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August 2013

Transient Advantage

The June issue of Harvard Business Review also had an excellent article by Rita Gunther McGrath, “Transient Advantage”, in which she argues that today’s fast pace of change has made obsolete the concept of establishing a unique competitive position sustained for long periods of time. Instead, she makes the case for a new approach based on transient advantage, which requires launching new strategic advantages again and again and embracing adaptive operational capabilities.

McGrath provides detailed insights into an eight-point new playbook:

  1. Think about arenas, not industries,
  2. Set broad themes, and then let people experiment,
  3. Adopt metrics that support entrepreneurial growth,
  4. Focus on experiences and solutions to problems,
  5. Build strong relationships and networks,
  6. Avoid brutal restructuring: learn healthy disengagement,
  7. Get systematic about early-stage innovation,
  8. Experiment, iterate, learn.

My favorite part – and the part where for me McGrath really proved she knew her stuff – was her analysis of Netflix’s 2011 debacle when it tried to get out of the DVD-shipping business to focus on streaming movies. The sudden massive price increase and the split into two organizations didn’t exactly endear the company to customers.

McGrath suggests that, because not all customers are prepared to exit a business (here, the DVD-shipping business) at the same rate, Netflix would have been better served to first offer price discounts to those who agreed to drop the DVD service, and then to tell users who still wanted the service that they’d get a new DVD, say, once a month now without additional costs, but would have to pay extra to get more. Only after many customers had moved to the streaming part of the business, would Netflix have implemented a price increase on the DVD-shipping business to move stragglers to the new core of the business.

This is when you see the difference between good management consultants and the others.