Commoditization is inevitable. As the performance of vertically integrated companies starts to overserve the needs of the lower tiers, these customers start to favor flexibility speed and lower cost in the buying process. This shuffling of buyers’ priorities necessarily leads to modularization–and inevitable commoditization.
However, just as commoditization is inevitable, so is de-commoditization. Like a bottle neck moving around the factory floor, there will always be another point in the value chain where performance drives premium margins. Your company has to innovate in these areas to “skate to where the puck will be” in order to earn outsized profits. Your company has to be flexible, prioritize and budget for this new growth, and execute.
This is very difficult because what got you here won’t get you where you want to go. The glory days of your company’s past are fleeting and very unlikely to get you to the next level of growth. Do not try to stay only where you had great returns before, as it can’t last in our hyper competitive world. Instead, you should always be looking at where the profit centers are moving and go in that direction.
Your company should always be on the lookout for customers that are over serviced. When customers are more than satisfied, standard modularization occurs wiping out profits.
Also, it’s important to know that the processes of commoditization and de-commoditization occur at the periphery, so you have to watch very closely to see it. This is where outside eyes and ears can help.
