Speaker A
[Music] if you think about the lifecycle of an advantage over time it has a very characteristic shape almost so in the beginning before there's anything at all outs out there in the world you have this sort of primordial soup of
Rita McGrath explains the lifecycle of competitive advantage, from wandering and launch through exploitation to erosion, and why public markets and managers struggle with transient advantage.
Key Takeaways
- Competitive advantage is transient and moves through predictable lifecycle stages.
- Managers need experience across all stages, not just exploitation, to handle decline and renewal.
- Public market short-termism undermines the resource reallocation that sustained advantage requires.
- Organizations should deliberately pull resources from eroding advantages to fund new ones.
What the video covers
- Competitive advantage follows a lifecycle: an initial 'primordial soup' of resources and capabilities, a wandering search for a viable business, ramp-up and scaling, a long exploitation phase, and eventual erosion.
- The exploitation phase is what business schools mostly teach, since it looks stable with good growth, but companies can sometimes extend it, as Coca-Cola does by acquiring startups and scaling them with its mass.
- Many managers have experienced only one stage, typically exploitation, because they are rewarded for operational excellence, so they may reach CEO roles without ever facing fast growth or fast decline.
- Public markets reward steady quarter-by-quarter results and predictable earnings, which conflicts with the multi-year nature of business lifecycles.
- Markets often starve erosion-stage businesses of investment and fail to fund innovation and launch, penalizing the long-term work that advantage renewal requires.
- Michael Dell took Dell private to carry out the transformation needed after the PC business fell out of favor, illustrating the constraints of public-market pressure.
- McGrath argues that the barriers preventing full lifecycle management are self-inflicted and could be changed.
- In an orderly system, resources would be pulled from eroding businesses and redeployed to fund the next advantage.
Chapters
- 00:00The lifecycle of competitive advantage
- 00:32Wandering and launching a new business
- 00:58The exploitation phase and Coca-Cola's extensions
- 01:30Managers' limited lifecycle experience
- 02:30How public markets reward short-term results
- 03:19Erosion and Michael Dell's privatization
- 03:45Self-inflicted barriers to lifecycle management
Full Transcript — Download SRT & Markdown
Speaker A
technologies and capabilities geopolitics and all this stuff it's kind of out there and entrepreneurially minded people whether they're startup people or whether they're people in corporations put together combinations of resources that they think may eventually lead to some kind of business
Speaker A
and there's this kind of wandering in the woods usually that takes place for quite a long time before you finally have something you think you can put in front of a customer that they may actually pay for you then have a period
Speaker A
of ramping that up so you launch that business and you scale it right and then you have this delightful period of I call it exploitation and that's the period we love to teach about at the business school we love to write
Speaker A
textbooks about this this is things are good right things are stable we've got good growth what happens next decline well sometimes not always right I mean sometimes companies can figure out how to keep an advantage of Ellie so
Speaker A
this is the sort of thing that uses protein-rich all natural you know stevia flavored diet cherry coke it's product line extensions or trees into new areas or whatever and coke has actually been brilliant to this um one of the things cokes been doing the last
Speaker A
ten years or so is basically acquiring new capabilities by acquiring these sort of startup ventures that are ready to scale and then they use cokes mass and and and have to scale them up so they've been really good at extending their
Speaker A
corporate advantages but as you've already intuited sometimes you know we're going the way of all things and you have a period of erosion so a couple of points to make about this most managers today have not had personal
Speaker A
experience with each of these lifecycle stages in fact if you're working in a organization of any size and and capability you can actually have your entire career doing nothing but exploitation you know you get rewarded for being an
Speaker A
excellent operator you optimize your efficient you do things and you can get to be a CEO and never have experienced either fast growth or fast decline so I think that's a sort of a personal issue that a lot of people just don't have
Speaker A
experience with that I was talking to a friend of mine who happens to be a CEO and he was saying oh my god I could name you at least ten companies where the guy in charge in this case they were all men
Speaker A
has never had any if he does not know what to do they just don't know what to do they've never had personal experience in it I think that's a first kind of observation second observation for those of you that are part of publicly traded
Speaker A
companies the public markets as we have constructed them and I think this is a big mistake but as we have constructed them they love this you know quarter by quarter steady results hit your numbers predict to the penny what you're gonna
Speaker A
be making next quarter right when we all know a business lifecycle is a years long endeavor you can't run it quarter to quarter in any sensible way right and yet our markets as we have constructed them and I can comment on what I think
Speaker A
we should be doing to change them if you're interested in that but as we have constructed them they reward people for doing this and in fact they are even worse they extract resources from people that are doing this they don't put
Speaker A
resources into innovation and launch and they absolutely hate erosion this is why Michael Dell had to take Dell private to do the transformation he needed to do when the PC business for that company had kind of gone out of favor so I think
Speaker A
a couple of things to just remember is we have these and they're all self-inflicted we have these barriers that prevent us from being able to manage this kind of complete life cycle because in a real in an orderly world
Speaker A
what you'd like to be doing is as these things go into erosion you'd like to be pulling resources out right so that you could fund the next event I mean that would be in an adjust and true world the
Speaker A
when capitalism runs right that's the way you do it right and yet there's so many barriers that get in the way and that's what I'd like us to sort of unpack this Manning and think about how we want to change that or how we would
Speaker A
cope with that in our own organizations [Music]
Topics:transient advantagecompetitive advantageRita McGrathbusiness strategyinnovationexploitationerosionpublic marketsshort-termismcorporate strategy
