Competitive Advantage's Most Costly Misconceptions

In a previous article I had commented on Rita Gunther McGrath's essay in the Harvard Business Review. McGrath suggests that sustainable competitive advantage over the long term isn't realistic in a globalized world, because fewer competitive barriers to entry exist now than once did. She puts forward an alternative strategy that proves to be more in keeping with the realities of modern business, the notion of "Transient Advantage."

Gaining this advantage requires business leaders to monitor the competitive environment, make critical assessments, and contemplate difficult choices like winding down previously successful business lines, and creating new ones altogether.

Competitive advantage can slip away quickly. If an agile competitor has entered the marketplace, undermined your business, and sapped your team's drive, you're already late to be asking how your company was lulled into a false sense of success - and what you can do about it.

Don't Fall In To A Trap!

Gunther McGrath highlights seven traps that prevent leaders from coming to terms with shifts in the marketplace and moving strategy forward in a new direction. These include:

1. The first-mover trap: The belief that being first into the market creates a lasting advantage.

2. The superiority trap: The belief that there is no need to invest in improvements in an already superior product.

3. The quality trap: The failure to recognize that cheaper products are appealing to a clientele that was previously loyal to their product.

4. The hostage-resources trap: The failure to allocate resources to new product development.

5. The white-space trap: The failure to make innovation a part of everyday corporate structure.

6. The empire building trap: The belief that bigger will always be better.

7. The sporadic-innovation trap: The failure of companies to innovate constantly.

Of Gunther McGrath's seven traps, two jump out to me as particularly pertinent.

First, where the quality trap is concerned, we repeatedly see situations where companies have dominated a market segment with a high quality product, and believe that no one can match them in their field.  Suddenly, new entrants come along, having built something new on to your idea, and transform a once exclusive product into a commodity.   

Secondly, I've seen many CEOs get caught in the sporadic-innovation trap. As business leaders become focused on producing and selling a product, they fail to focus on the need to innovate and keep up with new technology. Unfortunately, once their market share begins to erode, it becomes very difficult to play catch up.

The lesson for business leaders is that a sustained competitive advantage no longer exists. It is a temporary phenomenon, and can create a sense of comfort and stability where none exists. Business will always be a competitive environment. The challenge becomes keeping one eye on the business of today, and the other on the business of tomorrow.