In a new insightful report, Lei and Slocum have analyzed how firms of all sizes struggle in their search for new sources of competitive advantage.
Lei and Slocum demonstrate that managers need to understand the nature of their industry to formulate effective business strategies. Lei says, "In response to these dynamics, managers need to rethink how to innovate, bundle their firm's capabilities, create value, and capture customers. We present an integrative approach to analyzing, framing, and managing a company's set of value-creating capabilities to address the strategic tensions many managers now face."
It has been analyzed in the report that successful companies spend years amassing a portfolio of capabilities that form the springboard for their strategy. Leaders' visions, powerful internal departments, uncontrollable external forces, and the evolution of technology impact competitiveness more than many realize.
The research report says, "Firms build competitive advantage when they take actions that give them an edge over their rivals. Firms may focus on high-quality products, the best customer service, the lowest costs, or a specific industry segment. A powerful force that influences firms is the nature of the product-life cycle. Life-cycle stages in each industry are to some extent predictable. Over time, customers become more knowledgeable and competing products become more similar to one another. Declining differences generally lead to similar pricing and price-cutting, resulting in slower growth, and potentially lower economic returns for firms. Food processing, consumer electronics, and retailing have undergone such a progression."
The report further says, "Every industry confronts a rate of technological change that determines how rapidly new products and technologies emerge to displace their predecessors. For example, advances in alternative energy like wind, solar, and tidal power have raised the hope of dramatically reducing the U.S. economy's dependence on foreign oil, while offering vast opportunities for businesses to undertake sustainability initiatives to reduce carbon emissions. Likewise, new electric-based automotive technologies promise to transform vast portions of the global automotive industry as firms begin to invest in next-generation materials, electronics, and advanced power sources."
"Indeed, most industries periodically face the prospect of substantial technological forces of change, whereby an entirely new method, product design, or value proposition dramatically alters the source of competitive advantage for competing firms," says the report.
Lei and Slocum, in the research report, has used the labels Consolidators, Concept Learners, Concept Drivers, and Pioneers to capture the underlying set of strategic requirements and broad strategic capabilities that a firm may possess. These typologies can help firm managers identify their industry position and project their business horizon differently.
The report further analyses the four broad strategic capabilities:
Consolidators seek to capture the benefits of economies of scale as growth in their industry slows down. They often work closely with their core suppliers to share the risks of future product development and new market entry. Their activities have become pronounced in personal computer, telecommunications equipment and cellular phone industries.
Concept Learners are firms that successfully acquire new knowledge and competencies as to create new value propositions. Sun Microsystems and Polaroid adapted to technological change poorly owing to an over-reliance on prior successes, and thus became marginalized in their industries.
Concept Drivers are firms competing in fast-growth industries. Their value proposition needs to be highly differentiated from those of its rivals to sustain high profitability. Concept Drivers rely on organization designs that support a fast innovation capability, creativity and flexibility within a division. They must also cultivate and develop their own talent internally; these firms rely heavily on experience and employees' tacit knowledge that are requisite for product innovation.
Pioneers are risk-takers that thrive in highly uncertain, dynamic environments where barriers to entry and exit are often quite low. These firms are often small and possess leading-edge technologies. Typically, they possess the seeds of a breakthrough idea that can transform or even create entirely new products. Pioneers rely on special capabilities, such as agility and speed of product development, to create bold new product ideas that keep competitors from copying their initiative.
The report says that all the above-mentioned firm capabilities reveal some general patterns of behaviour. Within each strategic mode are inherent weaknesses, and none is free from the tensions and tradeoffs that senior managers must monitor, understand, and balance.
The report further says, "The four strategies - Consolidators, Concept Drivers, Concept Learners and Pioneers - can help firms frame their capabilities to sustain competitiveness. Though each requires a unique set of capabilities to succeed, these capabilities may also ferment the seeds of a firm's destruction if managers do not heed warning signs."
