The story of Kodak’s demise in the industry it pioneered is well known and often told as a cautionary tale of the perils of competition from new disruptive technology, in this case digital photography, and changing customer preferences. For Columbia Business School professor Rita Gunther McGrath, however, Kodak’s fall from iconic brand to bankruptcy exemplifies something much more fundamental: a seismic shift in how businesses must compete to win in today’s marketplace. As McGrath explains in her book, The End of Competitive Advantage, the old strategic goal of achieving sustainable competitive advantage is a sure path to failure for the simple reason that there is no longer any such thing as sustainable competitive advantage. Any competitive advantage one enjoys today can and will be lost tomorrow.
The true path to continued success, according to McGrath, is to quickly capture and exploit a current competitive advantage all the while preparing to move on before that advantage is exhausted. In other words, this is the age of the transient competitive advantage, she writes, in which companies must be prepared to surf from competitive advantage “wave” to the next competitive advantage wave. While, for example, Kodak continued to focus and invest in film-based technologies in the 1980s and 1990s, Fuji was systematically extracting itself from film-based photography and shifting massive resources, both financial and human, to the new and unproven digital technology. By 2003, Fujifilm had 5,000 digital processing labs in chains stores through the U.S. At that time, Kodak had less than 100.
To survive in the new era of transient strategic advantage, McGrath writes, companies must achieve the tricky balance of focusing on the next opportunity even as they continue to exploit the current competitive advantage. “Even as the existing advantages are generating good results,” she explains, “leaders need to be pulling assets and resources out of them to create resource space for the next advantage.” This is what McGrath calls reconfiguration: transitioning assets, people and competencies from one advantage to another. Reconfiguration, which needs to be continuous not episodic, not only allows a company to prepare for the next wave; it also enables the company to deliberately, and without massive, sudden and painful upheaval, disengage from the old competitive advantage before it is too late.
Major barriers to reconfiguration and disengagement will exist in most companies. People have a vested interest in the current competitive advantage and will often defend it to the bitter end. Resources that should be allocated to the next wave are held hostage in business units. It is too easy, McGrath writes, to become trapped in a competitive advantage that has been the core business of a company for perhaps decades. McGrath tells the story of a German-born scientist, Wolfgang H. H. Gunther, who was recruited to work for Kodak in 1979. Gunther was already thinking of a future without film, McGrath writes, but when he mentioned the obsolescence of some of the Kodak technology to an executive interviewing him, he was berated “for not understanding how well-entrenched the Kodak technology was.” Gunther had a long and illustrious career at Kodak. But he was like most scientists who, according McGrath, “may see the future clearly, but are often not interested in or empowered to lead the charge for change.” If McGrath knows the story of Kodak well, it’s because Gunther is her father.
With The End of Competitive Advantage, McGrath provides a detailed and pragmatic new strategy playbook, based on continuous reconfiguration, healthy disengagement, allocating resources to promote what she calls “deftness,” building an innovation proficiency and developing the leadership and mind-set to face transient advantages — thus helping to prevent today’s companies from becoming the Kodaks of tomorrow.
End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business, Author: Rita Gunther McGrath. Published by Harvard Business Review Press, 2013, ISBN 978-1422172810