Competitive Advantage is Dead. Or at Least Dying.
Our life expectancy has increased dramatically over the past hundred years. I’ve talked a few times about how this is a pure innovation story. Here’s another innovation story about life expectancies, but it’s less encouraging:
The drawing is by Jay Cross from the Internet Time Alliance, based on data from Richard Foster and Sarah Kaplan’s book Creative Destruction and work from the Deloitte Center for the Edge. It shows that while average US lifespan has increased by sixteen years from 1937 to 2012, over the same period of time, the average time that firms remain in the S&P 500 has fallen from 75 years to 15.
That boggles my mind.
This is one of the pieces that Rita Gunther McGrath uses to argue that competitive advantage is dead in her new book, The End of Competitive Advantage. If your firm had a competitive advantage in 1937, you could expect it to be around for a long time – probably longer than you’d last yourself. That’s not true now.
Now You Have to Innovate
McGrath argues this competitive advantages are still important, but that now they are transient rather than sustainable. And in that environment, we need to innovate. She uses Sagentia as one of the case studies in the book (which is well worth reading), and says this:
At Sagentia, innovation is clearly at the top of the agenda, throughout its operations. As one senior executive noted, “Inherently, companies like ours are super agile, because we are not in control of our own destiny … We can only live off something that our clients have decided to do.” This makes Sagentia a model for where more and more businesses are headed—as competitive advantages shorten and competition comes from everywhere, increasingly firms are in the same position, that is, “not in control of [their] own destiny.” Consistent, ongoing innovation and extraordinary closeness to customers is the only possible response.
This raises a pretty interesting point – as competitive advantages weaken, we have less control over our own destiny. In other words, we need to get more comfortable with uncertainty.
How long will it take to build your consistent innovation capability? McGrath says two to three years. That’s why you need to be working on it now, if you aren’t already.
Steps You Can Take Right Now
In addition to building your organisation’s innovation capability, you also need to build your own skills in this area. Here are some steps that you can take right now to start:
- Think about how much you can get away with – if you manage a budget, how much discretion to you have? If you don’t have a budget, what are the parts of your job that you control?
- Make a list of 10 things that you can do within the current scope of your work that will make things better for the people with whom you interact – customers, co-workers, bosses, whoever.
- Do those things.
- Figure out which ones worked, and do those more.
- Figure out which ones didn’t work, learn why not, then forget about them.
- Apply what you learned to the next set of ideas.
- Go back to step one.
I’ve always been skeptical of “everything is different now” type arguments. But there’s a fair bit of evidence accumulating that the pace of business is changing. The boundaries of your industry probably are, and your competitors probably are too.
To meet these changes, you have to change yourself. That means you have to able to innovate. It’s a core skill these days.
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Creative Destruction or Destructive Creation? Like you this whole destruction ‘thing’ is going where? Is it really the end of competitive advantage or what? Rita McGrath has a hard sell at board level, the very place that is witnessing this massive change- you would think otherwise. Still there is growing “drums” beating on this- the evidence of massive changes in life cycles yet we don’t have the transformational process in place to adapt to this so it becomes the new norm. There is a real urgency on destruction, on transformation, on becoming more radical, more receptive to managing risk but we seem stuck or caught in the bright lights of immediate gain! What will bring this to a real dipping over point in acknowledgement and eventual resolve?
My own contribution was this recently
http://paul4innovating.com/2012/03/01/the-innovating-era-creative-destruction-or-destructive-creation/
I think the visual you use ‘stops you in your tracks’- terrific.
Great points Paul – thanks! I think that the difference between creative destruction and destructive creation can be realised by focusing on providing genuine value to people. It’s not always obvious in advance when you are doing this, but if this is the objective, the odds are higher that you’ll meet real needs.
Tim, this is a great article (and visual) which I read half way through writing an article myself over the weekend on what innovation means for small businesses – thank you for the inspiration!
You note that you’re skeptical of “everything is different now” type arguments, so can I ask to what extent do you see innovation as having become a buzzword recently? The evidence above is clear that for corporates, innovation is critical but for small and medium sized businesses my impression is that they are confused by the innovation agenda as they are unsure about what it really means for their business. They are being told that they need to do it but they are not sure where to start! This is what my post is trying to address:
http://fire-london.com/2013/05/27/what-does-innovation-mean-for-small-business/
Am I just being a huge cynic to think that some are pushing the innovation agenda in this post recession world as a polite excuse for not wanting to admit that they just don’t know what the world will look like in a few years time…!
Thank you
That’s a terrific post – thanks for the link!
I do think that to some extent innovation is a buzzword, but that doesn’t necessarily lessen its importance. I addressed that issue in this post a while ago:
http://timkastelle.org/blog/2010/08/an-innovation-definition/
I also think that your three points about culture, not having to be skype or google, and needing action not words are all issues that I’ve been trying to address with the Innovation Matrix idea that I’ve been developing here for a while. So I’m in strong agreement with your post!
I couldn’t agree more that importance should not be lessened, hence my frustration that some are using it a buzzword… Will check out the Innovation Matrix now!