The End of Competitive Advantage: A Review, Part III

In Part II of our review, we laid out the four rules for competing in the new landscape of temporary advantages when your organization has reached
The End of Competitive Advantage. In summary, they were:

  1. Compete in arenas, not industries.
  2. Get (out) while the gettin (out)’s good!
  3. Use resource allocation to promote deftness.
  4. Don’t try to tame temporary advantages without the support of a leadership team that believes in temporary advantages (and doing what is necessary to tame them).

Today we want to dive in to what is meant by gettin’ (out) while the gettin (out)’s good, how resources need to be viewed, and what defines a leadership team that will believe in, and support, the continuous pursuit of temporary advantages, according to the book’s author, Rita Gunther McGrath.

A company that gets while the gettin’s good focusses on continuous reconfiguration and healthy disengagement to constantly move from one temporary advantage to another. The reconfiguration process can be thought of as the secret sauce that allows a company to remain relevant in a situation of temporary advantages, because it is through (this) reconfiguration that assets, people, and capabilities make the transition from one advantage to another.

A company that is continuously reconfiguring is constantly morphing. Instead of (extreme) downsizing or restructuring, the plagues of companies that try to hold onto competitive advantages that aren’t sustainable, continually morphing companies shift resources from one wave of temporary advantage to another, as needed. Business units are replaced by opportunities managed by appropriate leaders, execution strategies are adapted to the situation, and the wave rises and falls with the transient nature of the competitive life cycle of the arena. In the beginning, resources are assigned to define and develop the product. When production begins, more resources are assigned. When it’s time to launch, support resources are assigned and added as needed until the product peaks and R&D resources are taken off to being work on the next wave. Once the peak is reached, resources are successively taken off of the wave and assigned to other waves where they can add more value. At some point, the product line, and support, is ended or sold off, the remaining resources are reassigned, and the leadership team is refocussed on other projects.

As the temporary advantage wanes, the leadership begins to look at disengagement strategies in an effort to identify the one(s) that it will pursue. The right strategy for disengagement is typically defined by the value of the capability and the time pressure. If the capability is in decline and there is little time pressure, the leadership team will probably choose to run-off and be well paid to maintain support for customers while decreasing investment. However, if the capability is core to the future of the business and the time pressure is intense, the leadership will have no choice but to pursue a hail mary and divest formerly core capabilities as part of an effort to find a new core to migrate too. For example, if you were in film processing when everyone went digital, you found a new core or you filed for bankruptcy. In between these extremes, the company may pursue an orderly migration, garage sale, fire sale, or last man standing disengagement strategy.

A company that competes in arenas can only win if it is innovative and deft. A company deft at resource allocation follows the new strategy playbook for resource allocation. This means the following:

  • It manages resources centrally, not in business unit silos.
  • It organizes around opportunities, not an organizational structure.
  • It aggressively and proactively retires competitively obsolete assets, and moves the talent that was supporting them to new opportunities.
  • It has a real options mind-set structured around variable costs and flexible investments.
  • It’s all about parsimony, parsimony, parsimony. It invests only when the time is right.
  • It knows that access trumps ownership.
  • It leverages what is available, wherever it is. Inside or outside, it doesn’t matter.

When it comes to innovation, it has more or less mastered the process. It has obtained a level of proficiency where innovation is ongoing, fueled by an ideation pipeline, and supported by the leadership team that spins up new operating groups as needed to explore potentially viable ideas, and that then spins them down, without negative repercussions to the team, if it is later determined that they are not sufficient to conquer the target arena(s). There are no failures, just learning experiences that guide, and increase the chances of success of, the next idea.

The book also summarizes a process for managing the ideation and innovation process, which was outlined in more detail in the author’s previous co-authored book on Discovery-Driven Growth, the core competencies required by the leadership team, and what transient advantage means for your, personally, but we’ll leave that to your review of the book.

This three-part review concludes with the statement that this book, packed with relevant examples and case studies, not only makes a great case for transitioning away from sustainable advantage strategies when the industry your organization was operating in no longer supports them, but also does a great job in laying out the rules and framework your organization will have to adopt if it wants to ride the waves of temporary advantage that will otherwise wash it out to sea if it’s not prepared. It is well thought out, well written, and a must read for anyone that wants to adapt to the constant change many business have to, and will soon have to, cope with. I recommend this for any business leader that wants to stay on top of her game (because even if she has a sustainable advantage today, it may wither tomorrow) and strongly recommend this for every Supply Management professional because history has shown that supply chain advantages (which depend on labour costs, the price of oil, global market dynamics, etc.) are always temporary.