Monday, January 13, 2014

The End of Competitive Advantage
Rita Gunther McGrath
Harvard Business Press,
Copyright 2013
Chapter 1, Location 62 on my iPad

I had an epiphany as I started to read Rita McGrath's new blockbuster—The End of Competitive Advantage. In our Kellogg class on Driving Organic Growth through Innovation we start discussing the five major internal barriers that lead to growth stagnation (listed below); remember the Market Driven Growth process was developed in real time as these barriers were uncovered with the aid of Professors McGrath and MacMillan. Although the specific language may vary, these internal barriers were validated broadly via numerous studies over the years. I have been searching for a single underlying core reason why these occur. I believe I found it in this fabulous book. It is the drive to develop sustainable competitive positions:

“The assumption of sustainable advantage creates a bias toward stability that can be deadly…rather than stability being the normal state of things and change being the abnormal thing, it is actually the other way around. Stability, not change, is the state that is most dangerous in highly dynamic competitive environments….the presumption of stability creates all the wrong reflexes.”...(...and I believe is the underpinning of most if not all of the dynamics that lead to these internal barriers)
The internal barriers are:

Congealed leadership mindset –Leaders who control resources must be passionate and fully committed to change, even if the change takes the organization in a different direction from what made them successful in the past. We find that success breeds inertia – it is difficult to argue with success and to change when things seem to be going well (the impact of the concept of sustainable advantages is clear)

Pipeline driven by siloed organizations – Companies are generally organized to drive operating efficiencies with the center of gravity being the critical core competency of the company: manufacturing, technology, brand management, major accounts, etc .They are not organized around meeting customer needs. If the structure cannot adapt to meeting targeted market needs by cutting across the silos, the potential opportunities tend to be incremental at best (often the group with the biggest business dominates the resources in the environment of maintaining a sustainable competitive positions)

Decision paralysis – Growth is about momentum. A responsive and transparent decision process must be in place to resource the critical programs to win with a high sense of urgency. These decisions cover the entire portfolio—businesses must be in a position to fund critical growth projects while still meeting their short term financial objectives.  Projects that do not meet the business goals must be stopped to create budgetary headroom (It is tough to stop projects if your only focus is maintaining the status quo)

Fear of failure –One of the most insidious obstacles to growth is the fear of failure. Most organizations we worked with have a culture which penalizes sins of commission more than sins of omission – you could get along all right by doing your job and meeting your numbers, but heaven help you if you tried to do something new and failed.  Igniting the growth engine requires systemic innovation, which tends to involve higher degrees of uncertainty than most organizations are generally used to dealing with. If the organization up through leadership does not understand how to manage uncertainty, the organization will not succeed. Our mantra is “manage the cost, not the rate of failure (I am not sure whether this is the cause or outcome of focusing on the current state)

Right tools, metrics and skills—You get what you measure and your people can only perform as well as their skills will allow them. The growth journey requires changing tools, skill sets and metrics along the path. Ignoring these issues more often than not leads to sub-optimal performance. Successful growth companies must be ambidextrous being able to deploy the appropriate tools, metrics and skills at the right time. (with companies focus mainly on maintain sustainable competitive advantages, tend to focus on developing/rewarding human resources that are great at optimizing existing capabilities and not undergoing change)

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