Jun 12, 2018 - 6 minutes read time
Outlasting competition is difficult. Doing so over decades or a century often seems impossible. Since the great Industrial Revolution, every country that has become rich started by copying others: the French copied the British, the Americans copied the Germans, and the Japanese pretty much-copied everybody else.
In the midst of this competition, countless players fell. Yet some pioneering companies have managed to endure and even prosper over the course of centuries. How is that possible?
In the simplest terms, the search for unique positioning that guarantees sustainable advantages is illusory. Intellectual property, market positioning, brand recognition, manufacturing scale, and even distribution networks can never withstand competition for long. No value proposition, no matter how unique, remains unchallenged. Good designs and great ideas get copied regardless of patent laws and trade secrets. The only way to prosper under such conditions over long periods is to leap: Pioneers must move across knowledge disciplines, to leverage or create new knowledge on how a product is made or service is delivered. Absent such efforts, latecomers will always catch up.
Why, then, don’t pioneering companies leap more often? Complicating this matter often is the fact that executives are under tremendous pressure to meet the ongoing demands of their current businesses. What is good in the long run hurts in the near term. To be ready to leap would, therefore, require a different way of thinking about and leading the business. The following principles both explain and predict how companies can prosper when labor, information, and money move easily, cheaply, and almost instantaneously.
Principle 1: Understand your firm’s foundational knowledge and its trajectory.
We first look at the question of why incumbents find it so difficult to preempt new competition. Even in the absence of any technological disruption or shift in consumer preferences, latecomers often mount formidable challenges against early pioneers. We look at how Yamaha’s music business crippled Steinway & Sons as part of this investigation. There had been no fundamental change in piano making, but Steinway was almost destined to struggle. This counterintuitive and disturbing observation exposes why and how copycats can often encroach on and then overtake industry pioneers. To avert this dangerous trajectory would require executives to, first and foremost, reassess a firm’s foundational or core knowledge and its maturity. Circumventing the danger must begin by knowing where we are.
Principle 2: Acquire and cultivate new knowledge disciplines.
What we will learn from the history of modern medicine is that knowledge uncovered in one area often leads to new discoveries elsewhere. And it is this ongoing discovery process that ultimately opens new paths for growth. In this light, competitive advantage depends most critically on the assimilation of new knowledge and the timely creation of new markets and new businesses. Only by forging ahead, rather than refining what has already been, can a pioneer avoid being caught by copycats. Such is how the once little-known Basel-based pharmaceutical firms have managed to stay ahead for nearly a century and a half.
The role of managerial choices cannot be overstated here. Granted, some firms are born lucky in their industries: new discoveries by the scientific community render the matter of where to leap a no-brainer. Other sectors are less lucky; there may be no obvious answer. Still, time and time again, I have come across companies whose prospects should have been doomed, yet they consistently came out in the lead. For instance, Procter & Gamble has maintained its leading position in household consumer goods by leaping toward new knowledge disciplines. We shall explore this in greater detail.
Principle 3: Leverage seismic shifts.
If history is a tool that enables us to understand the past—helping us establish the concept of leaping into new knowledge disciplines— we must project our understanding of history into the future. Where should we look for opportunities to leap?
Although important variances exist between industries, certain seismic shifts to the global economy will be felt by everyone regardless of who you are and where you live. Like the invention of the steam engine in the eighteenth century or the harnessing of electricity in the nineteenth century, two intertwining forces will propel all companies into the second half of the twenty-first century: the inexorable rise of intelligent machines and the emergence of ubiquitous connectivity.
All winners must leverage the seismic shifts around them and leap accordingly. So, whether one is a technology creator, traditional manufacturer, startup entrepreneur, or nonprofit organization, we must identify those forces that matter the most in the coming decades and reconfigure our competencies ahead of others.
Principle 4: Experiment to gain evidence.
The aforementioned principles notwithstanding, concrete choices must be made. A bold decision always looks good—until it is proved wrong. To borrow Donald Rumsfeld’s phrase of “unknown unknowns,” executives may not even be aware that they don’t possess a critical piece of information. To facilitate evidence-based decision making, managers must carry out frequent experimentation to reduce the dark space of ignorance and to arrive at conclusions with the required level of familiarity.
Here is another way of looking at it. The biggest risk that threatens the survival of a large and complex organization lies in political in- fighting and collective inaction. Arguments that play out in the boardroom may resemble empty rhetoric and amount to nothing more than personal beliefs. Experimentation is the window of truth to let light in from outside. We will therefore look at how critical assumptions can be identified and then proved right through rigorous experiments.
Principle 5: Dive deep into execution.
Awareness is not the same as commitment, so insights alone never suffice. Because strategy and execution are inextricably linked, unless ideas are translated into everyday actions and operational tactics, a pioneer is still at risk of being displaced by copycats. Thinking doesn’t equate to doing.
The fundamental advantage of well-weathered pioneers is their prior knowledge; when it is recombined with a new knowledge discipline, they can alter the existing trajectory of product development. What makes it so hard for pioneering companies to leap, however, is that game-changing ideas can easily be filtered out as business proposals move up the corporate ladder. That’s why committed executives at the very top must be ready to intervene and implement a new directive when necessary. I call the instances in which top executives personally intervene at critical junctures, wielding the power to overcome specific barriers, the CEO “deep dive.” Deep dives are different from micromanagement because they rely on knowledge power rather than position power. This last principle removes the final hurdles that may stand in the way of an established company’s efforts to reconfigure and rewire itself.
Now that you’ve got this roadmap in hand, we’ll begin by investigating precisely why some pioneers thrive while others die. These stories will inform our guiding principles for responding to an ever-changing, often confusing world.
Excerpted from Leap: How to Thrive in a World Where Everything Can Be Copied (Public Affairs, June 12, 2018).
Outlast your competition and thrive in an ever-changing world
In Leap, Howard Yu, LEGO professor of strategy and innovation at IMD, explains how companies can prosper, not just survive. Leap identifies five fundamental principles that allow companies to stay successful in the face of such competition.
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