strategy+business Winter 2013 : Page 59

B E S T B U S I N E S S B O O K S 2 0 13 / S T R AT E G Y Gunther McGrath provides much useful advice on the how of managing business strategy as continuous inno-vation but shorts her audience just a bit on the why. Not that most readers will miss the statistics, available else-where, on how quickly industry leadership turns over today compared to, say, three decades ago. To be sure, skeptics will look at the rise of behe-moths such as Apple, Amazon, Google, and Walmart and see a consolidation of corporate power and appar-ently unassailable competitive advantage. But for every skeptic, there are 10 or 20 warriors in the corporate trenches who believe their companies are under assault as never before and feel an unprecedented amount of change being thrust upon them. At least that would be my guess from talking to scores of executives. For her evidentiary base, Mc-Grath, a professor at Columbia Business School, and her research team scanned a list of every pub-licly traded company on any global exchange with a market capitalization of US$1 billion or more by the end of 2009. Looking for what she came to call “growth outliers,” she was able to identify precisely 10 companies that were able to grow their net income 5 percent annually from 2000 to 2009. A few of the names on the list are familiar (such as Cognizant Technology Solutions, Infosys, Yahoo Japan, and Tsingtao Brew-ery), whereas others are less so (such as Krka d.d. Novo Mesto, a pharmaceutical company from Slovenia). In delving deeper into these enterprises, McGrath uncovered an intriguing combination of stability— involving identity, culture, and people development— and change. Each company’s identity served as a plat-form for a continuous reconfiguration of its portfolio of businesses and its activities within those boundar-ies. Her outliers are prepared to reorganize themselves repeatedly in order to systematically catch waves of competitive advantage that rise up quickly, peak, and then recede. The outliers will, according to McGrath’s five-stage rubric, launch a small effort if they see an aborning market opportunity, then ramp up quickly if it proves out and they can capture territory. They’ll exploit the business as long as it’s robustly profitable, all the while looking for the first hints of decline, such as new com-petitors piling in or commoditization. Spotting trouble, they will see if they can reconfigure the business mod-el to prolong returns, but if that doesn’t work, they’ll crisply disengage—exiting the business and deploying their resources elsewhere. McGrath and her corporate champions recognize that the different stages of this business life cycle may require managers with different skills. The outliers pro-vide for that in their approaches to training and staff-ing. 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 particu-lar punch from the author’s comparison of her outliers’ modus operandi with how tradi-tional organizations approach the problem of disappearing competi-tive 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 advan-tage, 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 ef-fect, they emphasize the exploitation phase (“keep do-ing 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 corpo-rate 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 busi-ness 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 best books 2013 strategy 59

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