The Past and Future of Competitive Advantage

Topics: Department store, Economics of production, Strategic management Pages: 13 (3621 words) Published: May 13, 2008
The Past and Future
of Competitive Advantage
Competitive advantage is a concept that often inspires in strategists a form of idol worship—a desire to imitate the strategies
that make the most successful companies successful. It is interesting, however, that strategists have viewed precisely opposite factors to be sources of competitive advantage at different points in the histories of a number of industries. For example, Henry Ford’s emphasis on focus has been touted right next to General Motors’

product-line breadth as the key to success. Today, the outsourcing flexibility inherent in the nonintegrated business models of Cisco Systems and Dell Computer is held up as a model for all to emulate, whereas a generation ago IBM’s vertical integration was widely considered an unassailable source of competitive advantage. In the 1980s, power-tool maker Black & Decker aggressively consolidated its diffused international-manufacturing infrastructure into a few global-scale facilities so that it could counter the aggressive marketshare gains that Makita had logged by serving the world market

from a single plant in Japan. At that very time, Makita was moving aggressively toward manufacturing in smaller-scale local facilities around the world.
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140 Strategies for E-Business Success
Indeed, strategists whose anecdotal understanding of competitive advantage runs only as deep as “If it’s good for Cisco, it must be good for everybody” at best are likely to succeed in building yesterday’s competitive advantages. If history is any guide, the practices and business models that constitute advantages for today’s most successful companies confer those advantages only because of particular factors at work under particular conditions at this particular time.

Historically, several factors have conferred powerful advantages on the companies that possessed them—economies of scale and scope, integration and nonintegration, and process-based core competencies. What are the circumstances that cause each factor to be

a competitive advantage? How and why do competitive actions
erode the underpinnings of those advantages? Strategists need to peel away the veneer of what works, and understand more deeply why and under what conditions certain practices lead to advantage. In so doing, they might begin to predict successfully which of today’s powerful competitive advantages are likely to erode and what might cause new sources of advantage to emerge in the future. (Many of the insights presented here are rooted in work on disruptive innovation presented in my 1997 book The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail.)

In the 1960s and 1970s, concepts of competitive advantage often were predicated upon steep scale economics, and many tools of strategic analysis were built upon those economics (for example, growth-share matrices, experience curves, and industry-supply curves). Indeed, scale allowed successful companies such as General Motors and IBM to enjoy lower costs than their competitors.

IBM, with 70 percent market share, earned 95 percent of the mainframe- computer industry’s profits; General Motors, with 55 percent market share, earned 80 percent of the automobile industry’s prof- 09-ch06-Brynjolffson 10/16/01 2:28 PM Page 140

The Past and Future of Competitive Advantage 141
its. Today steep scale economics explain the profits and dominant market shares of companies such as Intel, Boeing, and Microsoft. Steep economies of scale exist when there are high fixed versus variable costs in the predominant business model. Large organizations can amortize the fixed costs over greater volumes,

condemning small competitors to playing the game on an adversely sloped playing field.
However, Toyota taught the Western world that many fixed
costs aren’t ordained by nature but are artifacts of specific...
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