Ditch those fusty ideas

The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business by Rita Gunther McGrath

AS A strategist, a writer on strategy and a teacher of strategy, the opening paragraph of this book resonated with familiarity: “If you dropped into a boardroom discussion or an executive team meeting, chances are you’d hear a lot of strategic thinking based on ideas and frameworks designed in, and for, a different era.”

These frameworks are presumed to be truths, as obvious as gravity on Earth.

Topping the list is the imperative to find, retain and sustain the company’s competitive advantage (Porter). Following closely behind is the BCG’s (Boston Consulting Group's) growth-share matrix for analysing corporate portfolios, and then Hamel and Prahalad’s “core competencies”.

All share one assumption: the purpose of strategy is to achieve a sustainable competitive advantage.

This is a notion formulated in the 1980s! Then there were no cellphones, no internet, your Walkman used audio-cassettes, and you wrote letters to your parents and friends on aerograms.

The author of this valuable and timely book, Rita Gunther McGrath, is a professor at Columbia Business School. Her clients include Pearson, Coca-Cola, General Electric, Alliance Boots and the World Economic Forum.

The central thesis of the book is that a sustainable competitive advantage is now a debilitating illusion.

Strategy must facilitate the quick exploitation of advantages that come and go, and organisations that will succeed are those that have been deliberately designed to achieve this purpose.

“The strategy playbook today needs to be based on the idea of transient competitive advantage,” says Prof McGrath.

The book is a description of the essential components of a company capable of moving rapidly from one advantage to another. Most of what was essential to a company built for sustainable competitive advantage is not merely irrelevant; it is a significant impediment to success.

Small companies are able to turn about quickly and grab at the latest opportunity.

Can a company employing thousands of people, with investments in materials, machinery, and infrastructure, do the same?

Intuitively, the answer appears to be not, but the book cites case studies of companies of considerable heft that have done just that.

When the Hunt brothers managed to corner the silver market in 1979, they sent the price of silver soaring form $2 an ounce to $50/oz.

Minoru Ohnishi, the CEO of Fuji Photo Film, was deeply troubled by this experience, with the photo industry so heavily dependent on silver. He wanted to be able to produce film without silver so that the company could never be held hostage. He began redesigning Fuji so that it would be able to seize advantages as they arose.

Kodak, the giant of the industry at the time, stuck to their competitive advantage in silver-based, celluloid-based film.

Today, Fujifilm is a significant player in healthcare and electronics and earns 45% of its revenue from document solutions and office printers. It grew into an industry giant during the decades when most other Japanese industries were stagnating.

Today Fuji ranks 377th on Fortune’s Global 500 list, employs 78 000 people and generates $25bn in revenues. Kodak has declared bankruptcy.

McGrath’s research team identified every publicly traded company on any global exchange with a market capitalisation of over $1bn as of the end of 2009 - some 5 000 companies. Only 10 managed to grow net income consistently by more than 5% over a five- and 10-year period.

These consistent growth companies included Cognizant Technology Solutions (United States); HDFC Bank (India); ACS (Spain); Krka (Slovenia); Infosys (India); Tsingtao Brewery (China); Yahoo! Japan (Japan); and Indra Sistemas (Spain).

All were operating with a new playbook for strategy based on new assumptions for competing. These new assumptions include continuous reconfiguration of the business rather than trying to defend existing competitive advantages.

They were designed for “Healthy Disengagement”, that is a design intended, (yes, intended) to end advantages frequently, formally and systematically.

They focused on building innovation proficiency and used their resource allocation to promote deftness by not allowing departments to control key resources. (Try wrestling resources of cash or skill from a strong department!) They were obsessed by rapid execution.

All these design innovations presuppose a leadership mindset they all possessed: the assumption that existing advantages will come under pressure sooner or later.
 
In passing, Prof McGrath tells of a somewhat counterintuitive idea shared with her by a friend working for a Brazilian company: “In Brazil,” he said, “we’ve been through it all - inflation, corruption, unpredictable governmental regulation, you name it. And you know, you get good at it.”

Maybe South Africa is not only an exciting place to live and work in, but a unique training ground for businesses into a future without sustainable competitive advantages.

Readability:    Light ---+- Serious
Insights:        High +---- Low
Practical:       High -+--- Low

 - Fin24
 
* Ian Mann of Gateways consults internationally on leadership and strategy. Views expressed are his own.
 
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