I read this week a Harvard Business Review Blog entry about the ‘commoditization of scale’ (we’ll brush over the conversion of an adjective into a verb as is business academia’s wont). What this was trying to say was that even the smallest of companies can now, with modern media, the web and technology, appear ‘big’. Having scale and large assets applied in a business is itself no longer a protection in the modern competitive world. Sources of competitive advantage have to be located elsewhere.
A similar trend and argument was made in a book called The Brand Bubble. This essentially stated that although the difference between cost and sales price (the margin) and the then related difference between the book value of assets and stock value of the company as a whole is based on some notion of brand value (look at Apple’s stock value compared to book value, the difference is well over 100 times); most companies do not have a robust brand. This is the next big bubble in their view to burst globally. This is the idea that consumers trust fewer and fewer brands and that brands no longer perform the function they once did. Brands no longer guarantee quality and reliability and enable choice amongst a few oligopolistic providers. Anyone can manufacture to a level which meets most consumers’ needs. Most products are safe. Most markets have many 100s of alternatives for consumers.
Thus competitive advantage cannot be secured via size and use of barriers to entry, nor through long-standing brand awareness. In a disintermediated and atomised business world, brand I would suggest, is a necessary element for companies to have margins above a commodity value product or service, but is also much harder to maintain and keep (though not develop as social media can create brands very quickly and cheaply)
Yet how many internal audit plans really have brand management in them? How many really have a good hard look at the competitive position thinking and management’s assessment of that in macro, risk, terms? Very few I suggest. Why is that? Well I think many internal auditors are simply not strategic. They have spent too long looking at the operational ‘how’ to look at the strategic and theoretical ‘why’. Also the general knowledge and awareness of strategic marketing concepts and the marketing concept as a whole I have found in my career to be weak. This is true not just of internal audit but of senior management as a whole. Finally that brand management is often quite intangible and difficult to audit. Not impossible, but difficult, to audit. Actions do not always lead to related results and actions are not all equally weighted. Take as a classic example of Gerald Ratner’s blunder over being critical of the quality of his jewellery product. Overnight the brand was destroyed and sunk from one single action.
But just because something is difficult does not mean it should not be done. In fact quite the opposite, because it is difficult it should be done. So will branding be in your next assurance and audit plan?