The shifting sands of competitive advantage

Business Horizons, May-June, 1995 by William B. Werther, Jeffrey L. Kerr

To illustrate the shifting foundations of competitive advantage, consider two scenarios, the first hypothetical, the second real:

Assume for a moment that it is 1974 and you are a member of the General Motors board of directors. Your primary markets, North America and Europe, are still adjusting to the first "oil shock" and you notice that selected Japanese and European automobile makers are expanding their global sales, improving quality, and gaining share in the trendsetter market of California. The board has already approved such defensive moves as "downsizing" GM's full-sized cars and introducing a GM-Australia designed car, the Chevette. Still, you wonder how these much smaller competitors intend to challenge GM's dominance.

After informal conversations with board members and company executives, you find that others have similar concerns. So at the next board meeting you sponsor a motion to create a "shadow strategy task force," the purpose of which is to identify strategies competitors might follow to undermine GM's dominance and cut its North American market share from nearly one-half to one-third. Though some executives scoff at the assignment and its premise as absurd, the motion carries and you await the report from the shadow task force.

Now consider the reality faced by GM during the last five years: By the early 1990s, after more than a decade and a half of difficult, frustrating years, General Motors Corporation effectively matched Japanese automakers in product quality. Consumer surveys and independent observers rated the initial reliability among many segments of GM's line to be virtually equal to that of Japan's vaunted products. Objectively measured, overall GM quality had never been higher; in fact, it exceeded the quality levels of Japanese imports of just a few years earlier. During the 1980s and early 1990s, however, GM's market share fell from 46 to 35 percent. Executives spoke optimistically of "getting the message out" and of using GM's huge marketing budget to correct the "image problem." The downslide continued, though, with GM's market share falling to 32.2 percent by the middle of the 1993 model year, and moving up slightly since then. Along the way, Japanese brands captured 27 percent of the U.S. auto market. And in the trendsetting state of California, where 12 percent of all American cars are sold, Japanese producers now hold nearly a 40 percent market share, even with the expensive yen of the mid-1990s.

How can the reality of the past two decades be explained? Poor marketing? Inferior quality? We think not. True, the Japanese continued to pursue higher quality levels and, despite GM's impressive gains, maintained a narrow lead in the quality race. The deeper and more disturbing explanation, however, is that even as GM worked to close the quality gap the basis of competition shifted. Product quality became a given in the marketplace, a mere prerequisite for competing. The wide availability of well-built, moderately priced cars taught the American consumer to take quality for granted. In short, quality became a "strategic minimum"--a necessary but insufficient condition for differentiation in the automobile business. As a strategic minimum, quality offers no source of competitive advantage, though its absence means failure. Simply put, GM was chasing the competition rather than leading it.

Responses that are merely defensive or reactive to the innovations of competitors fail to provide a competitive advantage. Active measures are needed that anticipate competition with forward-looking strategies. Consider what might have happened at GM if its board of directors had received a report from the "shadow strategy task force" arguing that Japanese and German competitors appeared to be bracketing GM with higher quality cars at both the low- and high-priced ends of the market. Would the world-class Saturns, LeSabres, Eldorados, and Sevilles of the 1990s have appeared a decade sooner?

Our concern is how companies develop forward-looking competencies that anticipate competitive attacks. We begin by examining the forces that drive today's use of shifting strategies. We then suggest moves organizations can undertake to survive in this increasingly dynamic environment, and conclude by linking the idea of multiple competencies to the growing use of "strategy shifting."

THE SHIFTING TIDES OF MATURE INDUSTRIES

The changing nature of competition has upset early models of strategy, which often implied that companies competed on the basis of a single skill or capability. Strategic typologies have reinforced the idea of static, unidimensional competition with categories such as lowest-cost producer or technology leader.

IBM's long-term dominance of the computer markets in the 1960s and 1970s rested largely on the competitive advantage of superior service. The old saw "No data processing manager was ever fired for ordering IBM" implied a corporate commitment to service that no one in the industry could match. But today's greater reliability combined with a technology-induced move toward personal computers and work stations makes competition more complex, offsetting a single competency as a source of sustainable advantage.