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 the 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 a dirt cheap price. With the rapidly changing market scenario, fueled by technological advancement, the notion of striving for long-term competitive advantage remains, at best, wishful thinking.
Many with business backgrounds can relate to the age old theory of competitive advantage. The main proponent Harvard Business School Professor Michael Porter asserted is 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 democratisation of the competitive scenario, it is proving increasingly difficult to retain core competence, as others are simply building on existing products at little or no cost. For example, though Apple created the tablet market with their iPad, the market is currently 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 the 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 was reportedly 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” bookstores like Barnes & Nobles and retail powerhouses like Walmart. Amazon’s success has 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 the 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 a strategy’s most fundamental concept. It’s every company’s Holy Grail. And it’s no longer relevant.
For further analysing 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 the process by which a product or service takes root initially in simple applications at the bottom of a market and relentlessly moving up the 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 products, 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 solutions. 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 were eventually born. While companies like Apple and Samsung forged ahead, traditional mobile phone manufacturers like Motorola, Ericsson, and Nokia stumbled and lost their way.
Summing up, transient competitive advantage is here to stay. And no company in any industry is immune to 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.
