Or not – it is transient after all.
I went to see Rita Gunther Mcgrath last night in Nottingham. She was addressing a group of Boots executives on the ideas in her book, ‘The end of competitive advantage’. Would I normally spend 5 hours in a car to hang out with a group of pharmacists? To be honest, probably not, but as Rita will be speaking at Business of Software Conference (28-30th October, Boston), I wanted to meet properly before she spoke. I was so glad that I went – I left buzzing with excitement that she will be opening the conference. Not only is she whip smart and utterly charming, she has a way of explaining things that is up there with Geoffrey Moore and Clayton Christensen. A total rockstar.
You can also view a short interview with Rita that I did that offers a taster of some of the things that she will talk about at BoS where she will talk about the ways that entrepreneurial software businesses can use her strategic framework to maximise their impact here.
I won’t spoil Rita’s Business of Software talk by sharing some of her ideas here – this talk was a talk for an audience of executives in big organisations. I think she is even more excited about what the implications of this framework for entrepreneurial businesses which is what she will focus on in Boston.
Rita challenges the orthodoxy that the main thrust of strategy for many years has been built on concept of sustainable advantage where you build a business that creates barriers to entry and exit for competitors that allows companies to milk their advantage for huge profits for many years. The world changes and she illustrates the idea with a story.
Kodak and Fuji were once very similar – global brands, well run, highly profitable.
In 1973, two oil and gas billionaires, the Hunt brothers, decided to hedge their exposure to the oil industry by buying silver. By 1980, they had so much silver that they controlled the market, a major ingredient in film and prices skyrocketed, quadrupling in price between 1978 and 1980 (fascinating background here). Kodak and Fuji, at the time were the largest consumers of silver and they were both somewhat panicked.
3 months later, the price dropped back to a more normal level and everyone carried on as normal. Everyone except Fuki. The two global photography behemoths took very different paths.
Fuji realised that what could happen once, could happen again and started to investigate the opportunity for photography to be less dependent on chemistry where they couldn’t control the cost of materials.
Kodak did too – they invented the digital camera after all, but were stuck in a film-based paradigm. Early digital images were obviously pretty poor and in 1990, Kodak announced they had a ‘digital solution’.
The solution was: Film – Scanner – Manipulation – Put on CD – Available to play.
Their digital imaging solution was one that started in the place where they had a clear leadership position. While Kodak invented the digital image but they couldn’t move outside paradigm of existing thinking and processes. At first, digital imaging was a far inferior solution, but the world moves on.
Fuji continued to develop digital imaging as a core part of their activity.
The film-based competitive advantage for both had existed for decades. Competitive advantage does not last.
Today, the most important competitor you have may not even exist in your industry. Industries face massive competition from different industries. A recent US study on household spending showed recently that spending on electronics in the US is up whilst spending on eating out and apparel is down. Do people want an iPhone or a better car?
Industries are competing with each other for consumer’s cash.
Her book was based on a series of case studies considering world’s largest companies ($1billion market cap. Total of 5,000 companies). Only 8% of world’s largest companies could sustain 5% growth for 5 years in a row.
Only 10 companies had been able to sustain 10% growth over year.
She set her students on looking at what happened to them when they had layoffs. What happened in a downturn. Couldn’t find any evidence of either. There was however, plenty of evidence of ‘ongoing configuration’ in all of those companies.
1 Continuous Reconfiguration
2 Healthy disengagement
3 Deft resource allocation
4 Innovation Proficiency
5 New leadership mindset
Alan Mulally, CEO of Ford, noticed when he took office that there were no Fords in the Executive parking lot. Saw this was a problem. Had traffic light system to manage management information. Came in sat down with team who presented a sea of green. “How can you be showing me a sea of green when we will lose $6 billion this year?”
“You can’t manage a secret”
When first guy to break cover after a few meetings and showed red on his dashboard, room went quiet expecting an on the spot firing. Mulally clapped. Floodgates opened. Began the turnaround process.
If you are an entrepreneur, YES! Organisations can’t keep you out. Access to assets, not ownership of assets becomes more important.
If you are an employee, yes if you understand the changing rules of the game.
BUSINESS OF SOFTWARE – FOR PEOPLE BUILDING GREAT SOFTWARE BUSINESSES.
This year will be the 7th Business of Software Conference – 15-17th September 2014, Boston.
A three day conference for founders who want to build sustainable, profitable software businesses. BoS has always been a special conference for our delegates and we want to keep it special. Attendance is restricted to just 400 attendees in 2014. Registration is open now at the lowest rate ever – $1,500 – until the first speakers are announced for next year’s event.
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