The core thesis of Rita McGrath’s provocatively titled book “The End of Competitive Advantage” is actually not that competitive advantage is no longer useful, but that most managers think of it as a static condition rather than as an ever changing battlefront.
In “The End of Competitive Advantage” Professor McGrath writes:
“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 strategy’s most fundamental concept. It’s every company’s Holy Grail. And it’s no longer relevant for more and more companies.”
Although not mentioned explicitly, McGrath’s thesis is reminiscent of France’s attempt to protect itself from a German invasion during the build up to WWII. Based on medieval military strategy the Maginot Line was a fortified wall intended to prevent Germany from crossing directly into France.
In spite of being extolled as a work of genius by the military experts of the day, it was a tactical blunder; the Germans merely sidestepped the static defenses by invading through the “impenetrable” Ardennes forest in Belgium and conquered France in six weeks
The problem for most companies seeking sustainable competitive advantage is that since technologies, competitors, and market preferences are always changing, a company’s overall competitive advantage (Delta-V) is also always in flux; so a static competitive advantage is no longer sustainable.
My research suggests that rather than stability being the normal state of things and change being the abnormal thing, it is actually the other way around.
Instability and change is now the normal condition interspersed with deceptive moments of transition. Companies that embrace static Maginot Line type strategies risk being overrun by a swarm of startups and other nimble competitors.
Professor McGrath writes:
“Think about it: the presumption of stability creates all the wrong reflexes. It allows for inertia and power to build up along the lines of an existing business model. It allows people to fall into routines and habits of mind. It creates the conditions for turf wars and organizational rigidity. It inhibits innovation. It tends to foster the denial reaction rather than proactive design of a strategic next step.”
The alternative to trying to preserve temporary competitive advantages is to embrace what Professor McGrath calls “Innovation Proficiency,” where companies create a well managed process of continuous innovation.
It is now clear that in the modern economy innovation is the primary driver of economic growth, and as the number of disruptive innovations increase, incumbents need to improve their rate of successful product inventions, just to stay competitive.
Professor McGrath gives many excellent recommendations for how companies can change their organization and culture to be more proficient at continuous innovation. Yet the actual process of creating new successful products and services is still largely a very inefficient, hit or miss, “black art.”
She gives an example of one company that was trying to be more innovative.
“We naively thought that the shortage of ideas must be our major problem. So we enthusiastically delved into intensive brainstorming. Some of the ideas we thought were sheer genius…We had made a profound mistake which was not engaging the leadership from the beginning and not creating a strategic framework within which the ideas had to fit.”
The Q-PMF strategic framework is designed to make the continuous creation of better market fitting products more of a science and less of an art. It provides a clear road map for successful innovation starting with a deep understanding of market segmentation based on the Customer Value Model.
The Q-PMF framework provides clear opportunities for both “sustaining” and “disruptive” innovations.
Sustaining innovations are created by improving the performance of existing products along known value dimensions. By evaluating the changes in Delta-V advantage across value dimensions and the resulting expected changes in market share, and comparing it with the cost of delivering the required improvements, managers can determine both the highest impact and most cost effective innovations.
Disruptive innovations are created by adding or creating entirely new value dimensions. The resulting new product often is targeted at a new market segment (which often cannibalizes old segments) for which it has a higher Product Market Fit.
A classic example is Apple’s iPhone, which when it was first launched actually had weaker performance in the “telephone” dimension, but added an entirely new set of much more highly desired value dimensions of being a pocket computer (e.g. applications, sensors, camera, iTunes, web access, etc.).
Using the Q-PMF framework, companies can identify product innovations that:
– Have the best Product Market Fit
– Can capture significant market share in the most desirable market segments
– Create a road-map for continuous innovation
Competitive Advantage may not have ended, but the time for static Maginot Line style thinking certainly has.