"A properly integrated business model forms the essence of a company's competitive advantage," my colleague Mark Johnson advises. That quote ran through my head as I watched a young man in a track suit prance around my table twirling a 10-foot noodle.
I was in one of the Shanghai locations of a chain of hot pot restaurants called Hai Di Lao. If anything deserves to be commoditized, it would be a hot pot restaurant. The essence of the meal is cooking food yourself in close-to-boiling broth. The popularity of that cooking style in many parts of China means many nondescript restaurants compete ferociously for customers. Somehow in this crowded field, Hai Di Lao commands fierce loyalty; has expanded to 75 locations across China, Singapore, and soon the U.S.; and generates about $500 million a year in revenue.
On weekends, locals told me, the wait approaches two hours, and it's easy to see why. Going to Hai Di Lao is a unique experience from start to finish. A couple of weeks ago I went there on a Tuesday night with a client team. Even as we approached the building, wait staff ran up to us to make sure we found our way in. Once we sat down, I was given a towel to wipe down my glasses, a plastic case so my cellphone wouldn't get splattered, an apron to protect my shirt, and even plastic arm bands if I wanted to protect my sleeves (I declined).
There wasn't a wait on this mid-week night, but if we had had to, we could have played board games or gotten our nails manicured. About halfway through our meal, the noodle-swinging specialist appeared. He asked me to "help" him and my team members, and the client dutifully took pictures of me making a fool of myself before the specialist demonstrated his skills (noodle masters train for up to six months before they appear before customers).
The quality of the raw ingredients we put in our sauce seemed reasonable, and the restaurant provided a customized spicy broth and a bar where you could make your own dipping sauce out of about 30 different ingredients. But it isn't the quality of the food that makes the difference — Hai Di Lao creates value for customers by providing good enough, affordable food (our dinner for 11 in a ritzy part of Shanghai was less than $200) as part of a truly distinctive experience. That experience is what packs the house every night.
The way value is created, captured, and delivered links together smartly. Coupling a steady volume of revenue with affordable raw materials gives the business room to invest in its staff. One of the client team members explained that Hai Di Lao pays above-market wages and provides them with high-quality living accommodations, with amenities like WiFi and laundry.
It's generally hard to copy this kind of interdependent innovation. One thing can be copied easily; systems prove much more difficult. Interconnections between revenue model, cost structure, supply chain, operations, and employee selection and training typically emerge out of a fairly lengthy process of trial-and-error experimentation and are invisible from the outside. In a way, Hai Di Lao is like IKEA. That company has built its business model around providing affordable assemble-it-yourself furniture. Like Hai Di Lao, it has built an integrated, end-to-end system, featuring a unique retail store format, product selection, packaging, and supply chain. IKEA has followed the same model in essence for more than 50 years, and no one has replicated it.
To find some measure of lasting advantage in today's markets requires companies to look for non-obvious ways to innovate. Competitive advantage from devising products and services that have more features or do more things fades seemingly overnight. Companies need, instead, to be on the lookout for innovative ways to wrap services around products, deliver unique customer experiences, or devise entirely new ways to deliver value. The client team I was with was so inspired by Hai Di Lao that they used it the next day as a metaphor for a more customer-focused approach for one of the high-end medical devices in the company's portfolio of products.
I learned, when I returned to Singapore, that the first restaurant Hai Di Lao had opened here is just across the street from our offices. If you are in town, check it out. Not only will you have an enjoyable meal, but you might get inspiration for the next innovation that can transform your company.