Transient advantage, confirmation bias and Innovation

“If you think of competitive advantage as something that is transient, you’ll organize your company in a very different way. You’re going to be very careful about having your organizational system settle down too much, because too much stability can be dangerous.”

–          Rita McGarth

Rita McGarth is expert in area of strategy. She is of opinion that days of strategy as a sustainable competitive advantage – you find opportunity, you build barriers around it (to prevent competition from copying it) and then you enjoy benefits for a long period of time, are over.

Due to globalisation, IT etc. competitive advantages are transient and not sustainable. Now organisation has to seize opportunities, exploit them and then move quickly when they have exhausted the opportunity.

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A competitive advantage begins with a launch process, in which the organization identifies an opportunity and mobilizes resources to capitalize on it. In the next phase, ramp up, the business idea is brought to scale. Then begins a period of exploitation, in which it captures profits and share, and forces competitors to react. The very success of the initiative spawns competition, eroding the advantage.

So the firm has to reconfigure what it’s doing to keep the advantage fresh. For reconfigurations, a firm needs people who aren’t afraid to radically rethink business models or resources.

Tata DoCoMo came up with an innovative idea of introducing “one paise per one second plan”; at that time the lowest time frame to calculate phone tariffs was one minute. This meant that users paid for the full minute even if they spoke for only five seconds. While this was a profitable proposition for operators, users were disadvantage.

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Within five months of the launch Tata DoCoMo attracted 10 million customers. Three-fourths of them came from other operators. But period of exploitation was over very soon as all operators including market leaders Bharti Airtel, Vodafone and Idea Cellular launched per-second plans. Since advantage was transient, Tata DoCoMo should have move to next disruptive idea, but that did not happen.

Erosion of advantage began, Tata DoCoMo could not benefit for long, the company kept making losses and failed to become a serious challenger to market leaders Bharti and Vodafone.

If a company has been very successful for a long time, then employees don’t feel the urgency to innovate. But due to this shift to transient advantage, innovation becomes more imperative, which means that organizations really do need to make it a routine capability, rather than pursue it in fits and starts.

There is also need to change mind-set of leaders. Most of them suffer from confirmation bias, where people, usually unconsciously, seek out information that confirms what they believe to be true (though it may not be true) and ignore information which is contradictory to their beliefs.

Leaders now have to give up mind-set of sustainable era i.e. look for evidences which confirm their belief that “all is well”. They are reluctant to hear bad news, and by the time they realise gravity of bad news, it is too late. Instead they should actively fight against this bias and deliberately seek information that challenges assumptions.

Leaders need to create a culture that encourages people to seek out and share evidence that things are changing, that there may be trouble ahead—even when things seem to be going well.

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