by Rita Gunther McGrath
To order PDF: Source: Harvard Business Review
10 pages. Publication Date: Jun 01, 2013. Prod. #: R1306C-PDF-ENG
This is an incredibly exciting new concept of creating competitive separation in this crazy world we live in. As I always state, anything Rita McGrath does is worth studying....
Strategy is stuck. For too long the business world has been obsessed with the notion of building a sustainable competitive advantage. That idea is at the core of most strategy textbooks; it forms the basis of Warren Buffett’s investment strategy; it’s central to the success of companies on the “most admired” lists. I’m not arguing that it’s a bad idea—obviously, it’s marvelous to compete in a way that others can’t imitate. And even today there are companies that create a strong position and defend it for extended periods of time—firms such as GE, IKEA, Unilever, Tsingtao Brewery, and Swiss Re. But it’s now rare for a company to maintain a truly lasting advantage. Competitors and customers have become too unpredictable, and industries too amorphous The forces at work here are familiar: the digital revolution, a “flat” world, fewer barriers to entry, globalization.
Strategy is still useful in turbulent industries like consumer electronics, fast-moving consumer goods, television, publishing, photography, and...well, you get the idea. Leaders in these businesses can compete effectively—but not by sticking to the same old playbook. In a world where a competitive advantage often evaporates in less than a year, companies can’t afford to spend months at a time crafting a single long-term strategy. To stay ahead, they need to constantly start new strategic initiatives, building and exploiting many transient competitive advantages at once. Though individually temporary, these advantages, as a portfolio, can keep companies in the lead over the long run. Firms that have figured this out—such as Milliken & Company, a U.S.-based textiles and chemicals company; Cognizant, a global IT services company; and Brambles, a logistics company based in Australia—have abandoned the assumption that stability in business is the norm. They don’t even think it should be a goal. Instead, they work to spark continuous change, avoiding dangerous rigidity. They view strategy differently—as more fluid, more customer-centric, less industry-bound. And the ways they formulate it—the lens they use to define the competitive playing field, their methods for evaluating new business opportunities, their approach to innovation—are different as well.
THE WAVE OF COMPETITIVE ADVANTAGE Companies in high-velocity industries must learn to cycle rapidly through the stages of competitive advantage. They also need the capacity to develop and manage a pipeline of initiatives, since many will be short-lived.