MANAGEMENT SPECIAL................. Change Game

Change Game 
 

Rita Gunther McGrath, Author, Speaker, Consultant
Competitive advantages are disappearing fast.

Be prepared to disengage and move on

Time and again, one comes across companies that were the biggest names in the business suddenly fighting for survival. The most prominent examples in the past year could probably be handset makers Nokia and Blackberry. Both were giants in their field, with market shares and fan followings that corporate dreams are made of. However, in the last six months, both businesses have changed hands as market shares and stock prices dwindled. Welcome to the world of transient competitive advantage. Rita McGrath, author, The End of Competitive Advantage: How to Keep your Strategy Moving as Fast your Business, says, “Transient competitive advantages are those which may be powerful while they last but which do not last into perpetuity. Firms must, therefore, think in terms of continually refreshing their advantages by creating a pipeline of new advantages to replace those that have gone into erosion.” In all conversations about strategy, a key idea is that a powerful competitive advantage must be sustainable. Once you have an established source of competitive advantage, you should be able to maintain and defend that position for a considerable period of time. However, that no longer holds true. “Advantages can evaporate quickly, leaving organisations that are not prepared for this struggling to cope,” says McGrath, who is also a professor at Columbia Business School. While certain industries like digital and knowledge-based one are likely to be disrupted far more quickly than traditional ones given the nature of their business, McGrath cautions that they are by no means immune to this threat. Energy distribution companies, makers of point-and-shoot cameras and brands like Hewlett Packard and Sony are among those that have not been able to deal with their dwindling competitive advantage. There are always early warning signs but often, people fail to take them seriously. You might start losing talented people, have difficulties in maintaining prices or see reducing returns on investments. “Unfortunately, faced with evidence of this type, many managers react by either dismissing the data (it’s a short term trend, things are really improving) or by doubling-down on efforts to shore up a declining business, rather than moving toward disengagement from a business which is no longer competitive,” says McGrath. She cites USA headquartered Milliken as a company that has managed its transient competitive advantages well. They’ve gone from being a textile firm to a chemicals-based company to finally a manufacturer of high-end speciality chemicals and products. It’s a thriving firm, operating in entirely different industries than those they started in. The key is to proactively make changes once you have an inkling that things are going wrong rather than wait for this change to be forced upon you. Her advice to leaders: get unvarnished data early – you want to be looking for warnings that a current advantage may be eroding. It’s likely that the people lower down in the organization will see the threat way before it makes its way to the executive suite, by which time it may be too late. The most crucial thing to do is to make innovation a systematic process. Leaders must learn to embrace intelligent failures, learning and experimentation, as sometimes the process of finding the path forward needs to be discovered, rather than planned. Currently, McGrath is working with CustomerLab in India to train companies on the innovation techniques she advocates to maintain a transient competitive advantage. Among Indian companies, she finds GMR and HDFC Bank interesting case studies. “GMR is an interesting company in that it has been very entrepreneurial in the sectors it has entered – including infrastructure, airports and other large-style projects. When an opportunity ends, like the airport in Istanbul which was faced with a shift in regulation that made its ownership by an Indian company untenable, they disengaged and moved resources into new opportunity spaces,” she says. Finally, she cautions on the importance of not ditching long term plans when things start to go awry. When advantages are temporary, longer term plans become even more important. “Think in terms of strategic ‘themes’ as a strategy, in which leaders specify the broad direction the organization needs to be pursuing, and perhaps on goals that direct energy and attention, but not necessarily the exact vehicles that will bring the firm there,” she says.
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