In today's relatively boundary less, barrier-free marketplace, the traditional approach of building a business around a competitive advantage and bunkering down to defend it, may no longer make sense. Many executives are questioning whether sustainable competitive advantage has become completely untenable.
One thing is for sure, business models can no longer be treated as stone tablets divined by wise men on mountains to last for eternity. They have become increasingly perishable.
Businesses once thought of the competitive environment as a punctuated equilibrium, with long periods of stability between any disruptions. However these days, it seems, the competitive environment is in perpetual motion, with disruptions far more frequent.
The obvious response is globalisation. Numerous barriers to entry shielding companies have been dropped. Competition isn’t just local, but from anywhere in the world. The rise of digitisation has meant real time information. Opportunities are not only more visible, but more readily available. Capital investment markets have become seriously fast.
Transient Competitive Advantage
In such evolving markets, strategy needs to be moving just as fast as that of the business. More executives are convinced that competitive advantage is transient, not sustainable. Building new strategy on new assumptions may be daunting to those executives embedded in the old economy.
The challenge of becoming 'unstuck'
Chasing transient competitive advantage has the challenge of disengaging from the current business model. For example Kodak. Even when they knew they should, they were unable to turn their backs on their long-lived and profitable film business. They had been so good at the film business for so long, that they didn’t know how to be good at anything else. They pursued digital, pharmaceuticals and other businesses, but even when the weight of the core film business hamstrung them, they continued to cling to the core.
In contrast, Fuji Photo Film actively disengaged from film. While Kodak was sinking, they searched for developing opportunities and simultaneously, pulled resources out of exhausted opportunities.
This dynamism often is missing in conventional strategy. Companies get obsessed with the notion of building and defending a sustainable competitive advantage. Fuji was less about defence and more about opportunities.
If competitive advantage was sustainable, there’d be no need to innovate often. This would make innovation fragile and episodic.
Innovation needs to be a continuous capability that's built for transient advantage. It needs to be embedded in the organisation. It's an ongoing thing with rhythm, governance and funding. It should be routine like quality, supply chain process or other essential process.
Leaders mindsets need to change when Competitive Advantage is no longer sustainable. Leaders need to get out of defensive mode and be honest. Surprises are just that, unanticipated developments - like an unheard of new competitor.
Executives must place more emphasis on identifying opportunities and addressing declining businesses. Strategies need developing for dealing with the new world of transient advantage.
You are not alone
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