It’s time to reimagine the concept of competitive advantage.
A July 2020 blog post on Investopedia defined competitive advantage in classic terms:
“factors that allow a company to produce goods or services better or more cheaply than its rivals [and therefore] to generate more sales or superior margins compared to its market rivals.”
And, yes, owners should take a look at their business through this lens during the strategy development process. Tried-and-true strategic practices due offer decision-makers helpful frameworks to consider business objectives and challenges.
However, the world (and the markets that operate within it) has changed since competitive advantage was first conceptualized. The world has different requirements than it did in the 1950’s when business strategy became a profession (and then an industry known as Management Consulting.) And there is no doubt the world will continue to change.
“All this uncertainty poses a tremendous challenge for strategy making.
That’s because traditional approaches to strategy—though often seen as the answer to change and uncertainty—actually assume a relatively stable and predictable world.”
“[today] the business environment is becoming more dynamic and unpredictable.
This is a result of several enduring forces stressing and stretching business systems — from accelerated technological evolution to a greater interconnectedness of the global economy to broader issues such as rising inequality, species depletion, and climate change.”
(Harvard Business Review, 2020)
If the tools we’re currently using were built for a less dynamic, more stable world than the one we’re living it (and will continue to) shouldn’t the frameworks we use to build viable, value-creating businesses change, too?
Here’s the crux of my criticism: The concept of competitive advantage is limiting and, therefore, so too are the business strategies built to achieve it.
- Competitive advantage limits a company’s ability to terms relative to its competition (cheaper than, better than)
What if, instead, a company measured its ability in terms relative to customer value? (And yes, there is a difference.)
When businesses frame their goals and achievements in terms relative to their competition, they are choosing to play a game.
Games (chess or basketball or monopoly) have specific rules every player must work within.
Games have a monometric means of measuring success (checkmate or points or assets.)
Every player gets better at the same skills (strategizing, shooting, buying.)
The same proverbial ground is covered over and over offering incremental learning at most.
This is a slight simplification of how businesses compete, but the take-away is the same:
Competitors strive to produce incrementally better variations of a solution that hold only incrementally better (at most) value for customers.
The opportunity for meaningful value-creation is limited.
- Competitive advantage limits the measure of success in monetary terms (make for less, sell for more)
Monetary input and output fuels a business – it’s part of the system.
But money does not equate to instantaneous (or guaranteed!) results.
There are other inputs a business needs to achieve future and on-going success.
Those other inputs should be considered and measured in pursuit of success.
A company could measure its ability in terms relative to creativity that are known to contribute to successful business outcomes.
How many more ideas did employees generate last year?
What risks did we take? What did we learn?
What out-of-the-box customer “wins” (success stories) did we have?
What do we think the future will look like?
What impossible feats do we want to achieve in that future?
Future-tense financial outcomes are not only the result of present-tense financial modelling.
(If they were, all a business would need to ensure success is a sound financial model – and many, many businesses with sound financial models have ultimately failed.)
They say “what gets measured gets done.” For a business to define its ability and success only in dollar signs is to severely limit its view on the value contained within it.
Just like the future value of one professional basketball player compared to another cannot be determined by who jumps higher, the future value of one business compared to another cannot be determined by which fetches the higher product price. It might help, but it’s not nearly enough.
There is far too much uncharted territory and untapped human potential to keep building businesses the same way we have for the better part of a century.
We can do better.
And in order to do better, we need to think better.
We need to integrate the tried-and-true strategy principles with modern sensibilities. We need to take one tightly-gripped hand off the competitive advantage throttle and grab hold of a new, complimentary joystick I call creative advantage.
Creative advantage is the unique approach or angle a business takes to value-creation. It is the particular way a business applies itself to the world (market) it operates within (serves.)
I think of creative advantage as the “edge” of a business strategy and tried-and-true principles of competitive advantage as the “power” behind that edge.
If a business strategy is a basketball player, creative advantage is their ability to see scoring opportunities in real-time and competitive advantage is their ability to execute them.
If a business strategy is an axe, creative advantage is the blade and competitive advantage is the human wielding the handle.
It is humans who dream up the axe. It is humans who wield it.
It is the modern sensibilities of humans that make both the dreaming and the wielding possible.
- When I profiled Shopify, I described the human tendency to crave certainty and hold on to established beliefs and the status quo for too long. Tobias Lutke, Shopify’s founder and CEO, gained creative advantage when he challenged the long-held industry truth that a Canadian start-up must move to the US in order to reach unicorn status. An industry truth Shopify has decidedly disproven.
- When I profiled Paramount Fine Foods, I dug into the topic of taking perspective – a human trait and a lever of creative advantage that CEO Mohamad Fahik applied when he decided that the right thing to do for people – kindness, reciprocity, compassion – is also the right thing to do for business.
- When I profiled The Flying Monkeys Brewery, I wrote about how play can be applied in business to dream up brave new ideas. The status quo business environment greatly undervalues (and probably misunderstands) the usefulness of play in the problem-solving process. Yet the systematic integration of play – especially in today’s environment – can be a sure-fire way for a business to gain enormous creative advantage.
- When I profiled HR consulting firm Cannabis at Work, I described how “stupid” ideas can actually be brilliant ideas in the right context. But the human truth of fear (of loss, shame, exclusion, failure, etc.) often leads decision makers to repeatedly recycle the same old low-value ideas. (The irony being that these safe ideas turn out to be the most stupid because they add nothing to the growth and evolution of a business.) By ignoring stigma, and instead focusing on the facts and investing in her intuition, Founder and CEO Alison McMahon developed a one-of-a-kind service business with inherent creative advantage.
- When I profiled Barriston Law, its journey to becoming the first B Corp certified law firm in Ontario and largest in Canada offered real-life context of what it means to have “beauty” in business (i.e., exemplifying the highest standards of social and environmental accountability while still being a successful for-profit business).
Co-Managing Partner and Chief Innovation Officer, Joanne McPhail, described her and her partners’ “vision of quality” to be a law firm with meaning and the often “ugly” (uncomfortable, challenging) process required to realize it. Barriston Law remained committed to that vision for over a decade, steadily investing in their creative advantage every time they invested time and money into socially and environmentally responsible business initiatives.
These modern sensibilities of challenging the status quo, taking perspective, play, intuition, courage, and commitment are examples of the tools we use to craft creative advantage.
They are examples of how humans dream up the axe.
They are examples of how humans wield it.
Which is why my process of developing creative advantage is called ‘Human-Centered Strategy’.
Working with small and medium Canadian businesses, I systematically integrate human truths and human traits with traditional principles to develop stand-out business strategies. What makes these strategies stand out is their creative advantage.
Competitive advantage directs companies to out-perform competitors on a shared scale.
Creative advantage invites companies to out-perform customer expectations on any scale.
Competitive advantage directs companies to imagine for the future through a financial lens.
Creative advantage invites companies to imagine the future through a holistic human lens.
Competitive advantage directs companies to look for incremental improvements.
Creative advantage invites companies to discover new territory and new possibilities.
“Increasingly, managers are finding…instead of being really good at doing some particular thing, companies must be really good at learning how to do new things.”
Competitive advantage directs companies to carefully balance financial inputs and outputs.
Creative advantage invites companies to courageously break through old boundaries.
“With the mainstream of business education and managerial practice focused on managing performance…transient high performance is commonplace; it is sustained performance by resilient companies that stands apart.”
Competitive advantage is about what trshould be done.
Creative advantage is about what could be true.
Stephanie Ruth Grimbly is a ‘human-centered strategist’ and creative problem-solver. She combines traditional business practices with emerging innovation disciplines to reveal insights about customer preferences and develop stand-out strategies for Canadian businesses.