The Future of Competitive Strategy

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Introduction

©2022 MIT. This excerpt is from The Future of Competitive Strategy by Mohan Subramaniam, published by The MIT Press.

The Foundational Premises of Traditional Competitive Strategy For firms competing with products, framing business environments as industries is helpful. A key premise is that competitive advantage stems from industry attributes; consequently, competitive strategy is about leveraging those attributes for advantage. Popularized by Michael Por- ter in the 1980s through his Five Forces framework, 16 this perspective helps firms identify key levers they can use to influence industry attri- butes, build competitive advantage, and earn above-average returns. To harness the strengths of their products, firms find ways to build asym- metric power over buyers, suppliers, and substitutes within their indus- try. They find ways to blunt the strengths of industry rivals that offer competing products. They further leverage industry attributes such as scale (e.g., large fixed-cost requirements, high investments in manufac- turing capacity or advertising) to limit entry to a few incumbents, and consequently enjoy a dominant market share. Firms build capabilities to do so through their value chains and its underlying array of interde- pendent activities by which they produce and sell their products. Foundational Premises of Digital Competitive Strategy When firms compete with product-generated data, the foundational premises of traditional competitive strategy change. To begin with, harnessing the strengths of data requires a network of data recipients. In a world where exchanges of data and analysis of what that data means for companies, customers, and collaborators, the amount of manufacturing capacity (or the number of vacant hotel rooms or the square footage of retail floor space) that one firm has is suddenly less important. What matters more is the data on those assets, and how others who derive value from those data connect to it all. For legacy firms aspiring to compete with a modern-day digital strategy, digital ecosystems, not industries, thus become the primary source of, and the ground on which to seek, competitive advantage. For such firms, it no longer pays to focus only on the attributes of industries in developing an edge over traditional rivals. Instead, the strategy shifts to leveraging the attributes of digital ecosystems for competitive advantage. Digital