Composite and transient advantages

One of the best known mantras of business management theory is that in order to succeed, a company must have a competitive advantage over its rivals. In other words, it must have or do something that will persuade its potential clients to buy its good or services, rather than those of its competitors.

Michael Porter (aka Professor Strategy) argued that there are essentially two types of competitive advantage available: lower-cost or differentiation. He also argued that strategic management should be chiefly concerned with building and sustaining a company’s competitive advantage.

When I first came across this sort of thinking, back in the late 1980’s it seemed pretty obvious that we had this issue sewn up. Our companies – our International House language schools, teaching English in Spain – had a very clear competitive advantage which helped us differentiate ourselves from the vast majority of our competitors: we only employed native English speakers who had been specifically trained to teach English as a foreign language. Most of our competitors employed a mixture of non-native speakers and backpackers. They didn’t have a chance. The non-native speakers may have been perfectly competent teachers, but the market wanted native English speakers. As for the backpackers, they were often native English speakers, but put them in a classroom and they didn’t know what they were doing.  Our competitors were often cheaper than us, but we had that essential ingredient –professional, native English teachers – and students literally queued out the door to pay for our services.

It was great while it lasted, but it didn’t last long. Thousands of professionally trained, native English teachers soon found their way out to Spain, or were trained in Spain (most often by International House) and before very long, almost all the self-respecting language schools in our part of the world were offering the same essential ingredient. We could still try to claim that we were different and better e.g. by only employing the very best candidates from our teacher training courses, and by making teacher training a continuous process – but the differentiation gap had narrowed significantly. We were no longer miles ahead, or miles more attractive.

I spent the next decade or so secretly worrying that we were living on our past success and that we no longer had a clear tick in the box marked: sustainable competitive advantage.

Then I came up with an idea that made me feel a whole lot better: while it may be true that we no longer had a single, clear, competitive advantage, we did have a number of smaller advantages that when added together, amounted to something significant. For example: we not only had trained, native teachers and continuous, in-service training; we also had a sound academic structure, led by a well-qualified Director of Studies; we used the best study materials available on the market; we had eye catching promotional materials; we had good, comfortable premises, in good locations, with easy access; we trained our front of house staff to deal with customers correctly; and so on. I even coined a name for this amalgam of small, competitive advantages: I called it our ‘composite advantage’.

If I’d been teaching at a top Business School rather than running a small group of companies, this term – composite advantage – may have become part of the established jargon. Or so I tell myself. In any case, it was enough to help me sleep at night and not worry too much about Professor Strategy.

Earlier this year I was introduced to another idea that also makes perfect sense (thanks Monica). The thinking here is that in this day and age, it’s almost impossible for most companies to develop a sustainable competitive advantage. The business world simply moves too fast. As soon as one company comes up with a significant advantage, many of its competitors simply go out and copy it and bang goes the advantage. (This is of course exactly what happened with our trained, native teacher advantage, albeit at a slower pace). So, rather than trying to create a competitive advantage that can be sustained over time, companies are now being advised to come up with something described as a transient advantage, something that will keep them ahead for a while, but will need to be replaced by another transient advantage before too long, as soon as the competition catches up.

A couple of examples of transient advantages from our own experience:

When we first started to offer intensive pre-service training courses for Spanish language teachers that included both theoretical and practical sessions (based on the model of our training courses for English teachers) we had a tremendous competitive advantage: we were the only organisation in Spain offering such courses. Nowadays there are dozens of similar courses available and we have had to find new ways to maintain our advantage e.g. by developing a blended version of the course and by obtaining university credits for trainees who successfully complete our courses. We don’t know how long these new transient advantages will last, but we do know they won’t last forever.

Similarly, around four years ago, a number of our schools decided to equip all their classrooms with data projectors and interactive whiteboards. This new hardware transformed our classrooms from something that would have been familiar to students from the Edwardian age, to something that was at the cutting edge of classroom technology. Most of our students were suitably impressed. However, nowadays almost every private language school has classrooms bristling with technology, so the competitive advantage we briefly enjoyed has evaporated. It lasted about two years.

According to Rita Gunther McGrath, a professor at Columbia Business schools and author of a book called The End of Competitive Advantage (Havard Business Review Press, June 2013) these days companies need to develop and manage a ‘pipeline of initiatives’ since many will be short-lived.

To stay ahead in our business I think we need a wide pipeline, producing a broad range of initiatives. So perhaps we should be talking about transient, composite advantages.

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