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Published: May 26, 2009

 
 

Creating Competitive Advantage

Management must understand the advantages and disadvantages of a company’s capabilities.

Title: The Tipping Points of Business Strategy: The Rise and Decline of Competitiveness
Authors: David Lei and John W. Slocum
Publisher: Organizational Dynamics
Date Published: Forthcoming
Contact the author at jslocum@cox.smu.edu for the full paper.

What makes Cisco Systems Inc. so adept at acquiring and integrating startups that specialize in cutting-edge technologies? How did Apple Inc., with no experience in making digital music players and with a legacy computer business to maintain, become the world’s dominant digital music company? In this paper, the authors explore the types of strategies that very different companies can adopt to successfully evolve and maintain a competitive advantage over their rivals.

For example, Cisco is renowned for its ability to acquire innovative young companies that help it stay at the forefront of technological advances. To do this, Cisco gives newly bought companies significant autonomy, so they can behave like startups while drawing on Cisco’s corporate resources. Eventually, the leaders of many of these acquired firms occupy key management positions within Cisco, providing the know-how and experience to compete in new markets. Similarly, Apple had the foresight to secure long-term licensing agreements with major record labels, enabling it to create the iTunes music service and sell individual songs; in turn, Apple sold more iPods.

The authors have created a matrix to help managers develop a strategy that best fits their company’s culture and capabilities. They separate companies into four types: innovative startups (pioneers), acquisitive market leaders (consolidators), rapidly evolving companies (concept learners), and cutting-edge firms (concept drivers). For each, the authors examine the best way to enter a new market, whether by making acquisitions, pursuing internal product development, or licensing technology from other firms. They also look closely at the ways in which companies frequently fail; for example, by relying too heavily on a product that’s nearing the end of its life cycle or underestimating the importance of a disruptive new technology.

Bottom Line: Understanding the advantages and disadvantages of a company’s capabilities can help management determine the best course for establishing a competitive advantage.

Author Profiles:

  • Bridget Finn is the Web editor of strategy+business.
  • Michal Lev-Ram is a freelance journalist based in the San Francisco Bay area. She is a former reporter for Fortune and has covered technology and business news for Fast Company, Business 2.0, and www.CNNMoney.com, among other publications and Web sites.
 
 
 
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