Is a sustainable competitive advantage still possible?

According to Colombia BS Professor Rita Gunther McGrath, achieving a Sustainable Competitive Advantage (SCA) (establishing a unique competitive position that can be sustained for long periods of time) is nearly impossible these days.

McGrath introduces a new term "Transient Advantage", which emphasizes that competitive advantage has become brief, temporary, passing, provisional, temporal. Companies must learn  to launch new strategic initiatives again and again, creating a portfolio of advantages that can be built quickly and abandoned just as rapidly.

To create an innovation pipeline or portfolio of advantages, companies need to apply eight shifts in the way they operate and think about strategy:
1. Think about arenas, not industries (threats can come from players outside of your industry)
2. Set broad terms and then let people experiment (allow freedom to be creative)
3. Adopt metrics that support entrepreneurship
4. Focus on customer experiences and solutions to real problems
5. Build strong personal relationships and networks
6. Avoid brutal restructuring and learn healthy disengagement
7. Get systematic about early-stage innovation
8. Experiment, iterate, learn.
And most of all: leaders must recognize that fast and roughly right decision making must replace deliberations that are precise but slow.

Source: Transient Advantage: Rita Gunther McGrath in HBR June 2013, p62-70

Tough Competition Helps Startups Succeed

In a short article "How Competition Strengthens Start-ups" (HBR March 2013), Andrew Burke and Stephanie Hussels report some key findings of their study of tax data of 2 million companies that were launched in the UK between 1995 and 2005.
Surprisingly (or perhaps not), they found that companies launched in crowded markets had higher odds of failure in the first year, but once they survived this year, had a much greater chance of surviving the first 3 years.

The authors explain this effect (that serious competition apparently helps startups thrive) by stating that a challenging environment causes young firms to focus extra on satisfying client needs on one hand and keeping costs down to a minimal level on the other hand.

Let that be a comfort for all startup entrepreneurs who started in the harsh economic circumstances of the last couple of years :-)

Where is ‘marketing’ headed from ‘social marketing concept’? ‘Customer Life Growth Monitoring Concept’ seems to offer promise!

Where is ‘marketing’ headed from ‘social marketing concept’? ‘Customer Life Growth Monitoring Concept’ seems to offer promise!

A marketer who is interested in keeping with him his customer quite longer or for ever have till now traversed many stages- from production-orientation to sales-orientation to product-orientation to marketing-orientation to social marketing orientation. The evolution of marketer’s love and protective inclination for the customer extended further to the creation of life-time customer value and co-creation. These apart, the Porter’s value chain analysis has set out to explore all possibilities of giving the best service to the customer. What is the next marketing philosophy that can guide the marketer’s efforts? Is there any space left for further exploration by the marketing scholars?

What all the previous concepts fail to capture and can do further is: can the marketer monitor the growth ladder of the customer’s life and the corresponding upgrading of the customer to the next life stage in terms of what the marketer’s next product category can offer a customer. For example, an automobile company has sold its customer a scooter, which has later been replaced with a bike, which, in turn, later by an entry-level car, and later a medium-range car, and later, a luxury car.
The marketer’s main function of this philosophy is : take back the product first sold at its salvage value and give the upgraded version of product that new life stage of the customer requires, and later next cycle starts with a new product category as required by the growing customer. In the process, alongside of it, the customer’s network and their references are also brought into the marketer’s fold.
The main planks of the this concept are:
The customer is under eternal protective cover of the customer, which is an aggressive pursuit of customer’s life time value.
A customer’s life success growth graph is monitored for a very long period by the marketer by giving the customer’s product upgrades for ever.
His ramshackle clunkers are taken care of the marketer.
His network of relations are also tracked to bring them into the marketer’s fold.
Research scholars are challenged to take this further and establish its value for the marketer.

Why focus ?

Confucius says: “Man who chases two rabbits catches neither!”

“I’d rather be strong somewhere than weak everywhere”.

When managers know they have only one battle to fight it concentrates their minds wonderfully.

Companies that broaden their line, for whatever reason, are vulnerable to narrowly focused competition that takes advantage of division.

Nobody loses business just because they have a broad focus. To lose business you have to run up against a competitor with a narrow focus.

What’s needed for success is focus, which sometimes can be achieved with a full line of products, but with sacrifices' made in other areas. Distribution could be one such area. Dell Computer deselected retail distribution and direct sales force with success.

Some managers equate size with power. Is a large company more powerful than a small one? Not necessarily. A highly focused company is more powerful than a less focused company.

What provide an organization with its power is its degree of focus and its share of market. Size is only important if it contributes to an increase in market share.

Power gives a company the ability to “control” an industry, taking it in a direction that will only increase the company’s power and domination.

Wouldn’t it be easier to increase the share of a business you know than to get a share of a business you don’t know?

A focus is not forever.

At any point in time, a company has 3 kinds of products. (1) yesterdays products, which are candidates for disposal; (2) today’s products, which are producing the bulk of the company’s profits; and (3) tomorrow’s products, which are the company’s future.

Nothing stays still long enough for a company to be perfectly focused.

Sooner or later even the most powerful focus becomes obsolete. That’s when a company must refocus itself.

Focus, the future of your company depends on it.

Abstracts from: “Focus, The future of your company depends on it”, by Al Ries

If you are a BtB-unit manager and you are interested in some practical DIY-tools on strategic focus maybe you will enjouy visiting my blog: Strategy On-line

Regards

Peter

Decision-focused Planning

In a recent HBR article (Jan 06), Marakon consultants Michael C. Mankins and Richard Steele argue that in most companies, strategic planning is not about making decisions, but about documenting choices that have already been made.

They describe a disconnect between strategic planning and decision-making, which is caused by the length (1 year) and timing (annually) of traditional planning processes, and also because the strategy process is predominantly business-unit oriented, while decisions are often issue-oriented.

The authors recommend to add 6-8 issue-based meetings per year and integrate those in the planning process, which as a result becomes more continuous. Additionally this helps to improve the communication between senior corporate managers and business unit managers.

Although an occasional issue-based strategic meeting can have its merits, I believe that adding 6-8 of those each year plus an additional level of planning on top of the usual network, corporate, business and functional levels is too much of a thing and business unit managers are perfectly capable to take major decisions themselves. Besides, board-level executives cannot afford to spend that much time on the issues of their business units.

Are you an advocate of decision-focused planning?

A Radically Simplified Approach to Business Strategy

It is now 25 years ago that Harvard professor, Michael E. Porter wrote "Competitive Strategy". Essentially Porter says you need to consider Five Competitive Forces to analyse the attractiveness of an industry for a company.

A new book on business strategy: "Competition Demystified - A Radically Simplified Approach to Business Strategy" by Bruce Greenwald, a professor at the Columbia Business School, and Judd Kahn, is a conscious simplification of Michael Porter's classic.

According to the authors, in most cases, studying only one factor will do: Potential Entrants. They claim the Barriers to Entry is by far the most important factor in business strategy.

If they are right that would make business strategy formulation a lot simpler!

"Either the existing firms within the market are protected by barriers to entry or they are not," the authors write. " No other feature of the competitive landscape has as much influence on a company's success as where it stands in relationship to these barriers." And: "Avoiding competition is the only way to escape a level playing field in which anyone can join... [and] only the best... survive and prosper."

Greenwald and Kahn argue that:

• Firms operating without competitive advantages should concentrate all their efforts on being efficient;
• Companies that do have competitive advantages need to design strategy with their competitors in mind;
• Most competition is over pricing or capacity, and there are established techniques for analyzing these situations and devising the right strategies to handle them;
• Cooperation between competitors is possible and beneficial and can be accomplished without breaking the law;
• In an increasingly global economy, competitive advantages still stem primarily from local conditions. Even large international firms need to understand and protect the local sources of their success.

Most importantly, according to the authors there are really only three sustainable competitive advantages;

1. Supply. A company has this edge when it controls an important resource: in Hollywood, for example, it may mean having Julia Roberts or Tom Cruise star in a movie. Or a company may have a proprietary technology, like a prescription drug, that is protected by patent.
2. Demand. A company can control a market because customers are loyal to it, either out of habit - to a brand name, for example - or because the cost of switching to a different product is too high. Companies often put off changing software vendors, for example, for that reason.
3. Economies of scale. If your operating costs remain fixed while output increases, you can gain a significant edge because you can offer your product at lower cost without sacrificing margins.

Greenwald and Kahn explain in depth how a business can capitalize on each type of advantage.

Bestselling Books on Strategy and Competition

Industry Change

A new article on strategic industry change can be found in the Harvard BR of October 2004. As we all know, industries change. Some industries change fast, some change slowly over time, but all of them do change eventually. Anita McGahan explains industries actually change in one of 4 ways: radical, progressive, creative or intermediating.

She argues that if your company's innovation S. is not aligned with your industry's change trajectory, your plan for achieving returns on invested capital is less likely to succeed, "Moreover, a firm's S. - its plan for achieving a return on invested capital - cannot succeed unless it is aligned with the industry's change trajectory". If you understand which path your industry is on, you can determine which strategies will make your company succeed and which ones may backfire on your company.

A further description of McGahan's innovative industry change model can be found here.

It's interesting to note that while McGahan seems to focus only on aligning your business strategy to industry changes, Chan Kim and Renée Mauborgne in another article in this same HBR issue advise to try to create a new uncontested market space yourself, which they call a blue ocean strategy.

Boards spend 3 hours a month discussing S.

Top management spends less than three hours a month discussing S. issues (and that includes mergers and acquisitions) or making strategic decisions. Michael C. Mankins, managing partner of Marakon Associates, in the September 2004 HBR issue, once more measured what everybody already knows: typical company’s senior executives spend less than three days each month working together as a team, and in that time they devote less than three hours to strategic issues. Moreover, these three hours are seldom well spent. S. discussions tend to be diffuse and unstructured, only rarely designed to reach good decisions quickly.

One global firm spent more time each year selecting the company’s holiday card than debating its vital Africa S.

However at a number of Marakon clients — ABN AMRO, Alcan, Barclays, Boeing, Cadbury Schweppes, Cardinal Health, Gillette, Lloyds TSB, and Roche — executives have found ways to improve teamwork at the top. Leaders spend their time together addressing the issues that have the greatest impact on the company’s long-term value creation.

Based on the experiences at these companies, Mankins provides 7 techniques for exploiting valuable time of executive boards:

1. Deal with operations separately from S.
2. Focus on decisions, not on discussions
3. Measure the real value of every item on the agenda
4. Get issues off the agenda as quickly as possible
5. Put real choices on the table
6. Adopt common decision-making processes and standards
7. Make decisions stick

Mankins' article ("Stop Wasting Valuable Time") fits well in the Value Based Management tradition of Marakon Associates. My time reading this article was certainly not a waste of time and I recommend reading it to any topmanager and MBA student.

BS for SMEs

In a new book 'The Keystone Advantage: What the New Dynamics of B. Ecosystems Mean for S., Innovation, and Sustainability' - Marco Iansiti and Roy Levien argue niche players should think of their B. environment as a series of ecosystems.

These ecosystems feature "keystone" companies such as Microsoft and WalMart, providing for the health of all who do B. with them.
Iansiti and Levien recommend small companies in such ecosystems should follow a specialization BS by taking explicit advantage of the opportunities provided by the ecosystem, while avoiding the traps that challenge firms in such environments.

Amongst the many tips the writers have for small companies in these ecosystems around leaders such as Microsoft or Walmart are:

• Specialize in unique capabilities.
• Leverage other capabilities from keystones
• Sustain innovation
• Tight coupling: Manage risk and dependencies
• Loose coupling: Embrace mobility and flexibility
• Niche leverage: Power over keystones

The HBS article and book are recommended readings for 'small fish in big ponds' considering a niche specialization BS in an ecosystem dominated by a big fish.