You Don't Need to Beat Your Competitors, You Need Innovation.
I was both surprised and curious to find out that legendary business guru Michael Porter’s multi-million dollar Monitor Group had filed for bankruptcy protection in November 2012.
It was an interesting read for me as it highlights some of the problems of the business of consulting. This segment of the article stood out for me.
No competitive advantage is sustainable
The disastrous consequences of thinking that the purpose of strategy, business and business education is to defeat one’s business rivals rather than add value to customers has of course been aggravated by the epic shift in the power of marketplace from the seller to the buyer. In the studies of the oligopolistic firms of the 1950s on which Porter founded his theory, it appeared that structural barriers to competition were widespread, impermeable and more or less permanent.
Over the following half century, the winds of globalization and the Internet blew away most of these barriers, leaving the customers in charge of the marketplace. Except for a few areas, like health and defense where government regulation offers some protection, there are no longer any safe havens for business. National barriers collapsed. Knowledge became a commodity. New technology fueled spectacular innovation. Entry into existing markets was alarmingly easy. New products and new entrants abruptly redefined industries.
The “profit potential of an industry” turned out to be, not a fixed quantity with the only question of determining who would get which share, but rather a highly elastic concept, expanding dramatically at one moment or collapsing abruptly at another, with competitors and innovations coming out of nowhere. As Clayton Christensen demonstrated in industry after industry, disruptive innovation destroyed company after company that believed in its own sustainable competitive advantage.
The only safe place
The business reality of today is that the only safe place against the raging innovation is to join it. Instead of seeing business—and strategy and business education—as a matter of figuring out how to defeat one’s known rivals and protect oneself against competition through structural barriers, if a business is to survive, it must aim to add value to customers through continuous innovation and finding new ways of delighting its customers. Experimentation and innovation become an integral part of everything the organization does.
The irony is that even business theories get disrupted. Fortunately, at this time, it seems that a business model that focuses on providing immense value to their customers will be a lasting one. Taking an outside-in approach to your business and staying close to your customers should constantly keep you on your toes, their shifting needs should also signal a shift in your business model.