We keep hearing that the whole point of strategy is build a sustainable competitive advantage. This makes some sense, up to a point. The problem though is that the skills and routines that help us build one can also constrain us, and prevent us from responding to a changing environment.
That change can be someone who has come up with a better version of whatever it is we do, or it can be a change driven by new economic platforms. In both cases, one of the difficult decisions to make is when to jump to the new platform or the new technology.
James Surowiecki illustrates this dilemma in The Next Level, his discussion of the demise of Blockbuster:
Why didn’t Blockbuster evolve more quickly? In part, it was because of what you could call the “internal constituency” problem: the company was full of people who had been there when bricks-and-mortar stores were hugely profitable, and who couldn’t believe that those days were gone for good. Blockbuster treated its thousands of stores as if they were a protective moat, when in fact they were the business equivalent of the Maginot Line. The familiar sunk-cost fallacy made things worse. Myriad studies have shown that, once decision-makers invest in a project, they’re likely to keep doing so, because of the money already at stake. Rather than dramatically shrinking both the size and the number of its stores, Blockbuster just kept throwing good money after bad.
There can be good reasons to not react to a threat. However, whenever I hear someone say that they won’t introduce an innovation because it will cannabilize market share, I get worried. This is another “internal constituency” problem – over the long run, you should be a cannibal.
After all, it’s better to take market share from yourself than to let someone else do it.