption is inevitable. A new business model will be required. Some industry players may already be working on it, and that someone could be you.
Become who you were designed to be.
Forces at Work
By all rights, Uber should have been launched by a taxi company. Nobody had better intel on the category. But those beleaguered commodities let their own internal pressures keep them out of the back of the cab, where they could have seen things from the customer’s point of view. Don’t make the same mistake: invest in understanding how your customer sees your brand. That’s a lot more important than your reasons for clinging to the status quo.
You might feel at your most helpless, but now’s the time for the most important decisions. Is this ship salvageable? Is it time to bail? Where are you heading? The greatest danger to captains – of boats and businesses – is to wait too long, letting weariness and confusion calcify into apathy or indecision. Decide whether you’re in this, or make the big moves needed to get out. Don’t linger in-between.
The key to success, as former 3M CEO Sir George Buckley said, is getting “the balance right between how you manage…the stability of the core and what you do in new areas.” You’ll need a plan to protect the current business model, all the while looking for opportunities to disrupt and redeem it.
Take the 5-minute diagnostic.
It’s still not too late.
A healthy company can thrive amidst a sea of commoditized competitors. Let us help you fend off the sharks.
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