Strategy is not a competitive advantage
Posted by Grant Brewer on 28 Sep 2007
Strategy is about choice. It’s about implementation. It’s about reality. It is about so much more than a document or a planning session. Strategy is worthless when it exists only as an idea, trapped in the intellect of its originator. Only the capacity to act creates value or competitive advantage. Strategy is about direction and a business concept that has focus, a purpose and has a clearly understood way of creating value. Most importantly, good strategy is about bringing the the ideas and the implementation together in an ecosystem that becomes far more valuable than the sum of its parts — an infinitely more difficult and costly for competitors to copy.
Strategy is about choice. It’s about implementation. It’s about reality. It is about so much more than a document or a planning session. Strategy is worthless when it exists only as an idea, trapped in the intellect of its originator. Only the capacity to act creates value or competitive advantage; even where the capacity lies in the future.
It is the same for business models or even the business processes. In themselves, business models or processes don’t often create sustainable competitive advantage no matter how unique or smart their designer or manager believes them to be. A lot has been written about where value is created in organisations, and most of the literature indicates that the source of value is infrequently drawn from a single business process or a business model. However, managers often fall into the trap of thinking that the next new idea is going to unlock enormous value. And they fall into the trap of thinking that this next thing is unique – “no one else does it this way” – and they compound their mistake by trying to keep their idea a secret (from their employees, from their business partners and from the marketplace).
The reason that business models and processes are usually not the single source of competitive advantage and value is that they can easily be copied and are extremely difficult to keep secret since employees need to understand the business, and customers need to interact with the business. In the modern information age where business activities need to be more transparent, it just isn’t realistic to think that you can run an effective business where only the senior management have a deep understanding of the business, or where customers or the marketplace “don’t need to understand what we do”.
It is odd then that some companies treat their strategy, business model or process information as such a secret and commit so much energy and money wastefully to trying to keep the information confidential. The complex sequence of decisions and actions leading to a specific strategy direction is difficult to reproduce, which is why simply knowing the strategy is not enough to win the market share or the customers. Sure, industrial secrets do exist and there is value in intellectual property but it is likely that many organisations over estimate the need to keep their information confidential and might realise better success if they opted for a more transparent organisation — information has a natural tendency to become free or commonly known.
A complex ecosystem holds value
Strategic competitive advantage is created by the combination of strategy, its implementation into business processes, products and services and the by the people that operate throughout the organisation. This creates a complex ecosystem that extends beyond the boundaries of the boardroom and indeed the organisation. This source of value is a primary reason why other car manufacturers have struggled to reproduce Toyota’s success. Their business–ecosystem extends vertically to product suppliers and is difficult to duplicate.
Another organisation trying to copy a complex ecosystem hardly stands a chance, not matter what “confidential” information they might have access to. Copying product or service features is possible and entirely probable. Intellectual property protection will slow the competition, but will not prevent them from reproducing the same or similar features eventually. It is just a matter of time — in industries such as medical drugs, that could be a decade or more. But copying the whole product ecosystem successfully is neither easy nor probable.
As an example, consider FaceBook. It is relatively easy to create a new social networking concept and build an online presence to implement it (to demonstrate the point, look at the myriad of social networking sites). Despite the presence of the long tail, few new social networking sites are successful. Facebook’s technology may be easy to copy but it is infinitely more difficult to create their success and achieve their level of active users. Google is another example, since although there are many other search engines none compete with Google’s whole product ecosystem.
Breaking into a market dominated by a well constructed whole product requires courage and something really innovative unless you’re willing accept low margins and a small market share. A complex, efficient ecosystem that frequently takes on a life of its own somewhat outside of the organisations control significantly raises the barriers to entry for potential competitors.
So the route to competitive advantage requires a focus on the whole ecosystem: the inter-relationship between the components, including the relationship and flow of information between the organisation, business partners, customers, regulators and employees. Transparency and an open organisation creates a context where such an ecosystem is most likely to develop. It means letting go of the steering wheel a little — too much centralised control makes it more likely to flounder. Look at many successful companies and you will find that few are a mysterious secret, or difficult to understand. Their strategies and business models are not too complex or secret to understand. Enron’s activities and source of value were “secret” and how their business models delivered value was considered by management to be too complex to explain — all a sure sign that there was something wrong!
Strategy is about choices, direction and a business concept that has focus, a purpose and has a clearly understood way of creating value. Most importantly, good strategy is about bringing the the ideas and the implementation together in an ecosystem that becomes far more valuable than the sum of its parts — an infinitely more difficult and costly for competitors to copy.
Strategy is not a competitive advantage was published in Intelligence Magazine as Strategym #53 in the October 2007 edition.
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Essays | Strategy | Intelligence Strategym
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implementation (10) | strategy (8) | execution (3) | value (1) | creating value (1) | complex systems (1) | competitive advantage (1) | choice (1)
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