The world envisioned by Coase and Porter was relatively stable. Transaction costs were like weeds, which managers could gradually root out. Once the lines of competition were drawn, strategy was a mainly a matter of bringing “relative strength to bear against relative weakness,” as UCLA’s Richard Rumelt has put it.
Yet today we live in a world of accelerating returns, where cost efficiencies can improve exponentially, nullifying scale advantages. Further, technology cycles have begun to outpace planning cycles. So in the course of planning and executing any given strategy, relative strength and relative weakness are likely to change—sometimes drastically.
So we find ourselves in an age of disruption, where agility trumps scale and strategy needs to take on a new meaning and a new role. We can no longer plan; we can only prepare. This requires what Columbia’s Rita Gunther McGrath calls a shift from “learning to plan” to “planning to learn”.
When Jeff Bezos started Amazon, his purpose was to sell books against traditional competitors like Barnes & Noble. Yet today, Amazon is much more than a retailer. It offers cloud computing services to enterprises, builds computer hardware, and develops TV shows. It directly competes with firms as diverse as Microsoft, Walmart, and Netflix.
However, Amazon is not a conglomerate; it is a platform. The same cloud architecture that runs its online store is what it offers as a service to enterprises and distributes entertainment to consumers. As it expands connections to into new areas, it deepens capabilities at its core. This is why, if you’re looking at the competitive landscape, it doesn’t make sense to talk about Amazon’s “industry position” as much as it does to examine its ecosystem.
When Coase wrote his famous paper in 1937, transaction costs were a much heavier burden. Today’s most valuable corporate resources aren’t tied to a physical place, don’t substantially diminish with use, and are easily distributed. The world has changed and so must strategy.
Many have argued over what this shift should entail. For instance, McGrath argues, in her excellent book, The End of Competitive Advantage, that sustainable competitive advantage is no longer possible and we must be content with achieving transient advantage. In her view, rather than focusing on a distinct set of capabilities, firms must constantly be moving on to greener pastures. And yet I’m not sure this part of her argument holds. Clearly, there are plenty of firms such as Amazon, Walmart, and Apple that are able to not only maintain, but deepen their advantages over time. Sure, they’ve increased their scope as well as their scale, but their core businesses have also improved.
What’s changed is that competitive advantage is no longer the sum of all efficiencies, but the sum of all connections. Strategy, therefore, must be focused on deepening and widening networks of information, talent, partners, and consumers. Brands, in effect, have become more than assets to be leveraged, but platforms for collaboration.
By Greg Satell, HBR