Rita Gunther McGrath who is a professor at Columbia Business School has just published a book in which she believes that traditional theories of strategy are no longer relevant. Instead, she argues, what is needed are a new set of principles which will allow businesses to cope with constant turbulence and which requires the strategy to be based on transience.
In The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business (published on 4th June by Harvard Business Press), McGrath contends that strategic theory no longer assists organisations and businesses in coping with the dynamic world in which we find ourselves.
Most particularly, she asserts, the notion of competitive advantage - long assumed to be the cornerstone of strategic theory - no longer has relevance and must be replaced by an ability to be agile in spotting opportunities and delivering whatever customers want more speedily than in the past.
McGrath's belief is in keeping with the current zeitgeist of constant innovation and a search for solutions that suffice to deal with whatever environmental circumstances pertain; what she calls 'transient advantage' and which is the title of an article she has written for the June edition of the Harvard Business Review.
Companies which utilise transient advantage - Milliken & Company, a U.S.-based textiles and chemicals company; Cognizant, a global IT services company and Brambles, a logistics company based in Australia are cited as examples - are, according to McGrath 'work[ing] to spark continuous change, avoiding dangerous rigidity,' and further, she explains, 'view strategy differently -- as more fluid, more customer-centric, less industry-bound.'
So what is required to implement transient advantage?
According to McGrath there are eight significant shifts that must be implemented which she recognises will require some very tough choices to be made.
The first of these is to be able to think in terms of 'arenas' rather than industries.
Thinking about industries, she asserts, tends to restrict the ability of leaders to consider solutions that are not traditional and used elsewhere; 'industry-level analysis doesn't give you the full picture.'
As McGrath explains using examples such as Google moving into mobile phones and Walmart showing interest in healthcare, those companies which have enjoyed success in recent years have been willing to use the experience garnered in the area of business from which they originated to develop opportunities in new arenas. They enter into markets for which there is no logical connection but they are able to draw upon expertise in dealing with customers.
The next shift is that it is incumbent on managers to set broad themes but trust people to develop what they believe will work through experimentation .
This shift would seem resonant with one of the main planks of the theory of the learning organisation. The example McGrath uses here is Cognizant which has an 'umbrella term' of "The Future of Work" which with guidance encourages and facilitates its staff in assisting clients to develop a range of innovative solutions to their business models, workforces, and operation.
The third shift is in the need to adopt metrics supporting entrepreneurial growth . This might seem pretty mundane but as McGrath stresses the metrics must recognise the way in which long-term value will be secured though allowing for failure along the way. In effect it builds upon the culture of experimentation and she cites Intuit which has made the need to experiment a core strategic process.
The fourth shift is the importance of the business to be able to focus on experiences and solutions to problems . As McGrath points out anything you innovate and incorporate into a product or service can easily imitated by others. What is crucial, she believes, is that you can appreciate from the customer's perspective what they really want. Most important is to provide a complete solution.
Using Brambles she describe how though it manages the logistics of pallets and 'other containers' it developed a plastic bin in which growers place produce direct from being picked and which is then transported to the stores from which customers select it. This cuts costs in double-handling and packaging. As well as being an extremely cost effective solution it is also very popular with customers who appreciate that the fruit and vegetables has not been processed in the usual way.
The fifth shift is in the need to develop strong relationships and networks within and without the business; particularly with customers. Once again this may seem obvious but McGrath believes that it is essential to be seen to reach out through employees who are seen as willing to respond to customers and enable sharing of solutions.
Included in her examples are Amazon and TripAdvisor who explicitly make 'contributions from their communities a core part of the value they offer customers.' Additionally she cites GE which encourages all of its managers to spend time developing and sustaining relationships with other companies through networks.
The next shift is in what McGrath advises is the need to avoid brutal restructuring; learn healthy disengagement . As she explains her experience of how organisations deal with impending change and potential crisis is to engage in radical alteration and mass-sackings.
Those who wish to adopt transient strategy are more willing to 'continually adjust and readjust' resources to cope. What is important is to work with customers to make whatever transitions are believed to be necessary which is a logical follow-on from the use of networks. The worst thing to do is to take rapid decisions which only add to the poor experience of customers.
The last two shifts very logically evolve from the previous six; to be systematic about early-stage innovation and to experiment, iterate, learn . This requires leadership and culture which celebrates and rewards. McGrath believes that with respect to the former those practicing transient advantage 'have a strong sense of how innovations fit into the larger portfolio,' and 'hunt systematically for opportunities.'
Crucially those using transient advantage are willing to try different approaches in all aspects of business and processes and to alter and evolve as learning occurs. As such there is an apparent belief in allowing chance to play its part as in many radical developments what emanated was not what was intended.
Every manager recognises that the conditions in which their organisation must cope are increasingly turbulent and that there is a need to be able to think and act in a way that ensures it can cope with continual fluctuation.
McGrath's belief that traditional strategy is no longer relevant is apposite.
There are many examples of large organisations which have enjoyed phenomenal success based on competitive advantage (a classical view as posited by strategic theorist Michael Porter), only to find that it was illusory; i.e. Apple and Microsoft.
The challenge for these companies is being able to respond in a way that is sufficiently agile and responsive to be able to be able to sense changes that will enable it to provide customers with something different and with greater value than other competitors.
The famous management consultant Tom Peters used to say that crazy times require crazy organisations and managers capable of managing in a culture that is inquisitive and highly innovative.
As McGrath's advice indicates, there is at least a theory which is sufficiently contemporaneous to current circumstances.
Well we seem to be living through pretty crazy times and if nothing else, transient advantage appears to provide useful ways of thinking about future strategy.