IT Strategy

Fleeting Competitive Advantage

June 29, 2009 by Raj Sheelvant

photo @ flickr by Franz Liszt 

Columbia Business School professor Rita McGrath has written a paradigm shifting article on the fleeting nature of the Competitive Advantage in an article titled “Competitive Advantage is Fleeting (And its Okay to Admit It)”.  The goal of a great strategy is to achieve “Sustainable Competitive Advantage” – that’s what is taught in Strategic Management.  But professor McGrath challenges that notion and says that in this era of Hypercompetition – advantages don’t last for very long before competitive entry, imitation and matching erode their edge, or customers move on, or the environment changes in such a way that the advantage becomes irrelevant.  In other words as Emmanuel Matuco (in his comments to the post) eloquently points out, since growth always follows the S curve, so should the business strategy.  Matuco writes most strategy books addresses entry points into the growth strategy, and thriving in it, but their solution to the inevitable stagnation (top of the S Curve) is to start another S Curve on top of the old one does not exists.  Past Strategic Management theories did not focus on ‘fleeting’ nature of the competitive advantage because there was not enough data that could indicate that the competitive advantage could someday erode due to external influence.  Now, the Global Recession has impacted all the companies (even those that were considered to have ‘sustainable’ competitive advantage) and has put the spotlight on the flaw of existing belief of strategy management.

I can think of one example to highlight that organization looked at their business strategy as a liner growth (as opposed to S curve). Take GM as an example… They focused on only on the rising affluence of US consumers and their affinity towards large SUVs and truck.  Previous CEO Rick Wagner perfected the strategy in 2003 to build and sell high end expensive large vehicles.  I believe everyone in GM thought that their competitive advantage in building ‘gas guzzler’ would be sustainable.  They only focused on competition but did not see changing landscape.   These external changes like rising gas price, heightened focus on environmental impact by the consumers and stagnating affluence acted as a perfect storm challenging GM and everyone else in the Auto industry.  This observation is not specific to GM but all the other firms look at their competitive advantage as if it is sustainable in the long run.

What Prof McGrath suggests is to change perspective and view their competitive advantage as “nasty, brutish and short”.   She says that this enables organizations to begin to develop skill of getting out of things that are losing competitive advantage and re-focusing the organization to take advantage of spotting new opportunities and moving to capture them.  This also impacts talent management.  If an employee knew that a declining advantage for a firm could mean their skills were no longer interesting or relevant, that would pique their interest in continuously improving on talents that would be relevant. It would be more attractive for firms to be able to avoid the trauma of mass layoffs and the uncertainty of being able to find the skills they need on the open market.  I think more research and analysis needs to be done to authenticate this finding, but this holds lot of promise to relook at business strategy in a new light due to hypercompetition and accelerated creative destruction.

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