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The notion of sustainable competitive advantage is dead! Sounds outrageous and sacrilegious, but this probably is nearer to the reality. We are now moving into the age of transient advantage.
A closer look into the global competitive landscape reveals many exciting case studies of companies’ falling from grace.
Pursuing long-term competitive advantage is wishful thinking in today’s rapidly changing market scenario.
Many with a business background can relate to the age-old theory of Competitive Advantage. The leading proponent Harvard Business School Professor Michael Porter, asserted that companies should endeavor to identify and establish their unique core competencies while looking to restrict competitors from acquiring resources to nullify the advantage. With the democratization of the competitive scenario, it is proving increasingly challenging to retain core competence as others are simply building on an 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 the market armed with a small army of developers. For example, Facebook bought WhatsApp Inc for USD 19bn only four years ago. 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 its money to traditional brick-and-mortar books stores 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. The purpose of strategy is to achieve a sustainable competitive advantage, which is a single dominant idea that dominates all strategic frameworks and tools available today. 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 how a product or service takes root initially in simple applications at the bottom of a market and relentlessly moves up the market, eventually displacing established competitors.
Disruptive innovation is generally brought about by new entrants, in many cases by startup companies. Innovation remains the core of disruptive innovation as new companies find ways to solve customers’ problems more cheaper. 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 newcomers usually can 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 categories 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 companies in any industry are immune from the onslaught of potential competitors. They may be from start-ups or companies from other industries. As Schumpeter had stated in his works on creative destruction, no company, however extensive and cash-rich, is immune from the cusp of destruction.
To survive, companies must constantly look for ways to consolidate their position and look for blue ocean markets. The race for survival and supremacy is perennial. All players must find ways to keep providing innovative solutions to customers to stay relevant.
As they say, evolve or die.
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