Back in the day when companies actually held resources, an interesting management theory was developed called the resourced-based view of the firm. It postulated that strategic advantage was created by the bundle of assets that any particular company held. However, those resources could not be just any resources, they had to be valuable, rare, and unable to be copied or substituted. If you had access to specific manufacturing equipment, processes, natural resources, or intellectual property like a secret formula, you had an advantage over your competitors.
This view of the business world was rooted in the same concept of the strategic advantage of nations. A nation was as wealthy as the value of its natural resources and how much of them it held compared to other nations.
As we've transitioned away from companies with resources to being companies of ideas and execution, our concept of creating a strategy around competitive advantage has fallen on hard times. After all, if Skype can disrupt telephone companies spending hundreds of millions on trans-Atlantic cables and Airbnb can disrupt hotels with billions in real estate assets, why wouldn’t it be the wild wild west?
Our response to this new world order has been to resort to two methods for retaining an advantage: make it complex, or make it secret. Both are the wrong approach.
Overly complex strategies maybe difficult to copy, but they are also difficult to follow, execute, and track. Look no further than LinkedIn CEO Jeff Weiner's description of the company's strategy in their most recent earnings call.
"Our strategy in 2016 will increasingly focus on a narrower set of high value, high impact initiatives with the goal of strengthening and driving leverage across our entire portfolio of businesses. Our road map will be supported by greater emphasis on simplicity, prioritization, and ultimate ROI and investment impact."
With a strategic statement like that, it’s easy to see why LinkedIn’s stock hasn't rebounded from its nearly 50% drop earlier this year.
The second tactic often used is to try to keep a strategy secret, I guess, thereby, making it difficult to copy. In strategic parlance, it's an attempt at an inimitable strategy--unable to be imitated (thanks to professor Jay Barney). If no one knows what your "secret sauce" is, they can't copy it. This is the typical approach for many technology companies.
However, I would suggest from the track record of very successful companies that there is another way: make your competitive simple, obvious, and hard. Base it on a strategic advantage that is valuable to your customer, where there can only be one number one, and one so hard to do that your competition never wants to follow or challenge you. In the words of famed Apple designer Jony Ivy, "It’s very easy to be different, but very difficult to be better."
Think about some of the best companies. You can identify their competitive strategy, and source of advantage in a few lines:
Starbucks: Lead with location, lead with coffee, and make the coffee experience like that of visiting an Italian barista.
Tesla: Make battery-only performance, cost, and range acceptable; make software the center of the car, create a strong brand identity.
Apple: Make design simplicity a virtue, own the entire experience in a closed, controllable system, create an incredibly broad and easy media ecosystem (the beautiful experience).
There is only one coffee location leader: Starbucks. They are everywhere.
There is only one battery cost performance, software-centered car leader: Tesla. 325,000 people just paid to own one at least two years from now.
There is only one company that owns the beautiful experience in mobile phones: Apple.
Every market has its obstacles. It takes the choice to do something difficult to make a breakthrough. Anyone who ever dealt with an early Symbian-based phone or drove an early electric car knows how amazing it is to experience a product from a company that has picked that hard thing to do and tackled it.
But the beauty of a choosing something that is both a simple and hard competitive strategy is that it has internal advantages as well:
1) It's clear to everyone what is #1 inside the company
2) There are no compromises
3) It's measurable
4) It’s unifying
As strategy guru Richard Rumelt put it, “Good strategy works by focusing energy and resources on one, or a very few, pivotal objectives whose accomplishment will lead to a cascade of favorable outcomes.” There is something unifying in that combined effort and relentless focus.
Does a clear competitive strategy mean you need to make all your tactics known? Of course not, and those individual tactics themselves may be inimitable as well, reinforcing your strategy. While we can see the elements of Tesla’s strategy on battery performance, cost, and the availability super charging stations, it would be hard to replicate that combination of tactics that support their competitive strategy. In the words of Sun Tsu, “There are not more than five musical notes, yet the combinations of these five give rise to more melodies than can ever be heard.”
With less requirement for resources in our software-driven world, true strategic advantage comes from doing something valuable and hard, and doing it better than everyone else.