Competitive Advantage's End

In a new book, Rita McGrath explains how companies can thrive in what she calls the 'transient advantage economy'.
May 28, 2013 | Q&A
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The first part of your book explains how the economy has changed in the last two decades, making sustainable competitive advantage untenable. Instead, you argue, companies should seek out transient competitive advantage.

I wouldn’t describe transient competitive advantage as something that companies want to seek out. But it’s the new reality, and companies that have learned to embrace it are prepared to do well. Obviously, a company would love an advantage that lasted a long time. But if you think, “This isn’t going to last too long, but I can make money out of it anyway’ ” then you’re taking a pragmatic approach.

The fact is, sustainable competitive advantage just doesn’t exist in most sectors of the economy. Any industry that’s asset-light or doesn’t require ten years of drilling into the ground is going to be very vulnerable: That means the content industry, any services business, anything that had been physical that could be digitized — and that’s the bulk of the economy today.

How did these changes come about?

Companies can’t protect advantages the way they used to. People copy you, they match you. And that’s because of vanishing entry barriers, globalization, and the digitization of the world.

We certainly saw early evidence of it throughout the ’90s, as the Internet became a commercial reality and the digital revolution swept through businesses like newspapers and music and movies. That’s when some industries started to get hit by the changes. Now we’re at an inflection point. People have talked about this before, but mostly as it relates to certain sectors. Now we’re starting to realize that there is a fundamental shift in the underlying economy.

In the book, you give the example of Research In Motion, and describe how its competitive advantage with BlackBerry proved to be unsustainable.

Research In Motion had its roots in pagers. It wasn’t thinking at all about consumer devices; it positioned the BlackBerry as a business product. I remember when, if you asked executives to turn off their BlackBerries, it was as if you’d asked them to amputate a limb.

The thing that undid the company was the mindset that its product was going to be fine in the corporate space, because these smartphones and Apple products and Androids were just consumer devices — and that wasn’t its market. When Research in Motion finally realized that these newer products were a threat, it tried to reinforce the BlackBerry franchise and desperately tried to catch up with what it thought its consumers were demanding. But by then it was too far down the road.

Is there a company that has been successful at managing transient competitive advantage?

One wonderful example is America’s own Milliken and Co., the country’s last standing textile company. They transitioned themselves very well from the world of making cloth and garments to the world of making advanced materials and chemicals that go into a lot of other companies’ manufactured goods.

Milliken’s success is tied to an idea you discuss in the book: the need for continuous reconfiguration. Isn’t it difficult to be always in a state of reconfiguration?

There’s expense, and there’s difficulty. The companies that are good at this don’t let themselves get overinvested in an old advantage. One of the reasons that moving from an old advantage to a new advantage is expensive is that you build up assets and systems and structures. When you have to reconfigure them, it’s expensive. Instead, if you went in with the idea that you’d have to take it apart in five or ten years, then you’re less likely to have gone overboard in creating a capital-intensive structure. In an ideal world, what you’re doing is continually upgrading your assets, so they don’t hold you back when it’s time to change.

What about the idea of competing within arenas, rather than industries?

It used to be, when things were more stable, that your most significant competitors were in the same industries. So if you were Ford, it was Chrysler. Intra-industry moves were the ones to watch. What we’re seeing today is industries competing with industries. For example, we’re now spending less of our discretionary income on entertainment and meals out, and more on our phones. So you’ll pass up dinner at a restaurant, and spend that money on your data plan. And this is something that companies need to keep in mind — their competitors might be coming from entirely new directions. Executives need to think in a much more fine-grained way about how to make competitive moves.

What does this new reality mean for individuals?

Well, there’s bad news and good news. The bad news is that people who don’t have the education, networks, or training are going to have a very difficult time demonstrating that they can add value as employees. So you need to take a proactive stance in building your career. We’ve heard that before, but I think now we’re really seeing the effects of these changes. On the plus side, careers are now going to be infinitely more varied. And there’s going to be a lot of opportunity for people who do have skills that are in demand. There are now many more ways to be successful, create an interesting life for yourself, and get paid well for doing it than there have ever been before.

But how do you avoid making a series of lateral moves? How can you move up?

To an entrepreneur, moving up is building a company that sells more, that has more profits, that is more innovative, and you get paid more and have more responsibility because you’re developing an organization. So this notion that moving “up” as career progress is a notion that I think we’re going to have to get past. I think “up” is going to be your ability to demonstrate increased value to those who would hire you. Take making movies: you might start by lugging cameras around. Over time, you learn skills, you get increasingly challenging assignments, you get trusted, and “up” becomes a function of your ability to deliver increasingly powerful and unique skills to those who have decision-making rights over the resources.

Is the idea that you’d better start at the top?

To the very best and brightest, keys to the corporate jet don’t necessarily say, “You’ve made it.” For some people they do, and they’re really good at managing big systems and people. But there are other people whose instincts are more creative, and they want to take a blank sheet and fill it in. Or they want to open up completely new territory. And these are the people who will build your innovation capacity.

The big trick is going to be how we create systems so that people don’t get abused. When I look at my children and my friends’ children, there is this joke that they’re 22-22-22. They’re twenty-two-years old, work 22 hours a day, for $22,000 a year. There used to be an apprenticeship model in a lot of industries, but you had the promise that it wasn’t going to go on forever. You’d move on to the next level after you’d proven yourself. What I worry about now is that some people, through no fault of their own, get stuck in these abusive situations. Coming to grips with the effects of a transient advantage economy is one of the biggest challenges we’re facing as a society.

Rita McGrath is a member of the faculty at Columbia Business School Executive Education.

Rita McGrath’s new book, The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business, is available for preorder on Amazon. Readers who preorder will have access to a detailed workbook with diagnostics.

Rita McGrath

Rita Gunther McGrath, a Professor at Columbia Business School, is regarded as one of the world’s top experts on strategy and innovation with particular emphasis on developing sound strategy in uncertain and volatile environments. Her ideas are widely used by leading organizations throughout the world, who describe her thinking as sometimes provocative, but unfailingly stimulating. She fosters a fresh approach to strategy...

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