For many years it's been a widely held belief that you are able to make a strategy that lasts year after year after year, because it is based on an constant competitive advantage. However, recent research indicates that reality is quite different. A constant competitive advantage is, if not extinct, then certainly very rare.
This is because companies, and the environment they find themselves in, are remarkably unstable. The reason is in some well-known factors: The digital revolution, the world becoming smaller, access barriers are reduced, the rapid progress and globalization in general.
To navigate in such a variable environment, according to Rita Gunther McGrath in the HBR article “Transient Advantage”, requires that companies forget the ideal of the sustained competitive advantage and instead embrace the transient advantage. You might say that the point isn't to put all your eggs in one strategy but instead be constantly ready to make a new one. Your strategical advantage is borrowed, so to speak.
A strategy based on a transient advantage goes through these five stages:
The transient strategy’s 5 stages
The first three are not that different from what you are doing with your strategy now. You launch it (1), collect resources and people to support it (2) and take advantage of the profit the strategy provides (3). Where most companies are challenged is at stage four and five.
Here you must be ready to reconfigure your strategy (4); to adapt and change it according to the ever-changing circumstances. Then comes the final stage, “Separation” (5), which is quite new and unexpected for a lot of companies. This is about making a plan for how you exit a strategy. How you pull out resources and move them to other areas where there are better development possibilities.
According to McGrath, this is a mindset that many companies don't have today.
For companies that are even a little mature, it is natural to focus on the exploitation stage. But the five stages require different competences, measuring points and people. The separation stage, for instance, needs people who are sincere, uncompromising and capable of making emotionally difficult decisions.
If you want in, you have to work on new ways that enables this flow. McGrath identifies the following eight areas:
Think arena, not industry. An arena is the combination of a customer segment, an offer and the place where the offer is delivered. Which more and more often happens across industries. That is why it's useless to limit yourself to your own industry.
Provide wide themes and let people experiment. Skillful strategists keep an eye on data, but they also use advanced pattern recognition, direct observation and interpretation of weak signs in the surrounding environment to provide some wide themes. From these themes they offer their employees the freedom of trying different methods and business models.
Use metrics to support innovative growth. When advantages comes and goes, conventional measuring points can harm innovations, because they force rules on you that makes no sense. For instance, the “present value” assumes that you complete any project you begin, distribute products for a long time and that there will be a certain amount of value left when they are gone.
Instead McGrath proposes that companies use the logic behind “real options” when evaluating new moves. A real option is a small investment that gives you the right, not the obligation, to make a larger investment in the future. This means that companies can use trial and eror and learn from their mistakes.
Focus on experiences and solutions. It gets easier and easier to copy your products and solutions, but luckily this is not where you should concentrate your energy. Instead, focus on what's your customers want and what results they need.
Build strong networks and relationships. One of the few things that's hard for your competition to copy is your employees and their network. It is in fact the employees with the best network that are most wanted.
Avoid brutal restructuring; learn healthy disengagement. Find methods that makes it possible to move resources instead of brutally cutting them off.
Be systematic in relation to innovations in the early stages. If every strategic advantage sooner or later disappears, it makes sense to have an ongoing process to ensures that new advantages constantly arrise. However, this means that your innovation process has to be planned carefully.
Companies that innovate on an ongoing basis manage this process the same way. They have a management structure that fits the innovation: They arrange a separate budget and separate employees for innovation and lets the manager make decisions that exceed the planning of individual businesses. These companies systematically seek new options. Often outside of the company and its department of development.
Repeat. Learn. You cannot use the same methods for new projects you used for established projects. Instead, you have to experiment more and at the same time be ready to make changes if new knowledge appears. Only when an initiative is relatively stable, through the testing and pilot phase, is it time to escalate.