Thursday, 13 June 2013

The End Of Competitive Advantage - it is official

The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business by Rita Gunther McGrath may make strategy's death "official".

Readers of my blog will know that I have little time for Professor Michael Porter (“sustainable competitive advantage” and five forces etc) and much of the how/why/where strategy is taught at business schools. (See Are MBAs a Waste of Time?)

Let me quote extensively from the book and an excellent review of the book 
The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business in Forbes

“Virtually all strategy frameworks and tools in use today are based on a single dominant idea: that the purpose of strategy is to achieve a sustainable competitive advantage."  

"Strategy was... find a favourable position in a well-defined industry... exploit a long-term competitive advantage." 

The problem: "competitive advantage is transient, not sustainable."

"To operate, we need a new set of assumptions about how the world works."

In the Creative Economy, 
“companies are getting better at figuring out what people really need and will pay for, at designing better experiences, and at wresting new efficiencies from existing assets.” 

“The best firms look candidly at what happened, figure out how to do it better the next time, and move on."  

"It’s a bit like surfing a wave— you might fall off and find yourself embarrassedly paddling back to shore, but great surfers get back on that board. So too with great companies. They move from wave to wave of competitive advantages, trying not to stay with one too long because it will become exhausted, and always looking for the next one. It has been fun getting to know them." (See Surf’s Up – the surfer’s guide to management)

"To compete in these more volatile and uncertain environments, you need to do things differently.” 

“Music, high technology, travel, communication, consumer electronics, the automobile business, and even education are facing situations in which advantages are copied quickly, technology changes, or customers seek other alternatives and things move on.“ 

"The presumption of stability creates all the wrong reflexes. 

  • It allows for inertia and power to build up along the lines of an existing business model. 
  • It allows people to fall into routines and habits of mind. 
  • It creates the conditions for turf wars and organizational rigidity. 
  • It inhibits innovation. 
  • It tends to foster the denial reaction rather than proactive design of a strategic next step… "

"Stop thinking of within-industry competition as the most significant competitive threat… "

In more and more markets, we are seeing industries competing with other industries, business models competing with business models even in the same industry, and entirely new categories emerging out of whole cloth.”

Today, competition can come from anywhere. It’s not just cheap substitutes to their products, capturing low-end customers, and then gradually move upmarket to pick off higher-end customers. Now entire product lines—whole markets—could be destroyed almost overnight as customers defect in droves by big bang disruption". (See Disrupt - the 12" Mix)

A new level of analysis that reflects the connection between market segment, offer, and geographic location at a granular level is needed, “an arena”.

Arenas are characterized by particular connections between customers and solutions, not by the conventional description of offerings that are near substitutes for one another… The driver of categorization will in all likelihood be the outcomes that particular customers seek (‘jobs to be done’) and the alternative ways those outcomes might be met... Most substantial threats to a given advantage are likely to arise from a peripheral or non obvious location.” 

“The arena concept also suggests that conventional ideas about what creates a long-lived advantage will change." 

"Product features, new technologies, and the ‘better mousetrap’ sorts of sources of advantage are proving to be less durable than we once thought."

"Companies are learning to leverage more ephemeral things such as deep customer relationships and the ability to design irreplaceable experiences across multiple arenas." 

"They will be focused on creating capabilities and skills that will be relevant to whatever arenas they happen to find themselves operating in." 

She refers to Eric Ries’s book, The Lean Startup, in which innovation is driven, not by what managers or strategists think makes sense, but rather by direct feedback from customers in carefully designed A/B experiments. See Eric Ries - Lean StartUps - but not just for start-ups)

See the article, "It's Official! The End Of Competitive Advantage" in Forbes
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