The key source of competitive advantage in this case is speed ... and employees' ability to continuously acquire new skills (Barney, 1995; .... challenges for organisations, as in today's digital economy any firm, seeking to be ahead of the.
From Competitive Agility to Competitive Leapfrogging: Responding to the Fast Pace of Change
Dr. Tabani Ndlovu Nottingham Business School, UK Dr. Anastasia Mariussen Oslo School of Management, Norway Abstract While there is consensus that sustainable competitive advantage is key for organisational survival, the source of such advantage has been attributed to a number of disparate areas. Some scholars have suggested that human and financial resources as well as research and development (R&D) activities improve organisations’ competitiveness. Others have argued that firms need to focus on competitive agility and the speed with which they respond to their marketing environments. This chapter makes two controversial propositions. First, it postulates that much of what used to be sources of competitive advantage (e.g., stable employment environments, low turnover) can now in fact be what makes organisations stale and uncompetitive. Second, it puts forth a notion of competitive leapfrogging and argues that an important source of competitive advantage is the ability to bypass competition either by skipping the stages in the development paths of the forerunners or by taking significant leaps forward and embracing futuristic concepts. Key words: Sustainable competitive advantage, competitiveness, agility, quantum leapfrogging
Introduction While many scholars have emphasised the importance of sustainable competitive advantage as an impetus for survival in today’s competitive environment (Hall, 1993; Oliver, 1997; Lubit, 2001), the dynamic changes in customer needs and preferences, the fast changing external environmental factors as well as the highly fluid and fiercely-competitive rivalry mean that a firm’s sources of competitive advantage are soon eroded and outpaced unless these are proprietary (Friedman, 2005, 2011). Various scholars proposed the concept of competitive agility as a response to mitigating the effects of the fast pace of change (Fliedher & Vokurka, 1997; Harrison, 1997; Katayama & Bennett, 1999; Nayyar & Bantel, 1994; Roth, 1996; Vokurka & Fliedner, 1998). Agility in this sense refers to organisational responsiveness to changing market conditions. Agile organisations quickly adapt to changing market needs, developing new products and services ahead of competitors. The key source of competitive advantage in this case is speed (Mircea, Ghilic-Micu, & Stoica, 2011; Roberts & Grover, 2012). In an environment where technological platforms seemingly create a paradigm shift, dictating the basis of competitive dynamism, the concept of agility is soon undermined as most firms ostensibly facing similar agility needs quickly catch up (Lim, Stratopoulos, & Wirjanto, 2012). Information in this digital age is easily accessible and competitive strategies are quickly copied and countered (D'Aveni, 2010). This chapter posits that the unprecedented nature of the modern day digital business landscape calls for a radically different approach hereinafter referred to as competitive leapfrogging. The concept requires
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firms to continually make quantum leaps in assimilating their understanding of both internal and external environments, quickly bringing to market cutting edge products and services that are unparalleled (Valdani & Arbore, 2013). They have to do so at a pace that is significantly quicker than that of their competitors (Piezunka, 2011). Over and above merely assimilating to and responding to market environmental changes, this chapter argues that firms have to be adept at understanding trends and using such market patterns to project into the future and anticipate future market changes even before they occur. Technological platforms play a crucial role in enabling response to market needs, allowing for firms to quickly build highly mobile strategic competences that are difficult to imitate because of their fluid nature. Having established such competitive prowess, successful firms should not bask in their glories for too long but rather should move on to further entrench their lead by figuring the next market changes and in turn, respond to these. This suggests that the concept of sustainable competitive advantage is in fact no longer sustainable due to the need to quickly and frequently adapt to changing market conditions. What should be sustainable is the pace of adapting to change and the organisation’s responsiveness to its environments. Further, mere agility is no longer enough (Vokurka & Fliedner, 1998) as this is not exclusive to any one firm and at present applies to whole industries positioned for speedy reactions to market changes. Instead, competitive leapfrogging should be the new thrust, requiring firms to think on their feet and quickly internalise their understanding of contemporary factors shaping their environments to pre-emptively strike their competitors (Valdani & Arbore, 2013). This chapter explores the concept of competitive leapfrogging, arguing that in today’s fast-paced technologically-driven world, firms need to be more innovative as well as agile compared to their peers, allowing them to maintain a lead on competitive activities. To help set the context, the next section briefly defines the concept of competitive advantage and traces its different sources commonly cited in literature, including competitive agility. Thereafter, the chapter proposes leapfrogging as a way of sustaining competitive advantage and outlines the changes that the implementation of leapfrogging might require.
Sources of competitive advantage According to Ehmke (2011, p. 1) competitive advantage refers to “an advantage gained over competitors by offering customers greater value, either through lower prices or by providing additional benefits and services that justify similar, or possibly higher, prices.” The underlying rationale for competitive advantage is to gain customer loyalty, which in turn should increase demand inelasticity and contribute to profitability. Competitive advantage places the firm ahead of its peers and drives preference for the firm’s products and services, suggesting a superior offering compared to competitors. To achieve this, a number of scholars have identified various sources of competitive advantage on which firms can leverage to take leading positions in their respective markets. The commonly cited sources of competitive advantage are summarised in Table 1 and discussed in more detail in the following sections. The resource-based view has for a long time attributed sustainable competitive advantage to the organisation’s human capital and employees’ ability to continuously acquire new skills (Barney, 1995; Hatch & Dyer, 2004; Kamukama, 2013; Campbell, Coff, & Kryscynski, 2012; Bartlett & Ghoshal, 2013). This theoretical viewpoint focuses on the organisation’s ability to make use of and exploit internal competencies, which are then deployed to mitigate risks in the external environment as a way to maximise on opportunities. Embedded in this view (but not explicitly stated) is the idea of employee longevity and stability, allowing for employees to perfect their skills and improve practice over time. Following this logic, those organisations with long-serving employees would arguably have more knowledgeable staff able to competitively position an organisation (Aime, Johnson, Ridge, & Hill, 2010). While this view may still hold true in today’s dynamic business landscapes, exponential learning curves may require additional training and development programmes for such employees. Alternatively, there may be a need for a continuous infusion of new skills with fresh, up-to-date and new perspectives to ensure that the organisation’s approach to business does not become out-dated. In a way, this may
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somewhat contradict with the long term view of stable human resources, suggesting that well-managed employee rotation or even attrition may in fact be a good thing for the organisation’s competitiveness, as it can challenge the established stale practices and introduce new ideas that shake up the dangerous status quo (Berman, Down, & Hill, 2002; Berry, Zeithaml, & Parasuraman, 1994). Table 1: Commonly cited sources of competitive advantage Source of competitive advantage
Authors promoting view
Information/Intellectual and proprietary rights
Hatch and Dyer (2004); Pfeffer (1995); Hofstede (1994); Kamukama (2013); Bartlett and Ghoshal (2013); Campbell et al. (2012) Teece and Pisano (1994)
Financial resources
Barney (1991)
Technology/R&D Alliances / Relationships and access to distribution networks Organisational alignment and a shared sense of purpose / shared vision Quality of organisational management and leadership Agility and ability to assimilate to external market and competitive conditions
Lin (2003) Barney and Wright (1998); Ireland, Hitt and Vaidyanath (2002)
Human capital (people/employees); learning/skills
Powell (1992) Doz and Prahalad (2012) Katayama and Bennett (1999); Fliedher and Vokurka (1997); Roberts and Grover (2012)
Related to the above, competitive advantage can also be attributed to the possession of intellectual property rights allowing for protected exploitation of niche opportunities (Teece & Pisano, 1994). These rights and competitive information can both be lost, when key employees leave to competitors, or acquired, when new members of staff are hired. Hiring new employees may boost organisations’ own staff competencies and bring in new ways of thinking. To proactively avoid loss of competitive information and to add to the portfolio of organisation’s intellectual property rights, careful succession planning techniques, knowledge-sharing strategies and patent management can be adopted to ensure that organisations are not overly dependent on one person and that tacit knowledge stays within the organisation regardless of employee fluctuations. In addition to skilled and competent human resources and intellectual property rights, access to financial resources and requisite capital act as pivots on which an entrepreneurial organisation can leverage its competitive position (Barney, 1991). Lack of capital and financial resources may hamper innovation and pursuit of new opportunities. It is therefore key that organisations are able to fund and resource their ambitions and do not overstretch themselves and that people strategies are supported by requisite resource strategies to position the company competitively. Superior products and services also play a major role in competitively positioning an organisation. A traditional way of creating competitive advantage by means of developing new products has been to develop products in a shielded environment strictly controlled by the firm and to subsequently release these products to a supposedly receptive market, which may accept or reject them. The challenge with this approach is that customers and other stakeholders now increasingly expect to be actively involved in this process rather then to be simply presented with the final products. They readily take over some of the functions previously in the domain of product and service providers and push competitive advantage to shift away from the firm’s internal domain to a more open networked platform, where every stakeholder group can make its contribution, which together with the firms R&D can make a solid platform for the next competitive advantage.
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In line with the changes in the level of consumer involvement, collaborative relationships, alliances and an ability to tap into established networks of practice are increasingly used by organisations as a way to identify opportunities previously inaccessible to them (Barney & Wright, 1998; Ireland et al., 2002). Use of networks is becoming more prevalent, particularly in light of the recent technological developments. The virtual connectedness and seamless interaction between companies, their partners and consumers herald new sources of competitive advantage as well as new opportunities to spot and test innovative ideas. Using collaborative platforms, organisations involve stakeholders both upstream and downstream in their channels. Upstream, collaborative platforms allow for shared and synergistic sourcing of raw materials and inbound resources, while downstream, customers can be involved in co-creation (Lee, Olson, & Trimi, 2012). These collaborative pursuits by organisations today demonstrate an increasing realisation that to harness innovation and creativity, organisations have to quickly tap into a wider base of ideas. Modern technological platforms make this an easier undertaking yet approaching these networked business opportunities using traditional strategy premises may not fully unlock the full potential of these ground-breaking approaches. Consequently, a new strategic approach to sustainable competitive advantages is needed, recognising the dynamic business landscape facing today’s organisations and positioning them for further future challenges. Skills for survival will arguably emanate from an ability to identify which sets of activities the organisation can decentralise as well as managing and coordinating the co-creation process effectively making use of the firm’s extensive network of stakeholders. Superior products and service ideas are no longer the preserve of the firm’s R&D departments but can be sourced openly in the market. Most services can now be outsourced leaving the firm to concentrate on critical proprietary elements of the service delivery process, with different stakeholder nodes taking charge of different facets of the product or service development and delivery process. Other sources of competitive advantage such as organisational alignment, a shared sense of purpose and quality of organisational management have been cited by scholars too (Doz & Prahalad, 2012; Powell, 1992). One of the challenges with the current and previous approaches, however, is that sources of competitive advantage are attributed some longevity, which goes against the fluid digital business environment prevailing today (D'Aveni, 2010; Resca, Za, & Spagnoletti, 2013). The very fluid competitive landscape requires firms to thrive in ambiguity, be ready to adapt speedily to changing market conditions, and continuously refine their competitive edge. Further, various sources of competitive advantage in the above approaches are treated as discreet and isolated variables, something that constrains businesses in appreciating the role and interplay between intricately-connected organisational resources and their collective contribution to competitive advantage. Organisational competitiveness therefore needs a new lens, as the concept of sustainable competitive advantage has itself become ‘unsustainable.’ In response to some of the issues discussed above, some scholars proposed competitive agility as a way for organisations to stay abreast of change. Singh, Sharma, Hill and Schnackenberg (2013) define competitive agility as incorporating flexibility, nimbleness and speed, allowing the firm to quickly respond to market changes. This conceptualisation suggests that those organisations that can scan their environments and speedily respond with appropriate products and services are better positioned to win in the market (Fliedher & Vokurka, 1997; Katayama & Bennett, 1999; Roberts & Grover 2012). This builds on earlier discussions of organisational competitive advantages hinged on such capabilities as people, resources, knowledge among other things but emphasises the need for speedy exploitation of market opportunities ahead of the competition. Similar to the discussions on the sources of competitive advantage presented above, the concept of agility also poses challenges for organisations, as in today’s digital economy any firm, seeking to be ahead of the competition, is digitally agile. The whole concept of ‘sustainable’ competitive advantage and agility is no longer sustainable suggesting that those firms that can maintain a lead ahead of their forerunners have to continuously thrive in ambiguous situations and be able to cope with the fluidity of change, always riding the crest of market changes ahead of their peers and often ahead of consumer preferences. One way of
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maintaining the competitive edge and stay in the lead, as proposed by this chapter, is to systematically leapfrog the competition.
Sustaining competitive advantage by leapfrogging Leapfrogging is defined as “changing the game, creating something new or doing something radically different that produces a significant leap forward” (Kaplan, 2012: 1). It implies overcoming limiting mindsets, avoiding conservative thinking and leaping rapidly forward through the adoption of modern technologies and systems without intermediary steps previously undertaken by forerunners (Kaplan, 2012). Lee and Lim (2001) depict three patterns of catching-up with the forerunners in the technological space. They argue that to come to the forefront of the competition, latecomers can either: 1) follow the forerunner’s path, 2) skip some of the stages in the market leader’s path or 3) create their own new path of development. Leapfrogging breakthroughs are cheaper, more efficient and rapid. They can take place at a country, industry or organisational level and can be performed in any field, including technological, social and political arenas to name a few. One of the most common examples of leapfrogging at the country level is Africa’s efficient and cost-effective adoption of mobile phone technologies, which bypasses the usage of costly landlines (Colbran & Guilding, 2014). An illustration of leapfrogging at the sector level is the education’s recent move to establishing Massive Open Online Courses (MOOCs), which make education at all levels open to the masses (James, 2009). Finally, at the organisational level Airbnb, a community marketplace connecting people with space to share and those looking for accommodation, can serve as an example of leapfrogging, where an innovative idea based on the principles of sharing economy disrupted the whole accommodation sector globally (Caulfield, 2010). Because of the fast pace of market changes, contemporary firms need to adopt a radically different competitive leapfrogging approach and make quantum leaps in sensing, responding to and projecting the market trends, as well as quickly letting go of old practices and embracing new ones, as the old practices soon prove to be obsolete in the face of competition. An illustrative example of how a feeling of complacency and inability to adapt to emerging consumer needs can lead to bankruptcy is Kodak. Once a market leader in photographic film products, Kodak failed to appreciate the dramatic changes digital technology meant for photography, misunderstood how consumers wished to interact with their photos and underestimated the urgency of responding to the new conditions (Schorsch, 2012). To stay in the game, competitively agile firms have to have low uncertainty avoidance tendencies (Hofstede, 1994). They have to thrive in ambiguous situations and feel comfortable in dealing with fluid and unstructured market conditions where, if they succeed, they become innovators, delivering cutting edge solutions far ahead of their rivals and shaping industry directions. Operating on the edge of current and futuristic realities may however present significant risks. If firms are too futuristic, their offers may be too abstract and overly advanced for the market. The offers may be misunderstood and the firm may risk not to gain traction, necessary for survival. For instance, Think, a Scandinavian electric vehicle producer and a contemporary pioneer of the low carbon movement, developed its first prototype of an electric city car already in 1991 (Think, 2014). However, it was not until 2008 that it started selling its first cars, in the meantime having had to file for bankruptcy four times. The company’s concept did not sell as hoped, as the market was not yet ready for a new car concept and the environmentally-friendly consumption was not yet as big a priority on the agendas of businesses and consumers as it is today. Finding the right balance between being visionary but not too far ahead of the market is an important and challenging task. If initiatives lack innovation and creativity, then firms risk lagging behind market trends and therefore risk relegating themselves to followership positions. Similar to Kodak, Blackberry, a pioneer of smart phone technologies and a formerly mandatory partner of corporate executives, failed to
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recognize the significance of the disruption introduced by Apple’s first iPhones and took too long to respond to the challenge. As a result, the company faced an unfavourable financial position, a serious loss to other mobile companies and a near sell-out of the company in 2013 (Gillette, Brandy, & Winter, 2013). Competitive leapfrogging and its openness to fluidity and ambiguous situations may go against widely held modern day strategic dogmas emphasising ‘groundedness’ as opposed to virtual sources of competitiveness. This is because competitive leapfrogging builds on the principles of flexibility, cocreation and decentralisation of organisational activities. The concept recognises the tacit knowledge resident in all the stakeholders of an organisation and seeks to push the frontiers of organisations to harness this knowledge. Some companies such as Google and Hewlett-Packard have already realised the power of shared knowledge and are harnessing the benefits of flat organisational structures, where all employees and stakeholders are encouraged to interact and learn from each other in a non-linear manner, as well bringing their valuable ideas forward without having to go through the restraining hierarchical structures (HP, 2012; Google, 2014). Competitive leapfrogging may be associated with on-the-cuff decision-making associated with firms typically led by visionary founders (Eisenhardt, 1989). It requires openness to change and involves significant risks and challenges around control and intellectual property, which may be particularly difficult to handle in firms controlled by complex, hierarchical decision-making structures. In such ‘traditional’ firms, the time taken to go through the bureaucratic structures may render requisite strategies obsolete before such strategies are ready to go to market. This was seen in Nokia’s failure to timely launch some of its innovations in the smartphone segment, which was attributed by many to the company’s hierarchical structure and stifling bureaucracy. Some of these innovations, including an online application store, were discussed internally years ago, but never launched as the company grew complacent, slow and distant from the consumer needs (Aspara, Lamberg, Laukia, & Tikkanen, 2013). Summarily, in today’s fast-paced technologically-driven world, firms need to be more innovative as well as agile compared to their peers, allowing them to maintain a lead on competitive activities. The quantum leapfrogging concept involves taking calculated leaps into futuristic realms of innovation requiring bold and continuous investments in R&D. This ensures that leapfrogging firms’ cumulative innovative activity is continually updated and adapted at a pace faster than their competitors.
Taking a holistic view of sustaining competitive advantage Various sources of competitive advantage have been discussed above, albeit disjointedly. Rather than view competitive advantage as drawn from singular, disparate sources, this chapter argues that a firm’s ability to integrate all its resources and assimilate knowledge of its internal and external environments, continuously leapfrogging its approach to product and service development in order to stay ahead of its peers will be integral in unlocking opportunities for sustaining its lead over competitors. To position itself ahead of its peers not once, but continuously, a firm will need to take a holistic approach to expertly capitalise on its sources, leveraging maximum strength from all areas of its operation rather than a single dominant area. This will require the organisation to have a well-crafted human resource strategy (Pfeffer, 1995), engendering stakeholder trust, especially for its employees (Barney & Hansen, 1994) as well as integrating and pooling together various functions of the business to engender a sense of shared vision, i.e. organisational alignment (Powell, 1992). Crucially, the organisation will need to position itself effectively within its networks in order to tap into the tacit knowledge and insights therein. With cocreation arguably gaining centre-stage as a source of competitive advantage (Gouillart, 2014), firms have to rise up to this new competitive platform and realign their structures to effectively compete. The design and structure of business organisations and their function will have to change to fit the new decentralised business model.
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According to Lee et al. (2012) the move from closed organisational processes towards more open, collaborative and networked approaches to seek new ideas is termed “co-innovation.” This new approach to generating and managing ideas is centred on close collaborations with stakeholders to engender a clear sense of shared purpose and allow for a participative approach to the pooling of ideas and subsequent development and delivery of products and services. The concept sounds attractive but at its core is the need to sell a shared vision to a group of stakeholders whose needs may be vastly different. Stakeholder engagement and communication are key in aligning network participants’ objectives and harnessing network talent. This approach requires fluid and decentralised structures empowering network nodes to take ownership of the development and delivery of some organisational processes. Arguably, old bureaucratic structures may be at odds with this new open conception of co-innovation. This requires a radical shift in management thinking and organisational design (Pawar, Beltagui & Riedel, 2009). Organisational control processes have to shift to recognise the new competitive paradigms. Proprietary trade secrets and sources of competitive advantages have to adapt and the business will need to rethink its unique selling propositions and how it communicates this to its stakeholders. Organisations of the future may therefore be free from the bureaucratic burdens imposed by current design structures. They however face new challenges of virtual reality and the open networks of collaboration and co-creation where customer satisfaction will not be based on owning products but rather on customer experiences. Competitive advantages will reside in the ability to speedily spot and respond to opportunities, harnessing the knowledge and skills of networked participants to quickly bring to market cutting edge products and services. To effectively drive this, organisations will need to sit at the centre of their virtual networks and develop capabilities to coordinate network processes. Playing this role will require organisations to embrace change and operate on the realms of futuristic technology while bridging gaps with current realities. At the core of this will be new management and leadership thinking capable of envisioning a 21st century organisational design. Undoubtedly, fast technological advances such as use of social media and virtual reality have meant that organisations are on the back foot in their attempts to adapt to these changing environmental factors. To effectively cope, organisations have to start on a fresh page and envision what competing in a digital world will entail. They have to open up their structures and be influenced by market dynamics. Long term planning may be invalidated, requiring a fluid approach to market conditions.
Conclusion While various scholars concur that winning firms need to continuously position themselves competitively ahead of competitors, the sources of such competitive advantage seem to have been attributed to various areas of an organisation, including but not limited to human resources, financial/capital resources, organisational design and responsiveness to environmental changes as well as organisational management and leadership. Additionally, it has been proposed that to position the firm continuously ahead of its peers competitive advantage needs to be sustainable. This chapter argues that the concept of sustainable competitive advantage is a self-contradictory oxymoron, as the highly dynamic business environment that organisations operate in today per definition implies the dynamic nature of organisations’ competitive edge, which needs to be continuously refined, adjusted or even recreated. Instead, this chapter proposes a concept of competitive leapfrogging as a way of cumulatively building on previous experiences to further stretch organisational thinking to tap into new uncontested areas. According to this concept, competitive advantage cannot be attributed to any one source. Rather it should be seen as a combination of organisational capabilities and resources, competitive agility and ability to continuously and rapidly learn from forerunners in order to quickly catch-up or surpass the competition and advance more rapidly than the market leaders by avoiding their mistakes and skipping some of their developmental phases or steps. In leapfrogging, competitive advantage no longer
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resides in firm structures but rather in coordinating decentralised networks of empowered employees. To facilitate leapfrogging, new competences will need to be built around network management, information processing and how this can be utilised to quickly respond to market needs. New organisational designs will need to be envisioned to align to the fluid nature of the business environment guided by a new organisational leadership framework capable of embracing ambiguity, and the source of competitive prowess will need to lie in the ability to be agile and to sense and timely respond to the evolving market conditions.
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Additional Reading Porter, M. E. (2011). Competitive advantage of nations: Creating and sustaining superior performance. New York: Simon and Schuster.
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Key terms and definitions Competitive advantage: An advantage that places a firm ahead of its competitors by offering customers greater value in the form of lower prices or by providing additional benefits and service. Competitive agility: An organisation’s ability to be flexible, nimble and quick in scanning its environments and speedily responding with appropriate and timely products and services. Leapfrogging: Overcoming conservative thinking and leaping rapidly forward through the adoption of modern technologies and skipping the steps previously undertaken by forerunners to create breakthroughs and radical innovations. Co-creation: A two-way, open and dialectical process of interaction, collaboration and knowledge sharing between a firm and its stakeholders, whereby the participating parties engage in a dialogue to jointly define and solve problems in shared distributive environment. Decentralisation: A process of redefining and redistributing responsibilities, functions and decision-making power within an organisation in a way that makes participating stakeholders more equal and does not delegate all power to one central authority. Tacit knowledge: Experience- and intuition-based internalised knowledge that is held by every individual and that can be difficult to transfer in written or oral form. Uncertainty avoidance: the tendency to be averse to ambiguous / uncertain situations, usually associated with conservatism and a low tolerance for venturing out or trying new options.
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