Sustained competitive advantage in a disruptive business environment

Remember when information technology and information systems constituted supportive functions in the organisation, rarely occupying the strategic agendas of executive management? Also, do you remember when management literature considered IT an enabler of business and organisations viewed IT an often cost demanding and easily replicable resource? IT is for standardising processes and streamlining use and application of resources, they claimed.

In that light, it remains no secret that those organisations running with more efficient benefit realisation scores typically made more value from IT investments. Lasting benefits are rarely seen to be derived from implementing, particularly for reasons of being too easily replicated by competitors in the market.

Depending on the organisational capability of successfully applying information technology in support of one or more value disciplines, advantages from increased ratios in efficiency, customer relationships and product leadership would sooner or later become outcompeted.

Yet, the emergence of increasingly unexpected competition—often exercised by extra-sectorial entrants –over the past few years changed long-lasting views in academe and practitioner environments radically.

Thus, while a transformation of how information technology and information systems have been observed to impact organisational performance through process standardisation and efficiency, IT moved into the very heart of business modelling, ending up extremely critical and strategically important components of orchestrating dynamic capabilities in the organisation.

More interestingly, I believe that this shift did something to one of management literature’s most discussed topics, leaving Jay Barney’s 1991 landmark contribution to research in strategic management on firm resources and competitive advantage* to constitute a key learning to most business executives, which is also why it makes perfect sense to revisit the term sustained competitive advantage. Importantly, Barney also refers to this term as an equilibrium definition (Hirshleifer, 1982)

While a cornerstone in strategic thinking for decades and a must from the perspective of surviving in a highly globalised and fast-paced competitive business environment, the term sustained competitive advantage has grown to assume a different meaning to companies across many industries.

In particular, this comes through when comparing traditional industrial competition based on cost efficiency and supply chain economics on the one side and the bypassing mechanisms of disruptive innovation on the other.

Let’s take a look at the concept of sustained competitive advantage—what does that really mean? – Following Barney (1991), this advantageous strategic positioning requires that the company “implements a value creating strategy not simultaneously adopted by its competitors, and that the benefits of that strategy cannot be duplicated”.

Similarly, Barney notes, sustained competitive advantage is about considering competitors in a broader time perspective, not only requiring management to understand current players in the market. Also, future competitors must be part of the picture.

Finally, an important aspect in Barney’s discussion touches upon the fact that sustained competitive advantage should not be seen as a direct dependent on calendar time—“Rather, whether or not a competitive advantage is sustained depends on the possibility of competitive duplication” (Barney, 1991).

Still, two critical mechanisms in tandem play a pivotal role when considering sustained competitive advantage in context to disruptive technologies. While the first is essentially about making a break with the assumption that information technology enables competitive advantage, and not a source, it is important to recall that disruptive technologies alone do not change the picture. What really matters is the combined effect.

One might argue that this is just a matter of time before competitors duplicate. Much in line with the discussion results of Barney (1991), I certainly do agree. Yet, my perception slightly differs as influenced by the circumstance that information technology and—particularly—information systems have merged into becoming an integral part of the dynamic capabilities of many organisations.

On top of this, a clever approach with many organisations combining and applying disruptive technologies in support of customer needs provides management with new paths to impact market competition and dynamics by means of business model innovation, superior data management, intelligent tools for managing customer relations, and—potentially most important—executive and senior levels who know how to lead and what to do next.

Accordingly, this leads to focus on another critical mechanism inherent with the dispersion of disruptive technology, and where competitors’ limited ability of duplicating becomes really interesting. Briefly recalling the words of Barney (1991), his point is that a strategy to achieve sustained competitive advantage requires that no other player in the market adopt that strategy simultaneously and that the benefits of it cannot be duplicated.

Hence, sustained competitive advantage may be achieved as facilitated through business models created around interconnectivity, subsequently fuelling new and unique ways of collaboration and communication.

While new entrants often address unserved or low-end customer segments, and then move them to mainstream market (Christensen et al., 12/2015, HBR**), the potential in harvesting from interconnectivity of people may involve a sustained strategical position as long as the business model facilitates a smarter, cheaper and faster way of reaching and retaining an increasing customer base.

Netflix already proved that, gradually attacking broader established customer segments, beating out Blockbuster, serving customers who weren’t initially attracted to Netflix. Streaming to millions of internet-television viewers subscribing to its service across several geos and a second-to-none value capturing from data analysis remain key contributors to the success. In addition to offering a huge palette of movies and series, Netflix brands itself through broadcasting of own productions, based of customer data.

Without disregarding the potential of incumbents responding to smarter, faster and cheaper business models delivered by new entrants through new channels, and carrying unexpected competitive threats, disruptive innovation contributed significantly to changing the rules of how organisations create and sustain competitive advantage.

*) Barney, J., 1991 - Firm resources and Sustained Competitive Advantage, Journal of Management, Vol 17, No. 1, 99-120
**) Christensen, Clayton M., Michael Raynor, and Rory McDonald. 2015. “WHAT IS DISRUPTIVE INNOVATION?” Harvard Business Review, 93 (12). HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION: 44–53