How long will your competitive advantage last?

THE ROOM WENT SILENT. Every eye was on me. I had just ruined their afternoon.

A minute before, we’d been talking about a new strategy and they’d been very excited.

“This will give you a significant competitive advantage… for a year, perhaps two,” I’d said. “And then your competitors will figure out how to compete with it. But advantage is always temporary, as you know.”

Apparently they didn’t know.

   BUILDING ADVANTAGE   Drexel's
 new five-story DNA-inspired Staircase and BioWall (all plants) 
completed in 2012 and unique, impressive and very cool. A great 
competitive advantage for recruiting top students... but for how long?

BUILDING ADVANTAGE
Drexel's new five-story DNA-inspired Staircase and BioWall (all plants) completed in 2012 and unique, impressive and very cool. A great competitive advantage for recruiting top students... but for how long?

I later realized most people don’t know it either. Any advantage you create or gain is always temporary. If it’s any good, others will try to take it away from you.

“This won’t last?”, someone finally asked.

“No,” I explained. “This is a bold idea. It’s never been done before in your industry. You’ll be way out front for a while and you need to capitalize on that quickly. But the reality is that as soon as your competitors see this, they will move to copy it, perhaps poorly, but they will try. Others will try to minimize it, dismiss it as meaningless, or counter with their own message.”

This revelation didn’t go over well. They wanted their advantage to last. But I stood by what I'd said. They needed to know. And then I showed them why it's true....

Competitive advantage is always temporary. You try to get as far out front as you can, but it only lasts so long before competitors figure out how to compete. That’s why real advantage rarely comes from just a single idea or innovation. Lasting advantage has to be built into your thinking and your business every day if you are to lead your marketplace and stay successful over time. Remember the old cliche about bands, they were a one-hit wonder? Remember Crocs? It’s just as true in business as in the entertainment business. A single good idea isn’t enough. At least, it isn’t enough over time.

Take Netflix. While they didn’t invent video streaming, they figured out how to turn it into a profitable service in great demand. They marketed it well and developed the systems, pricing and consistent delivery that made it a huge hit. But then competitors wanted in — Blockbuster, Amazon and others like Vudu and Hulu. All offered their own versions of Netflix’s bright idea. This competition slowed Netflix’s growth and put pressure on their margins. And then the movie and TV producers got wise and wanted to share in the bonanza, too, and so they started cutting off the supply of movies and content. Gulp. So Netflix’s advantage and hard work — while market-leading for a time —began to erode. And now they are struggling to implement the next idea — developing original content they create and control. Lesson: Advantage is always temporary.

Groupon was doing extremely well offering a limited number of great deals to its email subscribers. Then competitors and imitators jumped in and saturated the market and ruined everything. Groupon’s IPO fell apart. Groupon’s new idea is to sell products at great prices right on their site. Gee, that’s original. Lesson: Advantage is always temporary.

But what are you to do — as a business leader or CEO? Here are some strategies to consider:

Accept it. Advantage is always temporary. Commit to paying constant attention to competitors, market leaders, and business news. Expect to have to improve and re-invent portions of your business on a regular basis. Make it part of your culture. Remember Jaws and the mechanical shark at Universal that used to come up out of the water to eat you and your cruise boat? Steven Spielberg visited the ride a few years after it opened and observed that you always have to remember that what is new and exciting one day will eventually become tired and boring.

Train yourself to think more strategically. Look at your business from multiple perspectives — customers, employees, vendors, and media. Pay close attention to industry experts — what do they see as the needs, opportunities and potential in your industry? What are the weak spots? What can be better, more streamlined, easier to buy and use? If you need help with this, get an adviser or coach to help you develop the systems and habits you will need. Start by reading some Gary Hamel.

Involve your people in generating, evaluating, and integrating new ideas all the time. The thinking for the next generation of your service, product or offering probably won’t emerge during some off-site in July. Please. It will much more likely pop up during a conversation over coffee or lunch. Here is the real strength of innovative companies. They don’t just somehow build great stuff, they build great thinkers — and give them the freedom to develop and present new ideas in environments that value and implement new ideas.

Stop listening to the negative thinkers. Bob Sutton, the Stanford professor who wrote The No Asshole Rule found that negative people (you know the ones, “Let me play Devil’s Advocate for a minute…”) who produce no ideas but who consider it their duty to destroy other people’s ideas, actually hold companies back by preventing progress and demoralizing others. There’s a difference between constructive criticism (which you need) and destructive negativity (which you don’t). One adds perspective and prevents mistakes, the other is all downside and demoralizing.

Recognize that you need all kinds and levels of fresh thinking. Rosabeth Moss Kanter, an expert on innovation and strategic thinking from Harvard says in her book Confidence — How Winning Streaks and Losing Streaks Begin and End that you need ideas and innovative thinking of all sizes and all stages of development. Big ideas that will take time to implement. Small ideas you can put into place quickly. And everything in between. Strategic thinking can evolve from a single kernel of a thought.

Let others help you gain advantage. Apple usually gets all the credit, but most of the cool things that you actually do with your iPhone are done via apps that are developed and serviced by non-Apple companies. Angry Birds. Google Earth. Banking. Skype. Making phone calls. And on and on. The brilliance of Apple’s strategy is that they created a platform that is fed by hundreds of other companies every day. Could you get others to collaborate in what you do — as a way to provide new forms of advantage?

Advantage sometimes requires sacrifice. Years ago, Sony was what Apple is today — the technology wonder kid. Under Sony founder Akio Morita, the company relentlessly drove fresh thinking and innovation — often bringing out new products that took sales away from their own earlier products — and made it very hard for competitors to jump in. This also kept retail channels humming and surprised and delighted consumers around the world. When Morita died, Sony grew less willing to step on its own products and it began its slide into safeness that made it an also-ran today. Sometimes, you have to give up something to get something.

Yes, advantage is always temporary. It would be great if it wasn’t, but that’s the reality. Now… what are you going to do about it in your company?

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Carl Francis, CEO