Rita McGrath: “Sustainable Competitive Advantage is Irrelevant”

RitaMcGrathRita McGrath, a professor at Columbia Business School and a globally recognized expert on strategy in uncertain and volatile environments spoke on businesses no longer needing to strive for sustainable competitive advantage. McGrath believes “we need to think differently about strategy, how we’re going to compete.” She believes forces in today’s turbulent business environment have rendered sustainable competitive advantage irrelevant. Instead companies need a portfolio of multiple transient advantages – advantages that can be built quickly and abandoned just as rapidly.

She advised focusing on arenas rather than industries. “An area is an addressable space that you are contesting along with other players who may be from other industries,” said McGrath. “If the money is being spent on something else it won’t be there for what you’d like to sell.”

In a world of sustainable competitive advantage, the assumption is that stability is the normal thing and change is the oddity. But what you want is to be continually making small proactive changes that adjust your talent and operations so you are never forced into uncomfortable change.

Healthy disengagement is an area of weakness for most companies. McGrath believes it is vital for companies to have a nimble structure in place to pull back resources from areas which have gone into erosion. She cited Kodak as an example of a company that had a sustainable advantage, until it did not, and was unable to shift direction with the changing environment.

Deft resource allocation is necessary in today’s business world. Businesses need to separate their power structure from the resource allocation process. Otherwise, if the person in charge of a business controls the resources that business generates you’ll tend to be in defensive mode. They will want to preserve that advantage for perfectly understandable reasons.

“We need to start thinking about innovation as a proficiency not as something that happens once in a while,” said McGrath. It should have a budget, accountability, responsibility, and an actual process. “this puts new pressure of leaders as the world shifts around them to make adjustments.”

McGrath suggested that we need to go from a mindset where the assumption is stability and your job is to make your numbers and run your quarter and pretty much keep doing what you have been, to a mindset where you are frequently asking about change, asking about innovation and new technologies that can affect your industry. Actually watching your end customers in their world will help stimulate innovations and a better understanding of what is going on and anticipating future trends.

Being precise and “right” is no longer a priority in business. Being curious, fast and roughly right is the way to go… otherwise the analysis will have passed you by. “The better companies in this turbulent environment are really going to be focused on what’s happening outsRitaMcGrathide their boundaries, in places we don’t normally look at,” said McGrath. The key is forging a new path to winning based on capturing opportunities fast, exploiting them decisively, and moving on even before they are exhausted.

“Think about your workforce,” said McGrath. “They are looking for a different deal. They want to know that they are going to be better off when we part ways than I am now.” Simply coming to work every day is not enough anymore. They are worried they will get stuck in a place where they can’t increase their skills and make them known.

Increasingly, there are greater entrepreneurial opportunities because companies cannot hang on to assets or move with agility. Today, it’s all about access to assets not owning assets. A few decades ago, business had to buy servers, lease large office space and warehouses, and logistical equipment. Today, much of that is available in markets. Real opportunities can be created without crushing levels of investment.

McGrath also sees much less rigidity in how careers are being evaluated due to the large networks people have and the increasingly flexible way of working. “This gives us the ability to carve out more gratifying careers.”


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William Flamme

William Flamme

William Flamme is ExecuNet's Marketing Content Manager, where he is responsible for developing engaging career, job search, and leadership insight and delivering executive-level content across the various properties under the ExecuNet brand. Prior to joining ExecuNet in 2008, Will earned a master's degree in education and taught fifth grade and sixth grade. As a teacher, he deepened his appreciation for the written word and mastered skills necessary for managing writers who sometimes view deadlines as homework.

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