We have seen in part 1 and part 2, the importance of starting to see that the business world is much larger that our micro, surrounding environment, but it is made of several other surrounding environments that one day may dominate ours. We saw the risks of being highly influenced by our best customers and the pitfalls of moving upward to higher valued customers, markets and opportunities. We concluded part 2 with the thought that the things that established companies consider its capabilities may be theirs’s disabilities.
We are now going to discuss the relationship of competitive advantage and business models starting by how we develop and implement our strategic planning process. For decades our strategic plans have been focused on achieving competitive advantage from three generic strategies that we learned from Mr. Porter (Cost leadership, Differentiation and Focus), and from Porter´s five forces (competitive rivalry, threat of substitute products, bargaining power of buyers, threat of new entrants and bargaining power of suppliers). We then, freeze our findings for the year (as we did a great job in planning) and dedicate ourselves for the resolute, uncompromising execution of our plan, no matter what happens in the business world around us.
This strategic planning and execution process have worked very well in the past and still works very well for most of the firms that are part of a stable, un-mutable business environment. But for markets or surrounding environments which the pace and intensity of change is higher and higher, we need to have a more holistic view of the whole process, and we also need to have a forward and not rear view. The need to plan based on the unknown and the need to change plans in a highly efficient way has never been so urgent.
The industry positioning view from the positioning school that proposes execution against a defensible and uniquely differentiated position within and industry, and the capability school that promotes having a difficult-to-copy resources capability, are not working well on rapid changing environments. One of the reasons for its failures is that these two schools create capabilities that are difficult, costly and time consuming to shift, to change when required.
One way to plan based on the unknown (surrounding environments that are not attractive for us because of it´s size and profitability or markets that do not yet exist); to have flexibility in changing the plan when necessary; and to invest in capabilities that can be shifted; is to have a business model that is based on a modeling approach that is constantly experimenting, testing, implementing in a small scale, reviewing (re-investing or killing the project). The successful business model of the future cannot be anticipated in advance during our strategic planning annual sessions. It must be learned over time.
Conventional strategies that have an analytical approach (emphasis on analysis) are not enough anymore. We need to have a constant trial and learning approach. A new business model has to be based on finding market opportunities in other surrounding environments and then adapting our competitive advantages to this new customer values (and not the way we are used to work, that is, from our “core competences” to finding markets that we will be able to compete). We need to be very much dynamic, that is, we must start working on the new competitive advantage before the current model weakens. The new business model needs to be ready before competition has caught up, or before our surrounding environments do not exist anymore. The view of “sustainable” competitive advantage should be changed to “temporary” advantage.
In the next posting we will discuss new business models that help established companies to sustain its success.
