The end of sustainable competitive advantage

By Ken Witt

In a recent Strategy & Business Thought Leader interview  Columbia Business School associate professor Rita Gunther McGrath says that she thinks we are at the end of the world as we know it—at least in terms of our thinking about sustainable competitive advantage. Based on substantive research on public companies and their competitors, McGrath and her co-author reached the conclusion that successful growth outliers are successful because they are good at “exploiting temporary competitive advantages, not sustainable ones.”

The ramifications of this phenomenon, which McGrath thinks is driven primarily by the combined dynamics of globalization and digitalization, are that if you think of “transient advantage” rather than sustainable competitive advantage, you will:

  • Organize your company somewhat differently – more information efficient
  • Choose people who are more educable than specialized
  • Think less in terms of competitive position in a particular industry, because your most significant competition is likely to come from other industries
  • Think more in terms of “arenas” like consumer spending, the factor markets required to serve them, and how and where your company adds value

McGrath considers resource allocation to be a prime culprit of companies that cling to their core businesses and argues that innovation needs to be considered to be a core capability for companies that will be successful in this new world of “transient advantage.”

The CGMA report Managing Innovation showcases how management accountants, who sometimes have a reputation as regulators of risk rather than as instruments of innovation, can help promote a culture of creativity and renewal and support the innovation process.