Basis of competition and capabilities

(upbeat music) - Okay, so we've sized our mountain and now we need to make sure we understand the terrain. And the terrain is all about what do customers care about that distinguish between the companies that they're going to really build loyalty with and everyone else. And this is back to this idea of the basis of competition. Now, they might care about the durability of a product. They might care about whether it's easy to use or whether or not it integrates with other things in their life. Every market has a basis of competition, which are the factors that cause customers to select you versus other alternatives. And I like to think of it as it's oftentimes the companies that understand a problem the best. They're the ones that earn the right to solve it for the world. I'll take a good example from my life, Amazon. I buy so many things through Amazon. It's easy to use. Things show up at my house quickly and when something goes wrong, I can return it easily. But that wasn't always the case with Amazon. Amazon started in the mid nineties as a e-commerce site for book enthusiasts to find books that they couldn't find at their local bookstore. Now, the average bookstore can carry 10, 20, maybe 30,000 titles, but there are millions of books in the world. And so Amazon started their journey by serving book enthusiasts against the basis of competition of selection, helping them find books they couldn't find in their local store and shipping to them at their home. But as they've grown, as they've established loyalty with hundreds of millions of people around the world Amazon has figured out what's the basis of competition for people that are buying any range of items, whether it's selection so they can have a wide variety of products that you care about, whether it's building confidence in the products that you're buying through reviews and through easy return policies, whether it's how quickly those things can show up at your door because they've created logistics and warehousing and distribution processes that allow them to get things to you quickly and easily. By building out a deeper understanding of the basis of competition in e-commerce for a wide array of customers, Amazon is able to invest in capabilities to serve their customers better than anyone else. And so this gets down to the second rule of strategy, which is that you know you have strategic alignment when you understand the problem clearly, where you've established the basis of competition, what's the reason that customers are going to work with you versus everyone else, and then how do you build deep capabilities that allow you to serve that customer in a way that no other company can compete with?