With the increasing emphasis on responsiveness, resiliency, flexibility and agility, I suppose it was only a matter of time before the “agile” concept caught up with strategy itself. While I may have hinted at this idea four years ago in two of my earliest posts for the Value Alley, “Strategy as a Hypothesis” and “Strategy as a Set of Options”, it would appear I was markedly too cautious when compared to how strategy theory has matured. This recent article / interview from Strategy and Business of Rita Gunther McGrath, professor at the Columbia Business School, says it all it its subtitle: “The era of sustainable competitive advantage is being replaced by an age of flexibility”.
Quoting from the article, “McGrath thinks it’s time for most companies to give up their quest to attain strategy’s holy grail: sustainable competitive advantage. Neither theory nor practice of strategy has kept pace with the realities of today’s relatively boundaryless and barrier-free markets. As a result, the traditional approach of building a business around a competitive advantage and then hunkering down to defend it and milk it for profits no longer makes sense. This is the core argument in McGrath’s most recent book, The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business (Harvard Business Review Press, 2013).”
McGrath makes a number of key observations pertinent to the objective of this post:
- Organizational structure becomes important, as you will need to organize for continual flexibility and change.
- Diversification isn’t enough, because ALL of your businesses are continually subject to losing their competitive advantage.
- Innovation (“Innovating for the Numerator”) becomes paramount, because there is no lasting competitive advantage in anything.
- Resource allocation is a “powerful lever for shifting the center of gravity”. [I am particularly partial to this last resource allocation argument - see my previous post here, “What’s a Budget For?” on what I think is the proper role and function of a “budget”.]
There are a number of connections between McGrath’s argument at the level of strategy and the more pedestrian issues we face operationally, where the trade literature is filled with talk of the flexible factory and the data-driven factory. IDC’s Manufacturing Insights and Predictions for 2014, covering manufacturing, supply chain and PLM, features a strong emphasis on resiliency and responsiveness, driven in turn by the imperative to get closer to the customer. Getting closer to the customer entails greater visibility both upstream into your supply chain as well as downstream into your distribution channels, with a finer level of granularity than was previously acceptable.
You can hardly emphasize it enough: speed requires integration, flexibility calls for integration, responsiveness depends on data integration. (McGrath doesn’t address it in this brief interview, but as part of her focus on the ramifications for organizational structure that I mentioned above, I could see her also including an agile approach to IT as a key part of that structure).
Looping back from agile operations to agile strategy, the obvious connection would seem to be that in order for strategy to be responsive to changing markets, it too will need to be built on a solid foundation of integrated data management, but in this case that data will include a significant external component of industry, government, market and third party data sources. The internal component will require a strategy management layer to organize the changing business, link the objectives to relevant (and again, changing) metrics, and clearly communicate the current strategy to a workforce that is likely to be more confused and insecure than ever before.
Personally, I have not yet rendered judgment on McGrath’s thesis regarding the impending demise of competitive advantage – there is much here to digest and ponder, and I suspect I will peruse a copy of her book before I draw any firm conclusions. My own current bias is that this will all play out more in line with what I discussed in “Analytics for the Value Disciplines”, that firms will still have opportunities for competitive advantage through focus and development of core competencies in a particular value discipline, that firms of the future will be successful by becoming agile experts within their chosen discipline – flexible low-cost producers, responsive customer relationship managers, or agile innovators. But that’s why they call it a market – every idea and variation will undoubtedly be attempted, and the market will provide the criteria for success.