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Competing through Specification

Often used but rarely taught, competing through specification can be a clever way to satisfy customers while at the same time erecting entry barriers against your competitors. Most often seen in technical business to business markets competing through specification is common practice in most significant market places where players have the required sales & marketing skills and resources. An underrated method to confound your enemies.

The basic premise for competing through specification and erecting barriers against your enemies is that you have to achieve some influence over the specification or standardisation used by decision makers in your target market. Once you have achieved this, no mean feat on its own, you must insert some item into the specification which your organisation is uniquely qualified to supply or has such a lead in, that your enemies will be significantly delayed and be forced into responding to your move (following) rather than taking any proactive initiatives themselves (leading).

Very large organisations will often try to exert influence on the regulatory bodies whose standards and regulations may be implemented in law affecting countries or whole continents at a time. Smaller players may attack key influential customers who tend to lead others within a market place.

Either way, finesse is required by the parties seeking to achieve the sometimes spectacular marketing advantages available. Trying to do this obviously is unlikely to succeed as it is rarely in the long term interests of customers. However capitalism is as brutal as Darwin's view of nature, and competitive strategy demands you try to outwit your competitors in the game of business.

Some examples, the first commercial example has to be IBM. Back in those days when you would never be fired for buying IBM, corporate IT managers were instilled with a confidence that buying IBM Personal Computers was the lowest risk option, The specification of the IBM PC was the benchmark requirement for a corporate PC and it was only on the emergence of IBM clones, compatible machines, that IBM lost their grip on the personal computer market. During that period, hardware innovation was restricted to what IBM decided to do as most other PC operators were forced to try to make clones of the IBM product in order to get a foot in the door of corporate accounts. The fact that Microsoft allowed the use of MSDOS, their disk operating system, by manufacturers other than IBM allowed other players to enter the market and the period of IBM dominance was ended. It was perhaps a momentary lack of negotiating skill at IBM (easy to say in hindsight) which caused the lack of an exclusivity clause in their contract with Microsoft for the MSDOS operating system, which sowed the seed leading to their demise as the leader of the PC hardware market. But that is all history now.

A smaller industrial example is the German owned company Pepperl & Fuchs. Pepperl & Fuchs often known as P&F make equipment for use in hazardous areas, they make a wide range of interconnecting equipment which conforms to various European standards required for safety in such environments as power generation, oil rigs, petroleum refineries and the chemical industry where there is risk of explosion or fire or other contamination.

P&F ensure their equipment complies individually and in combination with the relevant European standards. Note: the US market uses a competing "explosion proof" standard working on a different philosophy more suited to the way US based companies have historically solved their safety problems.

P&F have to a great extent appeared to shape the European standard as you might expect with them being the largest supplier of this category of products. One effect of this is to keep US producers out of the European market because their competence is aligned with the competing US requirements. Within the European market P&F engineers work closely with specifying engineers at the contractors designing equipment for end user customers in the industries concerned. They work hard to maintain their name as the safe option for such equipment at every level of the supply chain.

Such is the nature of these industries that once your product part number is on a drawing, and in a purchasing system, it will become the defacto choice for future projects. For a competitor to even get equivalent parts listed on drawings is a significant effort which does not guarantee a purchase order. Because of the risk averse nature (as you might expect) of the end customer, many orders arrive at the commissioning subcontractor with the requirement for P&F controls and sensors already written in such that alternatives on the contractor's drawings are less than worthless. The market is a niche, in which P&F through hard work, a specialist focus and good barriers to competition, have built a valuable business. Although other manufacturers have periodically attempted to break into P&F's niche, none have come away with sufficient share to justify a sustained effort and most retreat to attend to less well defended sectors.

It is an interesting example of specialisation, focus, barrier creating and the normal business requirement to produce products your customers want. P&F have forced others to largely follow their moves or stay away completely, of course only time will tell how long they can keep it up as on the larger stage the competing standards "Intrinsic Safety" (IS) from Europe and Explosion Proof in the US, are also fighting it out on a larger stage, the results of which will bring significant spoils to companies following the eventual winner. Last time I looked, Intrinsic Safety was making inroads into acceptance in the US market, I wonder what the picture will be in 10 years time.

With regard to regulation based standard setting, a critical aspect companies must bear in mind is that legislators are rarely technical experts and as they require their home market companies to comply with eventual legislation they are almost forced to consult extensively with companies operating in a market place. Typically they will contact a national industry body first which will get together with the same bodies from other nations to hammer out a standard to which the participating nations can agree.

The greater the influence your company has with its representative body the greater your influence may be on the resulting standards, regulations and laws with all that means for your organisation and its enemies.

Author Mark Abraham (mark@sticky-marketing.net) 8th August 2001