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 / Winter 2013 / Issue 73(originally published by Booz & Company)

Business Literature: Best Business Books 2013

Best Business Books 2013: Strategy

McGrath and her corporate champions recognize that the different stages of this business life cycle may require managers with different skills. The outliers provide for that in their approaches to training and staffing. One is reminded of the old saying that over the course of its lifetime a business needs first a risk taker, then a caretaker, and finally an undertaker.

The End of Competitive Advantage gets particular punch from the author’s comparison of her outliers’ modus operandi with how traditional organizations approach the problem of disappearing competitive advantage. The contrast also suggests the wrenching change required of old-line outfits if they want to compete in this new world of transient competitive advantage, and illustrates what a feat of leadership it is to work that change.

In the conventional company, resources—that is, capital and people—are held tightly in the hands of the business unit heads, who try to squeeze opportunities into the existing structure. In effect, they emphasize the exploitation phase (“keep doing what we’ve been doing”) and innovate only in fits and starts. Competitive advantages are defended to the bitter end, but when that comes (usually too late to find other alternatives for the business), the conclusion is unexpected, harsh (big-time downsizing), and liable to leave a bad taste in everyone’s mouth.

In the growth outliers, by comparison, everybody understands that investment capital is the property of the company as a whole, to be doled out by the corporate center as new opportunities present themselves. In this world, a unit’s leaders may even volunteer that it has more money than it needs and cheerfully remit the excess to headquarters. Employees understand the business unit “circle of life” (apologies to Disney) and know that they’re expected as part of their everyday jobs to be searching relentlessly for innovations, fresh market openings, and threats to the old. The smartest outfits not only instill this ethic, but also cushion potential dislocations by finding new places for those employees whose units have experienced “healthy disengagement” from their former parent.

Unless what McGrath calls continuous reconfiguration was installed with their genes, most organizations don’t seem to take easily to innovation. Building on her earlier book with Ian C. Macmillan, Discovery-Driven Growth: A Breakthrough Process to Reduce Risk and Seize Opportunity (Harvard Business School Press, 2009), McGrath lays out a process for building this capacity into an organization. Many of its elements have been written about elsewhere: formal governance and funding models; experimentation; senior management involvement; a portfolio of new initiatives; an options-based investment approach; and an ability to accept and learn from intelligent failures. Familiar perhaps, but no small leadership challenge to put in place.

Three or four qualities distinguish the mind-set of company leaders who face up to the reality of transient competitive advantage, and those qualities are useful even at companies that don’t approach the McGrathian ideal. One theme I hear a lot of lately from smart strategic thinkers is the absolute imperative to create a flow of information from the corporate periphery—from reps actually talking to customers and factory managers listening to suppliers and wild freelance types attending offbeat conferences—to the central, strategy-making intelligence of the enterprise.

The leaders of McGrath’s paragons do this as a matter of course, seeking inputs from a diverse set of resources and trying to widen the constituencies engaged in making strategy. They particularly seek “disconfirming” information, tidings that suggest the enterprise’s current understanding of the outside world is flawed or incomplete—signals of trouble. (In contrast, say, to the Wicked Witch running a sweatshop in the movie version of The Wiz, with her managerial mantra, all too common in the real world: “Don’t nobody bring me no bad news.”)

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