The notion of sustainable competitive advantage is dead! Sounds outrageous, sacrilegious but this probably is nearer to the reality. Let me explain why.
A closer look into global competitive landscape, reveals many interesting case studies of companies’ falling from grace; be it Nokia, which recently had to sell its phone unit to Microsoft and IBM which divested their Personal Computer division to Lenovo at dirt cheap price. With rapidly changing market scenario, fueled by technological advancement, the notion of striving for long term competitive advantage remains at best a wishful thinking.
Many with business background can relate to the age old theory of Competitive Advantage. The main proponent Harvard Business School Professor Michael Porter, asserted that companies should endeavor to identify and establish their unique core competences, while looking to restrict competitors from acquiring resources to nullify the advantage. With democratization of competitive scenario, it is proving increasingly difficult to retain core competence as others are simply building on existing product at little or no cost. For example, though Apple created the Tablet market with their iPad, currently the market is flooded with cheaper alternatives like Kindle (Amazon), Galaxy Tab (Samsung) and Nexus (Google).
Technology has reduced the barrier to entry to such an extent that Tech Startups are entering market armed with a small army of developers. For example, popular app maker, WhatsApp Inc, starting out just four years back, was bought off by Facebook for a staggering USD 19bn. The founder reportedly was filtered out of Twitter and Facebook’s recruitment process. Amazon, a first generation e-commerce company is giving a run for their money to traditional ‘brick and mortar’ books stores like Barnes & Nobles and retail powerhouses like Walmart. Amazon’s success have prompted both companies to rethink their business models by focusing on e-commerce front ends.
Rita Gunther, Columbia University Professor, addressed this issue in her newly published book- ‘End of Competitive Advantage’- which identified the fallacy of long held assumption of sustained competitive advantage. She boldly asserts that strategy is stuck and virtually all strategy frameworks and tools in use today are based on a single dominant idea: that the purpose of strategy is to achieve a sustainable competitive advantage. This idea is the status quo of strategy’s most fundamental concept. It’s every company’s Holy Grail. And it’s no longer relevant.
For further analyzing the scenario of transient advantage, another concept needs to be introduced, the idea of Disruptive Innovation. Clayton Christenson, Professor of Harvard Business School, coined the term to describe process by which a product or service takes root initially in simple applications at the bottom of a market and relentlessly moving up market, eventually displacing established competitors. Disruptive innovation is usually known to be brought in by new entrants, in many cases by newly established start-ups. Innovation remains the core of disruptive innovation as new companies find ways to solve customers’ problems in cheaper ways. But why is disruptive innovation inevitable in all industries?
Many established companies face the ‘mouse trap’ problem. They look to make a better product, in this case a better mouse drop. But the consumers want a better solution, and new comers are usually in a position to upend the market by infusing innovation driven customer solution. For example, Apple entered the consumer electronics market in 2001 and permanently disrupted the market by marrying consumer electronics with computing expertise. Hence, smartphones and tablets categories eventually were born. While companies like Apple and Samsung forged ahead, traditional mobile phone manufacturers like Motorola, Ericsson and Nokia stumbled and lost their ways.
Summing up, transient competitive advantage is here to stay. And no companies in any industries are immune from the onslaught of potential competitors, be it from start-ups or companies coming from other industries. As Schumpeter had stated in his works on creative destruction, no company, however big, powerful, cash rich is immune from the cusp of destruction. In order to survive, companies must constantly look for ways to consolidate position, while at the same time looking for ‘blue ocean markets’. The race for survival and supremacy is perennial and all players must find ways to keep providing innovative solutions to customers in order to stay relevant.
Like they say, evolve or die.
(To be continued…)
The next write-up in the series will shed light on how Transient Competitive advantage is impacting different countries and their competitiveness.