To evaluate age old assumptions for strategy, these are some of the questions to ask according to Rita Gunter McGrath, professor at Columbia Business School of New York. In her book, The End of Competitive Advantage, she makes a case that your strategy is most likely based upon two old assumptions: (1) industries matter most and (2) once achieved, advantages are sustainable.
We have been taught that industries are enduring and stable and so once you assess the players and the offerings, you can begin to take action to position your company in a place of advantage and then compete to sustain that advantage. The strategic emphasis is on the analytical capabilities necessary to assess the competitive forces and the industry trends. The goal becomes a positional goal to achieve market share. In strategy design and execution, the only competitors of interest are those inside the industry and the industry drivers are the comparative product and service price, functionality, and quality.
We have also been taught that once a strong position and market share has been achieved, the strategic objective is to be fortified by optimizing people, assets, and processes to sustain the advantage. This all made sense and the operational objectives were all about efficiency, eliminating costs from the enterprise, value chain, and supplier/delivery links. This approach can indeed be sustained in some industries today.
However, in more and more industry sectors, the threat is from outside the industry and the changes are continual and rapid. McGrath argues that “the presumption of stability creates all the wrong reflexes”.
Inertia builds up along existing business units and business models. It creates conditions for rigidity in the organization. She argues that it also critically inhibits innovation. It calcifies the organization’s ability to be proactive in design and growth, ever mindful of alternatives to satisfy specific customer demands no matter what the industry of origin.
For McGrath, what matters most in a dynamic environment is not industries and long term sustainable advantages, but the links between customers’ needs and the solutions that satisfies those needs.
It is about looking across industry boundaries to add new capabilities so that customers can be retained as their needs and the required solutions change. Industry analysis and sustained advantage may become a rigid playing field of the past.