The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business

So who's this book for? If you're a leader of an organization, you'll get the most out of this book, particularly if you feel your business is floundering in the face of rapid change. Maybe you want to learn how to be more agile, how to downsize your assets, or disengage from a segment that's weighing the organization down. Maybe you want to learn how to be more innovative, or how, when, and where to invest.

The author's suggestions are also relevant to team leaders, people in charge of business units, or anyone involved in strategic thinking. And even if you're not part of a big organization, there's something in this book for you. "The End of Competitive Advantage" offers some top tips for individuals who want to make the most of their skills and sharpen their résumés, so they can grasp opportunities as they arise.

So if you want to know where to compete and how to win at a time when competitive advantages are short-lived, this book's for you.

The author is a professor at Columbia Business School in New York and, as a consultant, she's helped a wide variety of companies to innovate, grow, and pull out of unpromising investments in the right way, at the right time. She's also co-authored a number of books on strategy, the entrepreneurial mindset, and growth in unpredictable times. And in 2009, she was named a fellow of the Strategic Management Society, in recognition of her impact on the theory and practice of strategic management.

So keep listening to hear what business leaders can learn from surfers, why it's vital to compete across arenas, not just industries, and how to get an idea off the ground while keeping investment to a minimum.

Before delving into the book's contents, it's important to note we don't think the author's theory, that sustainable competitive advantage is irrelevant, holds up across all companies and industries. Provided you don't get complacent and continue to build on your existing advantage, we think this strategy still carries weight. And we'd argue that some of the companies the author chooses to illustrate the downside of sustainable competitive advantage might have stumbled for other reasons, such as poor management or obsolete technology.

But her advice on quickly exploiting opportunities, moving in and out of advantages, staying agile, and pulling out of a product, service, or market before it's too late is definitely worth hearing, even if it's not revolutionary. The author borrows elements from existing theories and expands on them, drawing on her expertise as a consultant to offer up some interesting anecdotes.

So let's take a look at her ideas on how to grasp and exploit fleeting opportunities.

Transient competitive advantages come in waves and a surfing analogy is a good way to explain how the concept works. A surfer needs to know the exact moment to start paddling, when to stand up on the board, how to stay upright as the wave moves towards the shore, how to switch direction to keep surfing, and when to jump off before a wipeout.

The author suggests a similar five-step process for companies trying to navigate a turbulent business environment. The first stage is the launch process, when a company identifies new opportunities. This is when it gets organized: assembles a team, allocates budgets, and innovates. If things go well, leaders can ramp up this segment, adding resources, systems, and processes to scale up the business. Speed is key at this stage of the game.

Next comes a period of exploitation. This is when the business is operating well. It's generating good profits, standing out from rivals, and enjoying great relationships with customers. This stage is tricky, since leaders need to know how to extend it for as long as possible, while being mindful that it'll come to an end and preparing for that.

The author suggests leaders keep an eye on the future and think about how the existing advantage could be incorporated into their firm's core business, how it could be closed down, or spun off with limited disruption, and how they could move quickly to the next opportunity. In other words, they should be poised to move in a number of different directions.

It's important to avoid building up too many assets or people during the exploitation phase, since this can get in the way of seizing the next advantage. We'll look at this in more depth later. Even as existing advantages are creating profits, leaders need to be pulling out assets and resources to create space for the subsequent advantages.

The next phase is reconfiguration, a vital steppingstone in between advantages. During reconfiguration, people and resources that were involved in ramping up or exploiting the previous advantage are moved to new activities. The ability to manage this stage well is the hallmark of a dynamic, nimble company.

Sooner or later, there'll come a time when an advantage is exhausted. Perhaps profits begin to slide or competitors gain too much ground. This is when you'll want to scale down this segment or disengage from it. In disengagement, the firm gets rid of assets or other capabilities no longer relevant to its future. It either sells them, shuts them down, or puts them to use elsewhere. Again, this phase needs to be handled swiftly and deftly.

This is the basic framework of the author's theory on how to operate in a climate of transient competitive advantage and we think it provides a really useful roadmap.

She expands on this framework throughout the book, throwing in examples of firms that got the process right, such as Fuji, which diversified into new areas as its film-based photography business shrank.

She also discusses firms that got it wrong, like Research In Motion, the parent company of Blackberry devices, which rested on its laurels, failed to innovate, and was left playing catch-up when Apple's iPhone took the smart phone market by storm.

To support her thesis, the author names ten companies from around the world that managed to grow their net income consistently by at least five percent per year between two thousand and two thousand and nine, a period of huge change and uncertainty. She calls these firms "growth outliers" – and they include Infosys of India, Atmos Energy of the United States, and Yahoo! Japan. They succeeded because they skillfully rode waves of transient competitive advantage by following many of the new game rules set out in this book.

One of those rules involves looking at competition through a different lens. In the past, companies tended to compete within the same sector or industry, offering similar products or services and trying to differentiate theirs from their rivals'. But increasingly, companies are fighting it out across industries. And if you're a leader, this is the approach you'll want to adopt.

The author calls this new competitive field an "arena." It's all about connections between customers and solutions, rather than following the conventional path of offering customers products or services that are close substitutes to rival ones.

Take a look at the modern-day economy and you'll find examples of firms that are doing this. Retailer Walmart is moving into health care. Google makes telephone operating systems, while a number of players from different industries are contesting the lucrative field of making payments, including mobile phone operators and internet credit providers.

The author compares traditional industry-based strategy to a game of chess, in which the goal is to achieve a powerful competitive advantage in a major market, a bit like checkmating your opponent. Arena-based strategy, on the other hand, is more like the Japanese game of Go, in which the aim is to capture as much terrain as possible.

We like this idea of competing in arenas rather than industries, and can see its relevance to today's business environment. Companies need to be constantly on the look out for growth opportunities outside their usual area of operation – and be poised to jump on these.

To move quickly in and out of temporary competitive advantages, companies or business units need to be lean. Think about a world-class athlete. You rarely see runners, cyclists, or swimmers carrying extra weight or wearing bulky clothing.

In a similar way, the author advises companies to stay streamlined, and suggests a number of ways to do this. Let's take a look at a few of those.

One of her tips is to keep investment to a minimum when moving into a transient competitive advantage. She uses the examples of the recycling firm TerraCycle and sports clothing retailer Under Armor to show how leaders can build profitable companies on tiny budgets. These companies generated free publicity by tapping into existing networks and contacts, and ran low-cost, highly effective marketing campaigns. The key is to keep expenditure low until an idea is tried and tested.

Another good tip for organizations that want to capitalize quickly on temporary advantages is to have access to assets, rather than ownership of them. You can hire in specialist expertise by the task, on the innovation and technical side, and rent extra office space when you need it, for as long as you need it. And what about employees? Well, firms like Skills Hive and Adecco can provide experienced workers on demand.

Access to assets rather than ownership of them allows firms to adjust their strategy and structures quickly as dynamics shift. They aren't encumbered by expensive office space or weighed down by hundreds of costly employees. This enables a firm to jump on opportunities, ramp up quickly, and disengage when the time is right, before moving on to the next advantage.

A core management team can take care of an organization's long-term interests and employees, while other workers will have a looser attachment. This is an entrepreneurial way of working that's well suited to today's changing times.

We really liked the author's suggestions on resource allocation and access to assets and can see how this approach makes for a really agile business. But the book ignores the potential downsides of working in such a transient way: hiring temporary employees and outsourcing to other firms. We felt this side of the argument was missing and think the author could have presented a more balanced case.

The author closes the book with a look at what transient competitive advantage means for the individual. There's a useful set of questions here, to gage how prepared you are to flourish in a transient advantage economy.

For example, if you lost your job today, would it be easy for you to find another one for the same salary? Have you acquired new skills in the past few years that could serve you in a new role or career? Are you actively involved in business networks? Do you have a list of names you could tap for opportunities? And are you flexible and able to relocate if required to?

This more personal touch gives "The End of Competitive Advantage" a broader appeal. We think the questions will be relevant to a lot of readers at a time when more and more people are moving in and out of roles, companies, and industries, or becoming self-employed.

Elsewhere, the author offers advice on leadership, innovation, and striking the right balance between internal stability and external agility. She backs up her theories with examples from international corporations like the language school Berlitz and cement maker Cemex. These anecdotes add color, but there's no doubt that this book is primarily aimed at business leaders and strategists – the author's tone and language are rather dry.

We also think her argument is too black and white. She writes confidently about the death of sustainable competitive advantage and we don't doubt her experience or credentials. However, in fast-changing times, we think it's just as important to maintain and build on an existing competitive advantage, as it is to seize new business opportunities.

But that doesn't mean her argument isn't worth hearing. Leaders will definitely benefit from her suggestions on flexibility, agility, keeping investments to a minimum, operating across arenas, not industries, and always keeping an eye on the next potential opportunity. We would just recommend that they judge for themselves whether competitive advantage is dead in their industries. If it isn't, they could make a terrible mistake by uncritically accepting the author's argument.

"The End of Competitive Advantage" by Rita Gunther McGrath is published by Harvard Business Review Press.

That's the end of this episode of Book Insights. Thanks for listening.