The business enterprise has two and only two basic functions: marketing and innovation. – Peter Drucker
Business growth does not happen by chance. It’s the result of not just hard work, but of working hard on the right things. Companies become successful as a result of the ability to create and capture value. But creating and capturing value does not come easy. It doesn’t happen just because a company has a great product or prices their offer in a great way. Companies become successful because they have a competitive advantage. This advantage, whatever it is, enables them to compete successfully.
Every successful organization throughout history achieved their success through the effective design of competitive advantage. Their success didn’t necessarily come as a result of favourable government policies or factor inputs but by their ability to design a strategic position within the environment in a way that gives them the ability to sell at a lower cost, make superior products or do both.
Management thinkers and practitioners understand this very well. The result is the deluge of information on how to achieve a favourable position that gives an organization a competitive advantage. A search with the keyword competitive advantage on Google returned about 3,080,000,000 results. This shows how much management thinkers and practitioners are preoccupied with how to gain a competitive advantage.
But while the competitive advantage is important, what happens after the company gains advantage is just as important. This is what is called meta’dvantage or beyond competitive advantage. Gaining a competitive advantage is not enough and sustaining the advantage is also not enough. Take Kodak for example, at the height of its success in 1996, it held two-thirds of the global market share with a revenue of nearly $16 billion. Yet between 2003 to 2011, Kodak shed 47,000 jobs, 13 manufacturing plants and 130 processing labs. It could no longer make an annual profit by 2004 and its cash reserves were soon depleted.
Why did this happen? Well, not because Kodak did not sustain the advantage but because they did not evolve with the world and create a new advantage. This ability to read the time correctly and move ahead of the competition was what gave Apple the advantage. Steve Jobs understood what the disruption in the music industry meant, others didn’t. He created the iPod and then iTunes, effectively securing an uncommon advantage. Yet meta’dvantage is beyond having an advantage.
Every competitive advantage is an innovation and marketing breakthrough. Companies gain competitive advantage through acts of innovation. Such companies approach innovation in the broadest and most comprehensive sense including new technologies and new approaches to solving problems. They find new models of competing or new ways of competing with the old model. This implies that the company configures a unique set of activities that fit one to another and reinforce one another.
It is this set of activities made possible by either the development of a new business model or a new way of competing with the old model that gives the company its competitive advantage. This advantage can result in the ability to differentiate a product like the case of the BlackBerry phone developed by Research in Motion or enable the company to keep its prices low as the case of IKEA. But every competitive advantage lies within the value chain.
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The company will enjoy this advantage for as long as it sustains this advantage. Sustaining the advantage means goals, decisions and everyday activities are in alignment with the business strategy on which the advantage rests. But as the environment changes and old rivals gain more knowledge or new rivals enter the industry new models can be developed, superior advantages can be created by rivals making a company’s advantage obsolete. This also happens as new technologies are developed. So a company loses its market to rivals, not because it didn’t sustain its competitive advantage but because it is not an advantaged organization.
Sustaining competitive advantage means your company has assets, attributes, or abilities that are difficult to benchmark or exceed by others which provide a superior or favourable long term position over competitors. This advantage enables you to serve your chosen market segment(s) profitably. But this advantage can be made obsolete by knowledge or technology. Nokia, Kodak, Research in Motion have all experienced this and it led to their fall.
Advantaged organizations not only sustain their advantage, they are able to create new advantages while sustaining their old advantage. They are able to do this by controlling knowledge, technology and fashion. Becoming an advantaged organization requires an ongoing, continuous effort to conceive markets, rethink solutions and recreate models leveraging technology and creative thinking. The difference is about being the advantage not having an advantage.
The key is to control the creation and distribution of knowledge and technology. Take Amazon, for example, Amazon committed $42.74 billion to research and development in 2020. In the automobile industry, Tesla commits $2,984 in R&D investment per vehicle. This compares to that of three automakers combined. During fiscal 2020, Facebook allocated $18.45 billion which equals 21% of its revenue towards R&D spending. This is how these organizations not only sustain their advantage but evolve and create new advantages.
Again consider Tesla which sells electric powertrain systems and components to other car manufacturers and provides design services for electric powertrains. That’s a great way to control technology. Nokia had followed a similar path in the days of its glory when it controlled one-third of the essential patents for GSM standards which guaranteed them continuous cash flow in technology licensing.
The problem was that Nokia stopped investing in knowledge and technology. In 2000 Nokia maintained R&D facilities in 14 countries throughout Asia, Europe, and North America. Nokia led the market as long as the old technology served the industry, Nokia fell because it stopped being an advantaged organization. CEO Stephen Elop said it best when he asked, why did we(Nokia) fall behind when the world around us evolved?
To learn more about Meta’dvantage and how to transform your organization into an advantaged organization, email [email protected] and follow my series on the concept.
Dr. Reuben is a strategist, researcher, author, advisor, speaker and teacher. His time is currently devoted to strengthening public and private institutions through strategic engagements with leaders. He works with governments, corporations and nonprofits around the world.
