Adaptive measures needed to ensure companies can win in constantly changing competitive environment

In the face of a rapidly changing business environment, companies can no longer apply traditional corporate strategies that are mostly deductive, predictive, periodic and top-down.

In an article titled New Bases of Competitive Advantage, management consultancy Boston Consulting Group (BCG) advises corporate heads to adopt an “adaptive advantage” approach to corporate strategy.

BCG Malaysia partner and managing director Vincent Chin said that while many people were talking about “a new normal” in the aftermath of the global financial crisis, he believed there isn’t one “new normal” but several new realities. “And these new realities require companies to be far more adaptive such that they can win in the constantly changing competitive landscape,” he said in emailed comments on the article.

Increasing volatility in market positions, the ubiquity of information, growing social and ecological concerns and greater employee mobility are among the various realities of an evolving business setting, said the article.

Written by BCG New York managing director Martin Reeves and BCG Atlanta managing director Michael S Deimler, the article was released in October 2009 and is the first in a series of seven articles on the “adaptive imperative”.

Organisations that pursue an adaptive advantage develop organisational contexts that encourage new approaches to new problems, said BCG, adding that adaptive advantage “does not replace traditional strategy but supplements it” with five factors of additional sources of advantage. These are signal advantage, systems advantage, social advantage, simulation advantage and people advantage.

Signal advantage refers to the ability to obtain and process the right information, then quickly revising organisational response according to that information. Google is a signal-advantaged company because of its ability to accurately assess its Google ads’ relevance by using click-through rate, said BCG.

Companies too must revise their strategies at the systemic level if their strategies are no longer relevant at the multi-player macro environment. This involves designing strategies for or within their company’s network without relying on strong control mechanisms, such as Amazon when it marketed its Kindle e-reader.

Although Kindle did not have the first-mover advantage, Amazon leveraged its systems advantage by building a network of complementary providers and created new market platforms with Kindle-exclusive publications. As a result, Kindle’s first production sold out in six hours, first-year sales are estimated at 500,000 units and analysts predict that Kindle will bring in at least US$1 billion (RM3.38 billion) for Amazon, BCG said.

According to BCG, companies can no longer neglect their social responsibilities or risk consumer boycotts, higher lobbying and insurance costs, unfavourable regulations and restrictions to operate. As public concern for social equity and environmental sustainability becomes more pressing, companies should have social advantage — maximising the social issue into competitive advantage.

One such company is Toyota, which went beyond mitigating environmental risk to attain both economic and social advantage. Defying industry predictions that hybrids would not be profitable, Toyota aimed to double passenger car fuel efficiency. Its hybrid car the Prius currently commands a 20% premium.

Companies with simulation advantage decrease risks and increase the yield of experimentation by using virtual reality techniques to test the actual economic behaviours of consumers, said BCG.

P&G has simulation advantage as it uses virtual product prototypes in a simulated home environment to gather consumer feedback, while their 3-D store displays gauge optimal product placement at half the time and cost of conventional research.
Adaptive strategy “democratises corporate strategy” by requiring companies to harness “people advantage”, BCG said, referring to the creativity of a more autonomous workforce and extended business players such as peer producers, contractors and business partners.

Chin believed that people advantage would be the most important base of competitive advantage for Malaysia. “In a relatively small country with limited human capital and still not yet a magnet for the world’s talent, any organisation — public or private — that manages to attract the best people and get them to do what is needed and adapt where required will win,” he said.




This article appeared on the Management page, The Edge Financial Daily, Jan 11, 2010.