Transient Advantage

ORIGINAL: HBR

by Rita Gunther McGrath

Photography: Courtesy of Pace Gallery. Artwork: Tara Donovan, Untitled (Styrofoam Cups), 2008, Styrofoam cups and glue, installation dimensions variable

Strategy is stuck. 
For too long the business world has been obsessed with the notion of building a sustainable competitive advantage. That idea is at the core of most strategy textbooks; it forms the basis of Warren Buffett’s investment strategy; it’s central to the success of companies on the “most admired” lists. I’m not arguing that it’s a bad idea—obviously, it’s marvelous to compete in a way that others can’t imitate. And even today there are companies that create a strong position and defend it for extended periods of time—firms such as GE, IKEA, Unilever, Tsingtao Brewery, and Swiss Re. But it’s now rare for a company to maintain a truly lasting advantage.

• Competitors and customers have become too unpredictable, and 
• industries too amorphous. 

The forces at work here are familiar:

• the digital revolution, 
•  “flat” world, 
• fewer barriers to entry, 
• globalization.

Strategy is still useful in turbulent industries like consumer electronics, fast-moving consumer goods, television, publishing, photography, and...well, you get the idea. Leaders in these businesses can compete effectively—but not by sticking to the same old playbook. In a world where a competitive advantage often evaporates in less than a year, companies can’t afford to spend months at a time crafting a single long-term strategy. To stay ahead, they need to constantly start new strategic initiatives, building and exploiting many transient competitive advantages at once. Though individually temporary, these advantages, as a portfolio, can keep companies in the lead over the long run. Firms that have figured this out—such as Milliken & Company, a U.S.-based textiles and chemicals company; Cognizant, a global IT services company; and Brambles, a logistics company based in Australia—have abandoned the assumption that stability in business is the norm. They don’t even think it should be a goal. Instead, they work to spark continuous change, avoiding dangerous rigidity. They view strategy differently—as more fluid, more customer-centric, less industry-bound. And the ways they formulate it—the lens they use to define the competitive playing field, their methods for evaluating new business opportunities, their approach to innovation—are different as well.

I’m hardly the first person to write about how fast-moving competition changes strategy; indeed, I’m building on the work of Ian MacMillan (a longtime coauthor), Kathleen Eisenhardt, Yves Doz, George Stalk, Mikko Kosonen, Richard D’Aveni, Paul Nunes, and others. However, the thinking in this area—and the reality on the ground—has reached an inflection point. The field of strategy needs to acknowledge what a multitude of practitioners already know: Sustainable competitive advantage is now the exception, not the rule. Transient advantage is the new normal.

The Anatomy of a Transient Advantage

Any competitive advantage—whether it lasts two seasons or two decades—goes through the same life cycle. (See “The Wave of Transient Advantage.”) But when advantages are fleeting, firms must rotate through the cycle much more quickly and more often, so they need a deeper understanding of the early and late stages than they would if they were able to maintain one strong position for many years.

The Wave of Transient Advantage
Companies in high-velocity industries must learn to cycle rapidly through the stages of competitive advantage. They also need the capacity to develop and manage a pipeline of initiatives, since many will be short-lived.

The Wave of Transient Advantage

A competitive advantage begins with a launch process, in which the organization identifies an opportunity and mobilizes resources to capitalize on it. In this phase a company needs people

• who are capable of filling in blank sheets of paper with ideas, 
• who are comfortable with experimentation and iteration, and 
• who probably get bored with the kind of structure required to manage a large, complex organization.

In the next phase, ramp up, the business idea is brought to scale. This period calls for people who can

• assemble the right resources 
• at the right time 
• with the right quality and 
• deliver on the promise of the idea.

Then, if a firm is fortunate, it begins a period of exploitation, in which it captures profits and share, and forces competitors to react. At this point a company needs people who are good at  

• M&A, 
• analytical decision making, and 
• efficiency. 

Traditional established companies have plenty of talent with this skill set.
Often, the very success of the initiative spawns competition, weakening the advantage. So the firm has to reconfigure what it’s doing to keep the advantage fresh. For reconfigurations, a firm needs people who aren’t afraid to radically rethink business models or resources.

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Rita Gunther McGrath, a professor at Columbia Business School, researches strategy in uncertain and volatile environments. She is the author of the book The End of Competitive Advantage (Harvard Business Review Press, June 2013), from which this article is adapted.