Can RFID Deliver a Competitive Advantage?

By Mark Roberti

Maybe it can—but what's more important is that the technology can be used to reinforce an existing competitive advantage.

I'm often asked if radio frequency identification technology can provide a competitive advantage. Generally speaking, most technologies don't provide one—and if they do, it doesn't last long. What RFID can do is enhance or reinforce your existing competitive advantage.

New technologies can provide a major competitive edge when they are central to your product. When diesel-powered excavators were invented, for example, they were cheaper and simpler than steam shovels. Then, after World War II, the invention of hydraulic-powered excavators offered benefits over diesel-powered machines. Companies selling new products with advanced technology won out.

But when a firm uses new technology to improve the way it does business, the advantages are less pronounced. The first company to utilize a diesel-powered excavator got the job done faster and, perhaps, won new business, but its competitors, no doubt, soon purchased diesel-powered machines and caught up. Similarly, companies that were among the first to deploy an enterprise resource planning (ERP) system had the ability to share data across their enterprise, but it didn't lead to their gaining a huge market share over their competition.

Radio frequency identification is no different. Put RFID in your credit cards to enable faster payments, and pretty soon your competitors will do the same thing. Start using RFID in your supply chain to reduce costs, and before long your competitors will employ the technology to track goods in their supply chain.

So why should you deploy RFID before your competitors? Two reasons: First, RFID can solve some problems that other technologies can not. If you have poor inventory accuracy, RFID can increase it dramatically without a lot of additional cost. If you are losing assets and spending money to replace them, RFID can help you track them. And so forth.

The second—and more important—reason is that RFID can extend your existing edge. Isn't it curious that two of the first retailers to deploy RFID systems in stores were Wal-Mart and Prada? There couldn't be two more different retailers—one focused on everyday low prices, the other on extremely expensive clothing. Both sought to use RFID (not entirely successfully) to enhance their existing competitive edge.

Wal-Mart saw—and still sees—RFID as a way to reduce the cost of handling goods and getting them to the shelves when a customer wants to buy them. The technology is deployed in service of the company's larger strategic goal: to always be the lowest-cost retailer.

Prada viewed RFID as a way to enhance the customer experience by offering high-fashion clothing in a sophisticated atmosphere. The technology was used to dazzle customers—when a patron put a tagged item on a hanger in a dressing room, the tag was read and information popped up on the screen. Sure, the customer could browse other expensive items, such as accessories with the product they were trying on. But the main point was not to cross-sell, but rather to impress. (Prada never pursued RFID in a big way, and it's not clear why. Some say the touch screen interface was not intuitive enough for customers, but it's possible the company was just ahead of its time.)

If you're a retailer, you can compete on price, style, product selection and other factors. If no one wants to buy what you sell, it's pretty obvious RFID won't help you. But what RFID can do is ensure that you execute better in the supply chain, and in stores. That means that when you offer the proper item at the right price, it's available in the store and in the correct place, so that when customers come to buy that item, they can easily find it.

Similarly, if you manufacture mobile phones but no one wants to buy them, RFID won't help you. But if your phones are popular, RFID could help you meet demand, and it could improve your profit margin if you use the technology to lower costs.

Some people we invite to speak at our events decline because they see RFID as a competitive edge, and they don't want their competitors to know how they're using the technology to improve business processes. I think developing a new product, such as an iPhone or a drug that can cure a disease, is a corporate secret that must be protected. But if you're using RFID to enhance your existing competitive edge—whether you're a low-cost or a high-end retailer, for instance—it's probably not going to make a difference if your competitor knows what you are doing. Airbus won't sell more planes, for instance, if it deploys an RFID solution a year or two ahead of Boeing.

What's more, there are advantages to sharing information about what you are doing. If other companies adopt RFID, it would lower the cost of the technology, increase innovation, expand the products available and so on. Airbus has been open about the ways in which it uses RFID to reduce costs, and it has encouraged its suppliers—many of which are Boeing suppliers as well—to employ the technology. If Boeing expands its use of RFID, then suppliers will also utilize it, and the entire industry will be more efficient. And the two companies will still compete with regard to whose planes are more efficient, offer a lower cost of ownership and so on.

Ultimately, companies should deploy RFID tactically to reduce costs or solve specific business problems, such as losing containers, but they should also look at the technology strategically. They should use it in ways that can increase their current competitive advantage to provide the lowest costs, the best service or whatever. And they should focus more on how to utilize the technology to their advantage, and less on what others know about what they do.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark's opinions, visit the RFID Journal Blog, RFID Connect or the Editor's Note archive.