Professor Michael Porter’s concept of “sustainable competitive advantage” no longer exists.
Anyone who has watched some of the giants of business flounder and fail over the past several years knows to question the term "sustainable" in relation to business.
Procter & Gamble brands have been losing market share for a decade. Sales have dropped over the past three years. Its growth rate over the past five years has been only half that of its peer rivals like Unilever, Colgate-Palmolive, and Kimberly-Clark.
If this huge company with a 180-year history of success, and $65 billion in revenue can be disrupted because it didn’t pay attention to the new rules of growth, so can you.
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.
The problem is that in today’s new economy, competitive advantage is transient, and is unsustainable.
Welcome to the world of accelerating rate of change.
But don't despair. You can use change to communicate a compelling, and engaging call to action for your people, and to spur forth innovation.
To compete in a more uncertain business environment, you need to do things differently.
I recently wrote an article where I stated that the more stability there exists in the business environment, the more companies begin to look the same, and appear commoditized.
This is because stability creates all the wrong reactions.
It allows for inertia to build up in an existing business model.
It allows people to fall into routines and habits of mind.
It creates the conditions for organizational rigidity.
It inhibits innovation.
It tends to foster a “denial reaction,” that things "are okay as they are," rather than proactive design of a strategic “next step.”
With the "death" of sustainable competitive advantage, this does not mean “the end of strategy”. In fact, it’s quite the opposite.
In a world of constant change, and temporary advantage, strategic innovation needs to be a continuous, well-managed process, rather than the episodic process it is in many companies when a crisis occurs.
Where to from here?
Most businesses are working on improving things that are also being improved by their competitors, such as:
- improving productivity
- increasing quality
- investing and employing new technologies
All these things have become Points of Parity [POP]: things your customers expect you to be doing, and things you need to be doing to stay in step with your competitors.
For example, your customers expect you to deliver a quality product, and have the right quality tools to ensure this happens.
Don't get me wrong: doing all these things is great, necessary, and may give you a temporary competitive advantage.
But if everyone is focusing on improving these same things—no one is breaking away from the pack and gaining a competitive edge.
There are some things your competitors cannot copy.
- People—their personal values, behaviors, knowledge, skills, learning, communications
- Ideas and innovations
- Customer service, relationships, knowing what customers want
- Adaptability, flexibility and reacting to change more quickly than competitors
These are the most powerful things you can focus on improving in your business that will get you more than a step ahead of your competitors.
I can tell you with utmost certainty that most organizations are not focusing on improving these things—even though they have an awareness they need to. There is a HUGE execution gap between knowing, and doing.
Improving productivity, quality, reducing costs, and adding technology are all long-term business activities, which need to be continuously improved, to be able to even keep up and compete: it's those POP, again.