Finding transient competitive advantages
24 February 2015
Edwin Sim looks at how successful businesses today must find transient competitive advantages.
In her best selling book, The End of Competitive Advantage – how to keep your strategy moving as fast as your business, Columbia School of Business Professor, Rita Gunther McGrath said that to win in today’s volatile and uncertain environments, executives must exploit short-lived opportunities with speed and decisiveness.
Old strategy playbook
McGrath said virtually all strategy frameworks and tools today are based on a single dominant idea: the purpose of strategy is to achieve a sustainable competitive advantage but today it’s “no longer relevant for more and more companies”.
Historically, strategy and innovations have been thought of as two separate disciplines.
Strategy was about finding a favorable position in a well-defined industry and then exploiting a long-term competitive advantage.
Innovation was creating new businesses and was seen as something separate from the business’s core set of activities
New strategy logic
McGrath said many of her clients such as DuPont, 3M, Nokia, Intel and IBM began realizing that traditional approaches to strategy and innovation weren’t keeping pace with market speeds in which they were competing.
The new strategic logic recognized that stability was not a normal state. “Change is now normal”
No longer competing in industries
Companies no longer compete within industries. “Now they are competing in arenas.”
Product features, new technologies and better mousetraps she said are proving less durable.
“Leveraging more ephemeral things such as deep customer relationships and the ability to design irreplaceable experiences across multiple arenas are becoming more important.”
Thinking in terms of arenas
McGrath said a huge strategic difference occurs when companies begin thinking in terms of arenas as opposed to industries.
Companies often determine their relative position against other industry players in terms of market share.
In this environment, competitive threats are traditional. They may include product introductions, pricing and promotions.
This type of analysis can easily lead a business to being blindsided.
Money-center banks in the 1970s were blindsided by Merrill Lynch’s cash management accounts because they were not being offered by other banks. “Millions of deposits flew out door before anyone noticed it.”
Customers’ jobs to be done
Sustainable businesses today need to think of customers’ “jobs to be done” rather than rigid markets influenced by supply and demand.
Today’s strategy playbook should be based on the idea of transient competitive advantage – “that is, where you compete, how you compete and how you can win is very different when competitive advantage is no longer sustainable”.
Fuji vs Kodak
In the 1980’s McGrath said Fuji and Kodak competed ferociously in film and film processing.
Minoru Onishi, Fuji Photo Films CEO sensed a fundamental change when Sony developed its first digital camera.
“It created a reality that photography could be done without film.”
McGrath said Onishi wasted no time moving on this insight.
Invested heavily in digital technologies
In contrast to Kodak, Fuji began investing heavily in digital technologies to prepare for the next round of photography competition. Until 1999, Fuji spent $2 billion on research and technologies.
“By 2003 Fuji had 5000 digital processing labs throughout US and Kodak had less than 100.”
Ohnishi not only determined to keep the company relevant in digital technologies for photography but it also reached for opportunities outside the photography business.
The company established new sales channels for new products, including magnetic tape optics, hybrid electronic systems, video tapes, floppy disk manufacturing, biotechnology and office automation.
To succeed, Fuji pulled resources from photography businesses by cutting $2.5 billion in costs to invest in new businesses.
Today, McGrath said Fujifilm has significant health care and electronics operations and obtains 45 per cent of revenues from document solutions and printers.
“All this in decades when Japanese industries moribund and country couldn’t escape stagnation.”
By 2011, Fuji revenue was $25 billion. It employed 78,000 people and ranked 377 in Fortune’s Global 500 list.
Fuji’s success McGrath said suggests that simply managing well, developing quality products, and building up well recognized brands is insufficient to remain on top in an increasingly heated global competition.
The company invested in new advantages by pulling resources from declining ones. This approach proved to more robust in the face of change
“It didn’t get it right every time, and sometimes the transitions were painful but the company didn’t get trapped by the past.”