The Competitive Advantage Cycle

The Competitive Advantage Cycle

Mihai Ionescu - Senior Strategy Consultant, Owner Balanced Scorecard Romania, Author.

I was having, not long ago, a discussion with the CEO of a company that was fighting to build their capabilities required to harvest the benefits of their current advantageous strategic positioning.

We aren't looking to adopt some new Strategic Choices for our positioning. Our strategic positioning is OK. The problem that we have is that we are unable to satisfy the customers' demand because we have internal and supply chain capabilities issues.

So, what's the Strategy all about, in this case? They weren't looking to discover a new Competitive Advantage, to make new Strategic Choices about where-to-play or about how-to-win. They were focused on building and improving the capabilities required to bring their already made Strategic Choices to life, in order to harvest the benefits associated with them.

The Strategy Formulation process has two stages, answering two questions:

  1. Which should be our Strategic Choices that can position our company (or business line) in the most profitable way?

  2. Which is the Capabilities System required to support those choices and which are the Strategic Coherence Gaps that we have to close?

So, the first stage in Strategy Formulation is our initial hurdle, but once we've gone over it, we have to understand how to bring our Strategy to life and transform our claimed or desired strategic positioning into a real one. That means: to define the Required Capabilities and their gaps (relative to our Existing Capabilities) and then develop the

Strategic Plan, aimed at closing these gaps, and execute it.

In our case above, the Strategy was not about (1)+(2), but about (2), only. Plus the planning and execution part.

The Strategic Horizons

The Strategy thought leaders of McKinsey have developed over time two frameworks (among a dozen or so) that help describe the evolution of companies and business lines from their Current Competitive Advantage to their Next & Future ones: “Three Horizons of Growth” and “Portfolio of Initiatives”. The diagram below uses these frameworks to describe the Competitive Advantage Cycle.

The diagrams in this article can be also accessed in the following places:

» as PDF, at Competitive Advantage Cycle

» as PowerPoint, at SlideShare: Competitive Advantage Cycle

» as video, at YouTube: Competitive Advantage Cycle

The Current Strategy Focus

When we are at the beginning of the process of building our Current Competitive Advantage or, in other words, as we consolidate our Competitive Advantage, we have to focus on closing the Strategic Coherence Gaps between our Existing Capabilities and those Required to support our Strategic Choices.

Our Strategic Horizon is lined-up to our Strategic Destination, where the Strategic Choices (on which our Current Competitive Advantage is based) will be coherently supported by our Capabilities System.

As in the example above, our Strategy now is not about (1)+(2), but about (2).

Extending the Strategic Horizon

For a variety of well-known reasons, we know (or we should know) that out Current Competitive Advantage is a Transient one. As we approach the Strategic Destination of our Current Competitive Advantage, we have to enlarge our Strategic Horizon and define a New Transient Competitive Advantage and a New Strategic Destination.

We are still focused on closing our current Strategic Coherence Gaps, but we should be aware that very soon (once we have reached our current Strategic Destination) we should look further.

New Strategic Focus

Once we reach our Strategic Destination, our Strategic Focus is shifting, as we have to update our priorities and to reallocate our resources to closing the New Strategic Coherence Gaps and to build or adapt the Capabilities that must support our New Strategic Choices.

Extending the Strategic Horizon. Even more.

As we consolidate our New Competitive Advantage, we have to extend our Strategic Horizon even more, exploring our possible Future Strategic Destinations.

This time, we are looking further along our company's future. What we have to use now isn't a Strategic Horizon extension or Strategic Destination replacement, but a complementary Exploratory Strategic Horizon, within which we have to scan and evaluate the future Opportunities and Threats of the anticipated business environment and our future possible Strategic Choices, along our Competitive Advantage Cycle.

Competitive Advantage Cycle

When we pass through the cycle stages described above, we move along the Competitive Advantage Cycle. During this journey, our Strategic Focus (priorities and resources allocation) is shifting, closing in sequence the Strategic Coherence Gaps for the Consecutive Strategic Destinations that we are aiming to reach.

This is The Competitive Advantage Cycle. We should always be aware where exactly are we located along this cycle, as we have to accordingly direct our strategic focus, priorities and resources, at the right time and with full clarity and commitment.

This is The Competitive Advantage Cycle. We should always be aware where exactly are we located along this cycle, as we have to accordingly direct our strategic focus, priorities and resources, at the right time and with full clarity and commitment.