Sustainable competitive advantage? Seriously? In our time?

Most business leaders I talk to agree that the days of sustainable competitive advantage are over. They refer to the VUCA world we live in and point to the ever shorter half-life periods of business models and corporate strategies.

Indeed corporate longevity is taking a beating. In 1964, the average tenure of companies on the S&P 500 was 33 years. In 2016 it was 24 years and it is forecast to shrink to just 12 years by 2027¹ . At the current churn rate, half of S&P 500 companies will be replaced within ten years.

But does it have to be that way? Are we faced with a force of nature from which there is no escape?

I believe not. The reason our search for sustainable competitive advantage is becoming increasingly elusive, is that we’re looking in the wrong places. We won’t find it in strategy, business models or technology.

We won’t even find it in people. At least not entirely. Great people need a platform on which they can thrive and perform at their best – individually and collectively.

That platform is an organisation that’s fit for human beings. And fit for the challenges of the 21st century.

Enter management

The key to that is good management.

Let’s remind ourselves quickly of what management is, starting with Peter Drucker:

Management is about human beings. Its task is to make people capable of joint performance.

Management is the life-giving element in every business

Gary Hamel uses different words, but means the same:

Management is a social technology, the technology of human accomplishment.

In essence, it is management’s job to create and run that platform: an organisation in which ordinary people together can create extraordinary things.

But there’s a problem.

Management, as practiced today, isn’t working

Globally, only 15% of employees are engaged at work². 75% of newly launched products and services fail to be commercially successful³. 70% of change programs fail to achieve their objectives⁴. And as a measure of corporate performance, RoA of US public companies has been on a steady decline since 1965, down to only 25% today of what is was back in the sixties⁵.

In summary: our organisations make people miserable, they cannot innovate, they cannot change and as a result performance drops like a rock.

No wonder corporate longevity (and with it average CEO tenure) is headed south.

What’s even worse is that decades of trying, investing billions and billions of dollars in all sort of programs (from employee engagement to innovation labs) have failed to change these numbers. Management’s overall track record remains dismal.

That’s because management kept looking in the wrong places. It looked at everything but itself. Yet if it is management’s job to “make people capable of joint performance”, and if performance is unsatisfactory, then perhaps it’s worth taking a look at management.

And here’s the good news: we already know an awful lot about what good management looks like.

Over many decades, scholars and practitioners alike have helped develop a vast body of solid management theory. On pretty much everything from innovation to making people thrive at work and building high performance organisations.

Better yet, we also know how to put these things into practice. Exceptionally successful organisations (some well-known like Ritz-Carlton, Apple or Southwest Airlines and some lesser known like Greyston Bakery, On Running or Haufe umantis) are living proof.

But why is it that these are the exceptions? And that most organisations seem stuck? Here’s my explanation: the ones that are stuck do not treat management itself as a source of performance. The others do.

Can you explain your management model?

The difference is the management model. The most successful organisations not only have a great business model, but also a great management model.

We’re all familiar with business models: a business model describes how an organisation creates value for its customers. And does so in a profitable way.

These days, most organisations understand the importance of having a good business model. Consequently, they spend considerable time and effort designing and improving it.

But a management model? What’s a management model? Simply put: the management model describes how the work of management gets done to make an organisation function. How management makes “people capable of joint performance”.

Most organisations do not understand the importance of having a good management model and hence they spend hardly any time thinking about it.

In essence, a management model must answer 5 questions, which together summarise the work of management. It must explain how an organisation…

  • …executes its current business model
  • …innovates future business models
  • …builds bridges to connect the two and eventually replace the old with the new
  • …learns, improves and changes in everything it does
  • …enables people to perform at their highest levels – both as individuals and as teams

In each of these five areas, organisations choose and put in place systems, practices and tools from a wide array of management disciplines such as strategy, organisation design, performance management and many more.

In turn, all of these choices are shaped by the kind of management theories (such as jobs theory, agency theory or total motivation theory) managers use to guide their thinking.

If you choose well, the result is a coherent model that explains how (systems, practices and tools) your organisation works and why (theory) it works.

So let me ask: can you describe your organisation’s management model?

Most managers cannot.

Yet every organisation has a management model. Their management management model may not be intentionally designed and it may not be made explicit, ie, it is not visible. But there is one. After all, managers do manage, somehow.

But because they’re not intentionally designed, these de facto management models suffer from one or more of five dysfunctions. They are…

  • …stuck in 20th century logic, not fit for 21st century challenges
  • …incomplete or even inconsistent
  • …not a good fit for the organisation’s business model
  • …not fit for human beings
  • …essentially relying on luck (instead of good management theory and sound reasoning)

And since they’re not visible, it is almost impossible to improve them with method and direction.

And so the practice of management, guided by these de facto managment models, becomes a barrier to performance in all too many organisations. A source of frustration for managers, team members and customers alike. The pure opposite of what management is meant to be.

Unfortunately, it seems, Peter Drucker was right also when he observed:

Much of what we call management consists in making it difficult for people to work.

The way to change that, of course, to intentionally design management models and give the work of management as much careful thought as we give to business models.

Or, as Jason Fried puts it:

Your company better be your best product since it’s the product you use to make everything else you do.

And it all depends on good management. Without it, all competitive advantage is temporary and increasingly short-lived. But if we get it right, we are about to rediscover sustainable competitive advantage.

Future articles will build on this line of thought and discuss examples of great management models, how to design them, the critical role that theory plays and what the implications for management education and research are.

¹ Innosight, 2018 Corporate Longevity Briefing
² Gallup, State of the Global Workforce
³ Clayton Christensen/Michael Raynor, The Innovator’s Solution
⁴ Scott Keller/Colin Price (McKinsey), Beyond Performance
⁵ Deloitte Center for the Edge, Shift Index