Tuesday, September 25, 2012


I have created market research and business intelligence functions in a variety of industries, but my current job is my first in a pure technology company. As such, this is my first direct experience outside of my consulting work that has to take into account timeframe in strategic planning.

Timeframe turns out not to be super important in most industries when you can create a sustainable competitive advantage. Theoretically, it should have been easy to create a great competitor to IKEA, Southwest Airlines, or any of the companies with truly integrated strategies. In practice, however, each of these companies has grown for decades without serious competition on the same business model.

This long period of unchallenged growth rarely exists in technology industries. Dell and Microsoft had a relatively long two decades of growth before their business models started to become outdated, but they are the exceptions that prove the rule. I remember a survey we did at the Corporate Executive Board in 1998 asking what company would dominate the software world in 20 years, and the majority of respondents answered, "A company that we haven't heard of yet." It's getting close to 20 years later, and I believe few of those individuals would have guessed Google.

"Sustainable competitive advantage" simply means something different in technology businesses because of the speed of innovation, often from forces outside your own industry, which makes compromises underpinning your strategy no longer valid. Netflix is the classic example. In their heyday, DVD rentals by mail made a ton of sense and Internet-based delivery of movies sounded crazy. Fifteen years later, bandwidth explosion, Moore's Law, and the plummeting cost of hardware has made DVD rentals by mail almost quaint.

So what's a company to do? Follow the Netflix example (no, not pissing off your customers) by continuing to innovate. Netflix saw the future death of their sustainable competitive advantage before anyone else did and spent millions trying to make their own model obsolete. They recognized that if they failed to kill their own company, someone else would. Which is why I watch movies through Netflix on my Wii today.

You don't have to be a technology company to take this approach to heart. If Kaplan or Princeton Review had been a little more thoughtful and innovative, they might not be getting killed today by Revolution Prep, a startup college test prep company that changed the model from book-based learning to online, adaptive training. Should've been obvious to see that one coming.

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