Welcome. This is a four part blog series which will examine Porter’s core strategies for competitive advantage. During the series we will look at how these strategies can be applied to companies working in the translation industry.
Michael Porter, Harvard Business School, explains that competitive advantage occurs when an organisation “acquires or develops an attribute or combination of attributes that allows it to outperform its competitors.”
Expanding on this concept, in his book “Competitive Strategy” (1980, a book which was voted the ninth most influential management book of the 20th century) – and again in “Competitive Advantage” (1985, a book I read during my years in college) – he surmised four core strategies companies should embrace in order to create a clear and superior competitive advantage in their markets.
I thought it would be interesting to see how Machine Translation – as a growing service differentiator in the LSP world – would fit into Porter’s four strategies, and to examine if it ticks all of the Competitive Advantages check boxes!
Cost Leadership Strategy
Porter defines “Cost Leadership” as offering products or services at the lowest possible cost in the industry. The emphasis here is on cost rather than price; cost is what you purchase your products/services at and well, price is what you sell these on at – hopefully obtaining a nice profit in the process, helping your company grow and thrive. I guess in a nutshell, it’s all about avoiding operating at a loss by optimising this cost/price ratio.
But the devil of achieving that cost/price optimisation is in the detail of efficiently running a day-to-day innovative business. And by running a business that develops an attribute, or attributes, that differentiates it from its competitors. Successful companies that embrace Porter’s Cost concept must by necessity strategically vary their Cost attributes through the product/service they offer. A good example is Walmart, where they offer key items at deep discounts, while selling other products at less aggressive discounts. It is different sides of the same cost/price coin and taken holistically can be a very successful strategy. Walmart has successfully beaten off all of its major competitors in the US domestic market for decades by pursuing this particular Cost Leadership strategy.
So what’s the take-out here for Localization Service Providers (LSPs) on cost/price? Well, for the majority of translation quotes, the per-word translation-costs represent the lion’s share of the total project costs: in many cases this is as much as 85%. So while some LSPs may focus on containing the costs of their support services (such as engineer, project management, review and edit etc.), the really successful ones realise that it is by focusing on the translation-costs – that 85% of cost area – that they can gain most competitive advantage.
This reality has been manifesting itself as a significant and wholehearted move by many LSPs. Many are now moving towards Translation Automation as a cost saver. Clearly, for an LSP to embrace a “Cost Leadership Strategy”, it must be relentless in pursuing a translation automation strategy. Only by developing such a strategy will an LSP give itself the strong differentiating cost attribute that allows it to outperform its competitors.
Machine Translation is a key component of any translation automation strategy, and its use can positively impact on the translation-cost component of any localization project. For instance, one of our KantanMT members reported a 37% reduction in translation costs as a result of integrating MT into their automated translation workflow.
…Read more about Porter’s strategies in Friday’s blog.
Tony O’Dowd, Founder and Chief Architect