New Book Review: "The End of Competitive Advantage"
New book review for The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business, by Rita Gunther McGrath, Harvard Business Review Press, 2013, reposted here:
While the term "competitive advantage" can be defined in more than one way, it can be argued that sustainable competitive advantage over rivals (i.e. holding on to market positioning relative to other industry players) is really a chief business goal when following such a strategy. Authors A. G. Lafley and Roger L. Martin in their recent "Playing to Win: How Strategy Really Works" (see my review) show from their experience that "no strategy lasts forever" and that "strategies need continual improvement and updating", but Rita Gunther McGrath demonstrates the need for firms to take these steps further, resulting in the likelihood of considerably more movement over time.
The author explains that there have been two foundational assumptions taken as gospel in the past: (1) "industry matters most", and (2) "once achieved, advantages are sustainable." While advantages can continue to be sustained in some industry sectors, these scenarios are becoming increasingly less frequent, and the author's research in this space demonstrates that "stability, not change, is the state that is most dangerous in highly dynamic competitive environments", and that "one of the biggest changes we need to make in our assumptions is that within-industry competition is the most significant competitive threat."
McGrath argues that firms need to increasingly compete with waves of temporary or transient competitive advantage rather than sustainable competitive advantage. In her presentation of the five phases (launch, ramp up, exploit, reconfigure, and disengage) that exist in each such wave, she stresses the fact that although exploitation of a transient advantage is advantageous for a period of time, excessive build-up of assets and people should be prevented as much as possible so that barriers to moving on to the next advantage are minimized.
In Chapter 2 ("Continuous Reconfiguration: Achieving Balance between Stability and Agility"), the author comments that "a pattern to look for in organizations that have mastered transient-advantage environments is the continual freeing up of resources from old advantages in order to fund the development of new ones", and the ten growth outliers her research team identified from nearly five thousand over the 1999 to 2009 time period demonstrate this pattern, which corresponds to equal emphasis on all phases of the wave just discussed, rather than exploitation alone.
Apart from the introductory chapter, Chapter 4 ("Using Resource Allocation to Promote Deftness") is probably the chapter I appreciated most. One segment, entitled "The Resources as Hostage Problem" is especially relevant to her presentation. The author comments that "in a traditional company, people who had lots of assets and staff reporting to them were the important people in the company", but that this "bigger-is-better mind-set is deadly in an environment in which advantages come and go. If people feel their authority, power base, and other rewards will be diminished if they move assets or people out of an existing advantage, they will fight tooth and nail to preserve the status quo."
And as a consultant, I find it interesting that the segment entitled "The Concept of Asset Debt" uses the term "technology debt" in conjunction with the need for firms to keep technology assets in a fit state in order to support competitiveness, and that continual investment and a willingness to leave older assets behind is a requirement for such a state. Usage of this term is a very relevant expansion of the much older term of which I am familiar, "technical debt", revisited at a practical level a few years ago by one of the contributors to "97 Things Every Software Architect Should Know" (see my review).
"So Why the concern over making changes properly now versus later? It's because there's a hidden cost to making these quick and dirty fixes. For financial debts the hidden cost is called 'interest', and most anyone with a credit card knows how expensive just paying the interest on a debt can be. For technical debt, interest takes the form of instability in the system, and increased maintenance costs due to the hacked-in changes and lack of proper design, documentation, and/or tests. And, like financial interest, regular payments must be made until the original debt is repaid."
While the term "technical debt" is used differently in the context of what the author shares in her discussion here, there also exist similarities in the sense that both exact penalties in the form of interest. For firms which still strive to sustain competitive advantage, such interest might prove to be so costly as to become too unwieldy for survival, missing the ability to compete with waves of transient competitive advantage in the interim. This book adds to the strategy bookshelf in a way that helps bridge some of the gaps that have existed in recent years, and makes these bridges relevant by presenting original research.