Your Strategy Has a Half-Life (and It’s Shrinking)

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COVID-19 has revealed a long-existing trend that we no longer can ignore.

 

We live in a world of rapid change and complexity. Yet, our brains are hardwired to think linearly about the future, and we consistently fail to accurately predict when exponential change will occur. While we may not sense change until it is already happening around us, examples of this fast-paced growth exist everywhere: Spotify’s user numbers had grown consistently from 2006 to 2014, before skyrocketing to 140 million by 2016. The annual total CO2 emissions globally have increased from 2 billion tonnes in 1900 to over 26 billion tonnes 115 years later (after having fluctuated consistently for over 800,000 years). Global renewable energy generation has increased six fold from 1960 to 2016. It is clear that exponential rates of change can be found in technology, climate change, the price of renewables, and now, in relation to the COVID-19 pandemic – while zero cases existed in 2019, confirmed COVID-19 cases skyrocketed from 300 in January 2020 to over 5.1 million by May 21, 2020 . We cannot rely on assumptions of linear growth when making predictions about the future.

 

Given that sources of exponential change are pervasive and extremely tricky to predict, firms must be constantly scanning the world around them in order to understand their degree of exposure to potential threats and opportunities. This allows companies to continually reorient to a rapidly fluctuating competitive landscape, instead of getting stuck and left behind.

 

In North America the COVID-19 pandemic has created an operating environment unlike we’ve seen since the Second World War. Given that the business environment in the ‘new normal’ is markedly changed, companies must simultaneously reorient to a new environment while rethinking their sources of competitive advantage, in order to craft a relevant and winning strategy. When the crisis is over, companies that survive will be those who have gleaned novel learnings from these insights in order to conduct new and innovative ways of working.

 

Competitive advantage, or the ability to outcompete competitors, derives from activities (things firms do) and resources (things firms own); most firm’s ‘winning formula’ is combination of both activities and resources, that allow them to either charge lower prices, offer unique products or services, or a combination of both. Companies who sustain their competitive advantage over time are skillful at continually reassessing the competitive landscape and continually re-crafting their strategy.

 

In a perfect world, firms would be clear on their distinct sources of competitive advantage prior to large exponential change events (like the COVID-19 pandemic), as this allows rapid response and readjustment in the face of disruption. However, in ‘normal times’, many firms are able to float along without clarity surrounding their competitive advantage and survive off of marginal returns. Because of this, when exponential change events occur (often as a surprise, despite our best efforts to prepare), most firms must begin by getting clear on their competitive advantage pre-pandemic. Did you even have one, and if so, how can you be sure? If you did, was it based on activities, or resources, and did it allow you to charge more or deliver better products?

 

Once you’ve gotten clear on your existing sources of competitive advantages, the next question is, will these sources be eroded in the new competitive landscape? Cost-based retailers like Walmart must pay particular attention to their supply chains – have they been permanently disrupted? For differentiation-based retailers, like Nordstrom, will they be able to operate flagship stores that charge premium prices? Has customer behaviour changed?

 

If a firm concludes that its basic sources of competitive advantage are threatened, then the source of the threat and its severity must be uncovered to determine whether the firm possesses the capabilities required to counter it. While threats may come from more obvious sources, like disrupted supply chains or changing customer behaviour, they may also derive from less obvious threats, such as more distant stakeholders. For example, to what degree will high tech companies be threatened by government actions to promote competition and maintain privacy? To what extent will more local firms be judged by their community-responsiveness during the pandemic? If these are important, then companies must include stakeholder management as part of their capability set.

 

If your sources of competitive advantage have not changed, then your immediate focus is to keep your business afloat until such a time when you can return to your previous mode, and re-exploit your existing sources of competitive advantage.

 

The COVID-19 pandemic, while described by many as ‘unprecedented’, is just one of many exponential trends that will undoubtedly influence the competitive landscape. By understanding your firm’s unique competitive advantage and how it may shift in response to exponential change, you can keep your firm ahead of your competition in a fast-paced world.