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The Essence of Competitive Advantage: What we know and what we learn, not what we have and what we buy

Steve Spear, 11/2/2016

This is another post from Steve Spear of MIT and Principal at The High Velocity Edge, LLC--his first is here

Organizations' relevance depends on what we know and how we put those knowledge and skills to good use, and not necessarily the stuff that we have. Our sustained relevance depends on how fast we learn better what to do and how to do it. In effect, we must compete not on the assets we can buy but on the ideas and the applications we can develop.

That, of course, makes intuitive sense. For all the investment in an operating suite, for instance, the differentiator between one surgical team and another is not the over the counter stuff they use: it is the skills and wisdom in their application that they develop. Diminish any of those, and the equipment becomes less and less significant in affecting patient outcomes. Given the heady pace of scientific and technological advances, team maintain their continuing relevance only by constantly solidifying the skills they have and relentlessly adding to them.

For all its momentary advantages with a particular product or service offering, a commercial enterprise only maintains its relevancy by relentlessly improving existing products and the processes that power their delivery, and by innovating constantly, replacing one offering with the next. We see this constant upgrade and reinvention with Apple, for instance, which made a name for itself with desktop computers, shifted its revenue centers to laptops, displaced that profit center with mobile devices, and buttressed that all by creating a connective ecosystem of iTunes, iCloud, and the like. Others have not been as agile leapfrogging from one market presentation to the next, thereby enjoying far less rewards.

Our relevance depends on what we know and what we can do. Our ongoing relevance depends on how quickly we can learn new what to do and how to do it.

That relevance depends on knowledge and skill and that sustained relevance depends on learning speed, breadth, depth and consistency may be simple to say, but it runs against decades of management thinking. Of long standing was the convention that organizations sustained their advantages by creating and sustaining a monopolistic or oligopolistic position. If they found a way to slow movement in their sector–creating literal and figurative barriers that kept challengers at bay and kept customers and suppliers from defecting–they could accrue rewards not available to those subject to a faster moving environment, once in which challenges regularly appeared and where loyalties were transitory. The metaphoric dynamic was far more transactional: identifying and procuring arbitrage advantages that had sufficient durability to endure (images: Osaka Castle and the Berlin Wall).

Even if such a reality were once true or continues to be true in select situations, it's no longer the case more generally. US Navy Chief of Naval Operations Admiral John Richardson has started talks with images like these: The first shows internet activity around the world. The second is of global shipping routes.

The points they illustrate are these: We're in an era in which ideas and the finances to back them can flow from anywhere to anywhere nearly instantaneously. The materials and people to put them into play can get from anywhere to anywhere nearly instantaneously as well.

Superior resources and assets are not enough. The operating environment is in a constant state of change with challenges arriving everywhere, all the time. If our own organizations cannot anticipate and respond faster than the 'clock speed' of the larger systems of which we are part, than vulnerabilities will be discovered and exploited, leading to the rapid and predictable degradation of our own ability to act meaningfully. We're in an era of competition by maneuver, not of position, and that maneuver is not just the speed and direction by which we relocate people and things, it depends on the speed and direction with which we can generate new ideas and the ability to put the to productive and effective use.

This is not just a Navy problem. General Stan McChrystal (second from right above) describes the experience of taking command the Special Operations effort in Iraq, in Team of Teams his book. Though better equipped, better trained, and energized by a far better mission than Al-Qaeda in Iraq (AQI), US and allied forces weren't winning because they're ability to reconfigure where and how they fought couldn't keep pace with the adaptive, self re configurative capability of their adversaries.

Ideas and the finances to back them can flow from anywhere to anywhere instantaneously. The materials and people to put them into play can get from anywhere to anywhere nearly instantaneously as well.

The solution to this was not "more stuff" and more people. Rather, it was connecting the various pieces of the command–Navy SEALS, Army Rangers, members of different intelligence agencies–into a network through which information could flow, in which ideas could be generated, and as a result of which a constantly improving, dynamic image of the battle space and of where and how to act could develop. The idea was to shift from Rangers raiding a safe house one night and raiding another location the next–almost counter insurgency whack a mole–to a situation in which Rangers might raid a location, gather computer hard drives and other media, immediately hand that data to analysts who built an improved understanding of who was where, planning and doing what, using those newfound insights to identify a target to be interdicted within the same high speed learning cycle.

And this is not just a military problem. World automakers received exactly the same 'demand signal' front the world auto market: Fuel efficiency had to be increased not by small increments but by multiples. The response from the automakers was the same too: the creation and introduction of hybrids , like the Chevy Volt or the Toyota Prius, vehicles which augmented an internal combustion engine with an electric power, harmonized and synchronized by sophisticated power flow management software.

Same problem, same solution, but wildly different results.

Toyota introduced the Prius ten years in advance of the Volt. And with a ten year head start, Toyota has put its hybrid drive system through several generations of refinement, has introduced it on nearly two dozen Toyota and Lexus platforms, and has surpassed 9 million units in sales ("Worldwide Sales of Toyota Hybrids Surpass 9 Million Units," Toyota Pressroom, May 20, 2016). In contrast, the Volt just made it to six figures ("Top-Selling Chevy Volt Crosses 100,000 US Sales Milestone," HybridCars.com), a nearly 90 to 1 difference in success.

For 50 years and counting, Intel has adhered to "Moore's Law" of sustaining exponential growth in microprocessor speed by sustaining exponential shrinkage in microprocessor size. Unable to keep up, Intel's competitors have ceded market dominance with each successive leap in computing platforms–PCs to data centers to high performance computing.

The key takeaway? Leadership has to redefine its role not as commander and controller, planner and delegator, but as creator and facilitator of an environment in which ideas are constantly generated, tested, put into practice and replaced as new and better ideas emerge. It's not a transactional, decision driven role. It's a discovery, developmental one.

Steve Spear, Principal at The High Velocity Edge, LLC