Competitive advantage is that elusive aspect of a business that helps it to get ahead and make strides in gaining market share. The concept was discussed in depth by Michael Porter in the 1980s, and at that time, Porter emphasised the importance of developing a strong value chain that would allow a company to outdo its competitors. His theories were lauded by academics and business alike, and Michael Porter rapidly became known as a management guru.
However, according to Greg Satell (2015) reporting for Digital Tonto, the book has recently been challenged by a book by Riter Gunther McGrath. McGrath wrote about the end of the idea of competitive advantage as a sustainable concept. The author proposes that instead companies should be looking for “transient advantage”. Satell has a more realistic outlook at this issue. He states that:
“In truth, neither view fully represents today’s business environment. Certainly, companies like Apple and Southwest are still able to dominate their industries, but the source of advantage has changed.”
According to Satell times have changed and organisations do not compete in the same sort of economy where companies are able to compete on the basis of resources. Rather, it is suggested that companies that have the best connections may be more likely to succeed. In the past things were pretty straightforward and revenue streams were nicely pigeon holed out, and clear cut, so the value chain concept was logical. It made sense that in that type of environment businesses could cut back on costs and raise profits and margins. Companies were also able to invest their profits back into the business to build on their advantages over their competitors.
However, the business environment is not like that today. Owning resources is no longer the source of competitive advantage in the traditional sense in many ways. Rather, gaining advantage through access to technology, people and data is the key to success. Having and maintaining good people is considered to be key to success in this new type of business environment. Relationships are exceptionally important. It is no longer just about information. Relationships are critical both between people and between organisations.
In the following video Apple’s CEO Tim Cook let us know how he thinks collaboration is critical in the current business landscape.
Economies of scale are also no longer the answer. It is argued that if you look at companies like Google then the company does not necessarily achieve its successes through economies of scale. Instead it is explained that design is important. The way Google designs its algorithm is what leads to its success. There are also plenty of other examples – such as Apple products. The ideas of Jon Kolko are important in this, and he opined that design is integral to achieving value, rather than a nice to-have thought after the rest of the product is conceptualised and built.
In this type of environment, organisations that are able to collaborate to break down silos are most likely to succeed. The problem that businesses face is that while organisations and people are more connected than ever before, there is still much separation. Some organisations are doing a lot to combat this, and the example given is Facebook. Facebook goes to great lengths to make sure that people make connections with each other in other parts of the organisation. It does this by making sure that workers take part in a boot camp. As explained, this interconnectedness is quite different to the Porter idea of optimising different components of the supply chain.
The idea of organisations having departments as siloes without interconnectedness, and optimising the processes within each is simply insufficient for the current day. Instead of this people need to network and collaborate and find ways to improve the organisation within this.
At the same time, machines are starting to replace human intelligence in some aspects of businesses, and in some cases it is already possible for machines and humans to collaborate to achieve better outcomes for organisations. It is argued that it is in this that success for businesses will be achieved in the current business environment.
Today’s business environment can be seen as a “social economy” which is founded on collaboration. If resources were the competitive advantage of the past and being flexible and collaborative are more likely to drive success going forward.
Paula Newton is a business writer, editor and management consultant with extensive experience writing and consulting for both start-ups and long established companies. She has ten years management and leadership experience gained at BSkyB in London and Viva Travel Guides in Quito, Ecuador, giving her a depth of insight into innovation in international business. With an MBA from the University of Hull and many years of experience running her own business consultancy, Paula’s background allows her to connect with a diverse range of clients, including cutting edge technology and web-based start-ups but also multinationals in need of assistance. Paula has played a defining role in shaping organizational strategy for a wide range of different organizations, including for-profit, NGOs and charities. Paula has also served on the Board of Directors for the South American Explorers Club in Quito, Ecuador.