There has been a never-ending debate whether or not it’s possible to have a sustainable competitive advantage given our rapidly changing business environment.
Well, the first thing is to understand that there is no such thing as a permanent competitive advantage. Every advantage is industry specific and is relevant as long as the structure of the industry remains unchanged.
Years back, when the environment was more predictable and stable, organizations can be certain that their strategy and the plan based on it will carry them through some five years or three years. In the past commercial patterns were predictable, so organisations were designed for efficiency and effectiveness. Today commercial patterns are quite unpredictable, rather than just efficiency, organisations must be designed for agility, adaptability and speed so that they can thrive in today’s highly disruptive environment. Being effective today will first of all require an organisation structured for speed, agility and adaptability.
So, can a competitive advantage be sustainable? It’s useless if it can’t be. While changes happen rapidly, organisations must be structured to drive strategic adjustments as often as necessary. That way the strategic advantage becomes sustainable because reviews are scenario driven rather time-driven. Just as you can sustain the service of a car so long as you carry out the necessary periodic maintenance so can a competitive advantage be sustained through scenario-based approach.
According to Jack Welch, If the rate of change on the outside exceeds the rate of change on the inside, the end is near. Strategic effectiveness requires an intelligent structure able to understand the environment and how it is changing as well as the ability to respond strategically.
In designing a strategic position, a clear understanding of the industry structure is key and attention is to be given to the most significant force(s).
But the forces of competition might shift and when that happens your strategic position comes under an attack. It may look insignificant initially, yet ignoring that might be the beginning of a serious problem.
That is the story behind the massive success of Apple’s iPod which recorded more than five million songs downloads from the iTunes store within the first two months.
The revolution began with the development of the .mp3 format in the mid-1990s which provided a means to store audio in a compressed format that was far smaller than uncompressed audio. With the relatively small hard drives of the time, this enabled people to store their music collection on their personal computers, and create their own compact discs of mixed compilations.
The natural progression from the.mp3 was the development of Internet-based file sharing platforms. Beginning with Napster, launched in 1999, many large-scale file sharing applications proliferated, all designed to help the illegal sharing of .mp3 files.
Many artists and record labels filed lawsuits against the offending companies, and also against people exploiting the platforms. Although some progress was made in curbing the use of these sites, there were still millions of Americans who downloaded pirated music.
One of the first companies to try to legitimise downloading of single tracks was Apple, which opened its iTunes music store in 2002 to complement its iPod device. This way redefined the competitive landscape and created a competitive advantage for themselves.
While the players in the music industry were running to preserve the industry structure, Apple understood that what mattered was positioning their company to profit from a changed competitive landscape.
That sounds like how Blockbuster responded when Netflix took off. In May 2002, a spokesperson addressed the online rental market: “Obviously, we pay attention to any way people are getting home entertainment. We always look at all those things. We have not seen a business model that’s financially viable long-term in this arena. Online rental services are “serving a niche market.”
Three months later, clarifying that Blockbuster did not intend to launch an online business to compete with Netflix, a spokesperson announced, “We don’t believe there is enough of a demand for mail order—it’s not a sustainable business model.” Today Netflix market capitalisation is in excess of $100 billion, Blockbuster is bankrupt!
Denying the weakness of your strategic positioning in the face of shifting competitive landscapes is an expressway to bankruptcy. Accepting the threat to your advantage and taking action to reposition yourself may be demanding, challenging and expensive, yet when that has to be done it doesn’t present another choice. If you are looking for free tools to help you analyse your strategic positioning and determine what needs to be adjusted please visit www.brianreuben.com
Dr Reuben is one of the most sought after thought leaders on the subject of Strategy in Nigeria. He speaks at business events globally. He has advised and mentored senior executives in several organisations including Africa-Reinsurance Corporation, Savile Energy Luxembourg, Department of Petroleum Resources, Trident Energy United Kingdom, BusinessDay, Dolphin Telecom among others.