How to Sleigh your Rivals…

The Competitive Advantage of Santa Claus –

Why do strategy gurus get their knickers’ in a twist over the likes of Apple and Amazon when the Christmas category killer has dominated his market niche for centuries?  A raft of positioning advantages at the value chain, task environment and macro-environment levels contribute to a resilient blue ocean (or white glacier) strategy [1], but innovation also puts the old guy at the forefront of socio-technological edge developments…

Picture from Spirit Communications
Picture from Spirit Communications

The traditional seasonality patterns which create nightmares for retailers and logistics firms alike are famously concentrated for Santa’s annual sleigh run, but this is the heart of the matter.  Professor Porter, himself of elfin stock, points out that trade-offs and mutually supportive linkages between activities are the essence of defensible positioning [2].  Attempts to reverse-engineer Santa’s distribution technology have famously failed, just as attempts to duplicate the Toyota Production System failed, in both cases because there are complex linkages involved.  In Santa’s case it’s NOT just about his core competence in applying tachyon engineering [3].  Instead, relativistic effects at the sled/gravity nexus combine with careful route planning and strategic navigation of time-zones, and it is this combination which DHL and FexEx have found it practically impossible to duplicate.  Equally, Claus is all too aware that he would have no advantage by muscling in on the year-round small-package distribution sector, and steadfastly maintains his differentiation-focus without falling into the trap of straddling other positions [4].  It will come as no surprise to you that Claus was a protege of Porter during his time at Harvard.

There is clearly also a powerful network externality involved.  More or less blanket coverage of global housing stock creates enormous distribution efficiencies, making it virtually impossible for competitors to get cost-effective traction (although this was once said about Microsoft).  Researchers have long puzzled over the disruptive effects of the Bad Kids List on this distribution advantage, causing at least one to question whether the BKL is actually strictly applied.

It’s a mystery to me why commentators view Claus as dated and hopelessly conservative, when he has consistently been at the forefront of trends in business practice.  His now famous marketing tie-up with Coca Cola dates back to the early 20th century, and predates many later endorsement contracts.  Mark McCormack could never have created the sports marketing industry without the Santa Claus precedent [5].

150 years ago virtually all christmas inventory was developed and built by elves who’d chosen to locate at the Pole.  It was an early instance of the clustering effect, since repeated in Silicon Valley and the East End of London, and the basis of the ‘Porter’s diamond’ analysis of national competitive advantage [6].  In the wider world, elves are often seen as socially impaired, dull, overly intellectual, obsessive, shy, quirky, unattractive and uninterested in sports, although Legolas has done much to rehabilitate the image of elves, to the point where it is now considered chic to be elvish in some urban circles.  In any case, exponential population growth long-since caused toy production to outstrip the capacity of the Pole’s indigenous workforce.  In much the same way that Proctor & Gamble chose to distribute externally it’s R&D when it’ scale outstripped the capacity of its own labs, Claus was an early crowdsourcer and co-opter of his own customer base (or, at least, the relevant buying units).  The consequence is a now global supply chain, with the elves supplying toys to the agalmic end of the market and manufacturers such as Nintendo and Sony, mediated by parents, supplying the remaining inventory.  Some researchers have speculated on the viability of a completely peer-to-peer solution for christmas, but this view is generally regarded as overly fanciful for the foreseeable future.

Indeed, notwithstanding disruptive forces revolutionising retailing and logistics, Santa’s position in many ways appears as unassailable as ever.  Whether one takes a ‘five forces’ view, a ‘Resource-Based View’ [7] or both, a combination of clear, careful and distinctive positioning with a relentless commitment to innovation is the bedrock of a strong and defensible competitive advantage.

Merry Christmas…

 

References

1  Blue Ocean Strategy, W. Chan Kim and Renée Mauborgne (2005)
2  What is Strategy?, Michael Porter (1996)
3  The Core Competence of the Corporation, C.K. Prahalad and Gary Hamel (1990)
4  Competitive Strategy, Michael Porter (1980)
5  What They Don’t Teach You at Harvard Business School, Mark H. McCormack (1984)
6  The Competitive Advantage of Nations, Michael Porter (1990)
7  Firm Resources and Sustained Competitive Advantage, J.B. Barney (1991)

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