Rita Gunther McGrath, Professor at Columbia Business School
Rita Gunther McGrath, Professor at Columbia Business School, is a leading global expert on strategy. In her book "The End of Competitive Advantage", she says competitive advantage in business is never permanent. She came to India on a visit recently but was unfortunately sent back from Hyderabad airport because of some minor visa problems. Back in the US, she rescheduled her earlier meeting in Hyderabad with Business Today's E. Kumar Sharma and responded to questions over the phone. Edited excerpts:
Q. The dominant strategy theory for business success is to identify and embrace a unique competitive edge that is sustained for a period of time. Your research turns this theory on its head and says competitive advantage is dead. Why do you say so?
A. Competitive advantage has a short-term lifecycle than we have been accustomed to thinking of traditionally... we need a new playbook for strategy in which companies can move with ease from one advantage to the next. Think of them as waves of competitive advantage as one comes in and gets exploited and even as you are enjoying the richness of its rewards you are prepared to move on to the next.....I think it requires a different way of thinking about strategy and it requires a different DNA for what strategy thinking is all about.
Q. Can you explain this with an example?
A. A great example from India would be HDFC Bank... the way they have been investing. They always move in a small way into a new kind of market which they test and experiment and if it does not work they pull out and if it does work out then they invest with a greater commitment... Infosys is another great example... Sanjay Purohit (global head of products, platform and solutions) at Infosys told me if one of our executives feels that a particular business is not going to deliver to those numbers that are so important to us then I get a call saying: "Could I redirect those resources to somewhere else?" So, when some business is declining it eventually finds its way to insignificance.
Q. How should companies adapt to this new situation where advantages are fleeting?
A. Be alert to an advantage that is starting to fail. One of the most important things is letting your executives be open to the possibility that things are not going so well. A great example of a company that missed this would be Blackberry's company Research in Motion. When iPhone was first commercialised, the CEO said it will expand choice for the consumer and there was a real denial of the fact that it can be a problem for them at all and as time went by the game was shifting against them.
Q. Are there some distinct signs that companies must be on a lookout for always?
A. Some distinct markers I would look for would be when customers start saying 'Oh, you know cheaper competitive offers are good enough' or when people start asking 'what have you done for me lately' or say 'the product features and attributes are no more particularly differentiating'... When you are continuing to invest but are not getting back the return, those are early warnings you would want to watch when it is still healthy.
Q. So how would you look at the Apple-Samsung game? Would it, for instance, be seen as a case of death of competitive advantage?
A.Their competitive strategies are quite different. What Apple does it very carefully curates what it offers. So they maintain complete control over the customer experience. Samsung is brilliant at manufacturing and at getting things to scale quickly and introduce lot of varieties. Is it death of competitive advantage for Apple? I suspect so. Other people will catch up to the technology. The history of vertically integrated players such as Apple who control every layer in the consumer experience suggests that eventually that will horizontalise... What should Apple do? If I were Apple, I would be thinking of a new category.
Q. Speed is critical in this environment. Will that not affect precise decision making?
A.The problem is people treat all decisions the same way. So, relatively trivial decisions also get treated the same way [as the important ones].
Q. You say that companies must not only launch strategic initiatives but also abandon them as rapidly to see success. Can you explain this?
A. They need to think of continuous reconfiguration rather than as a punctuated equilibrium model which many organisations have. Companies which are good at this are continually adjusting their resources and their capabilities and don't get frozen into a stable state. Companies also need to separate the running of business from the allocation of resources. In a typical large company, the people that are powerful are also the people who run a big existing business. Imagine if you were in Sony and in charge of Walkman business. There would be zero incentive to explore MP3 players or get resources out into newer areas. Companies also need to be developing innovation as an ongoing capability rather than something which happens once in a while.
Q.In India, how prepared are companies to take advantage of this situation?
A. The better ones are prepared. Other companies still have a traditional mindset and think they will leverage low-cost labour, resource or that regulations will protect them rather than thinking of this transient competitive advantage. India has really interesting opportunity in innovation.
A. Companies could do a fantastic job in health care and medicine. Look at cataract and see how behind the West really is. Cataract surgery in the US is very labour intensive and very expensive and you need something like five hospital visits, dedicated surgery room and six different professionals in that room. Whereas in India, people have innovated and come up with this almost assembly line way of helping people with cataract. It is just as good quality but much more cost effective.
Q. What should be the DNA of such a company?
A. They will need to combine stability with dynamism. Stability around values, talent, which would be the core of the firm, and have dynamism around exploring new markets, doing experiments and looking at new needs and opportunities.
Q. In terms of your research focus, what is engaging your attention now?
A. The study of the impact of this transient advantage era on careers and individuals because the career institutions have not kept up with the transient advantage phenomenon. To help individuals deal with this, I am developing a strategy model on this for them.