June 27, 2013

The Sustainable Advantage Myth

If there’s one antiquated, outdated business concept that needs an update, it’s the concept of the sustainable competitive advantage. While it may be time to rethink and refresh the idea, business organizations are still holding onto the concept with white knuckles. It’s not hard to understand why when you consider the fact that the idea of the sustainable advantage remains at the core of most strategy textbooks and is a common characteristic of companies on the “most admired” lists. And companies like GE, IKEA, Unilever, Tsingtao Brewery, and Swiss Re have all been fortunate enough to achieve success—and legendary status—with this strategy. But as Bob Dylan so perfectly put it, “the times they are a-changin’”.

In fact, the Harvard Business Review (HBR) recently addressed the topic, pointing out that chasing after the sustainable advantage, particularly for those in fast-paced and unstable industries such as consumer electronics, fast-moving consumer goods, television, and publishing, is ineffective due to the digital revolution, a “flat” world, fewer barriers to entry, and globalization. “Competitors and customers have become too unpredictable, and industries too amorphous.”

Instead, HBR suggests adopting a new strategy: building and exploiting many transient competitive advantages at once. While on their own, these advantages are temporary, but as a portfolio, they can keep companies in the lead over the long run. Pointing out that the average competitive advantage typically dissolves in less than a year, the article recommends abandoning the notion that stability in business is the norm and working towards continuous change and avoiding rigidity. In other words, embrace change and stay flexible and agile.

HBR points towards companies like Milliken & Company, a U.S.-based textiles and chemicals company and Brambles, a logistics company based in Australia, who have both changed their thinking toward competitive advantage and found success by viewing and formulating their strategy differently.

The article goes on to advocate eight operational changes companies need to make in in order to create a portfolio of transient, or temporary advantages. One of the operational shifts HBR recommends is to “[f]ocus on experiences and solutions to problems”. The article insightfully points out that in today’s marketplace, products and services are easy to duplicate and once a company has demonstrated a demand, competitors are quick to follow. Instead, gain a competitive advantage through a positive, well-designed customer experience. Improving the customer experience can be as simple as what Brambles did by simply putting themselves in the customers’ place and considering the outcome the customers are trying to achieve. This small step has generated substantial profits and steady growth for the Australian logistics company.

While the idea of transient competitive advantages may seem completely backward compared to the way we’ve looked at strategy to date, it’s certainly one of the less complicated adjustments to make. Changing modes is as simple as defining where you want to compete, determining how you intend to win, and deciding how you are going to move from advantage to advantage.

One method in gaining a competitive advantage that has proved highly successful has been the use of innovative product development. Liv-ex, the leading online marketplace for professional buyers and sellers of fine wine, was able to gain a competitive advantage and discover new sources of revenue by transforming a fragmented and opaque industry into a data driven, multimillion dollar market pegged at $4 billion globally through their own innovative product development strategy. Richard Hewitt, Director of Product at Liv-ex, additionally attributes the company’s successful competitive advantage to an understanding that “in today’s business climate, there is no such thing as standing still.”

What Liv-ex, Brambles, and every other cutting-edge company in the marketplace today understand is that there is no more “business as usual.” Success and relevance in today’s economy is dependent on a company’s agility and ability to quickly respond to the constant changes in customer needs and expectations.  Whether adopting new business strategies like transient competitive advantages or embracing innovative product development, the key is to keep moving or else you will get left behind.