We’ve all watched a company find a competitive advantage, dominate a market and then begin to falter. The companies that recovered were often ones that found new ways to create value.
Todd Zenger, N. Eldon Tanner Chair in Strategy and Strategic Leadership and Presidential Professor at the David Eccles School of Business, has written the new book, Beyond Competitive Advantage: How to Solve the Puzzle of Sustaining Growth While Creating Value, published by Harvard Business Review.
The book largely focuses on what companies need to do to continue creating value for their customers and shareholders. He is able to identify great corporate theory and how such a theory provides managers with an enhanced vision or perspective in three ways:
- Foresight concerning the future evolution of the relevant industries, technologies, and customer tastes
- Insight regarding sustainably unique assets, resources, and activities possessed by the firm
- Cross-sight that recognizes patterns of complementarity between assets, activities, and resources both within and outside the firm
Listen to the podcast where Zenger delves more into his book and the important lessons it shares.
Transcript:
Eccles School: Welcome to the Eccles School Podcast. I’m your host Sheena McFarland. We’ve all watched a company find a competitive advantage, dominate a market and then begin to falter. The companies that recovered were often ones that found new ways to create value. Joining me today is Todd Zenger, N. Eldon Tanner Chair in Strategy and Strategic Leadership and Presidential Professor at the David Eccles School of Business. He’s written the new book, Beyond Competitive Advantage: How to Solve the Puzzle of Sustaining Growth While Creating Value, published by Harvard Business Review. The book largely focuses on what companies need to do to continue creating value for their customers and shareholders. Todd, thanks so much for joining me today.
Todd Zenger: Good to be here.
Eccles School: First, let’s start at the beginning. What was the impetus behind writing this book?
Todd Zenger: Very good question. In many ways, the motivation for this book was an intense dissatisfaction with the way we have historically sort of taught strategy, not that what we have been doing is wrong, but it’s just been relatively incomplete. The way we have typically taught strategy is to teach students that the critical thing that a firm needs to have is a competitive advantage and this competitive advantage is this position in an industry that is well protected by walls and moats and impenetrable by competitors, and this gives you a sustained profit stream which you can sort of ride off into the sunset. The difficulty is – well certainly many people have sort of critique the fact that look, these things are really difficult to find and people do climb over the walls. That’s really not the point of the book, but instead the point is to sort of say look, even if that is achievable, it really isn’t the way we measure the success of a corporation. Corporations are successful and managers are successful when they are able to relentlessly increase value and simply occupying a position that delivers a sustainable profit stream isn’t going to increase the value of your enterprise. Instead what one needs is somehow a capacity to strategically find an ongoing stream of opportunities to create value. So the motivation was to sort of take up this topic of relentlessly increasing value as opposed to just composing a position of advantage.
Eccles School: Great, so we’re kind of staring to touch on this, but what do you mean by beyond competitive advantage?
Todd Zenger: The book doesn’t – is not sort of critiquing the concept of competitive advantage itself. In fact, what effective firms need to do is to be able to assemble a stream of competitive advantages. However, the challenge is that occupying a position, a fortress, doesn’t really tell you anything about where to go from there. In fact, if anything, sort of the notion, concept of competitive advantage sort of says dig in, double down, defend where you are, and yet, the way we measure performance of a CEO is their capacity to actually move beyond that and accumulate and find additional sources of value. So the book is really about providing strategic guidance to managers about this task of relentlessly creating value.
Eccles School: Great, so let’s go ahead and take a step back and talk about the concept of corporate theory.
Todd Zenger: Okay, so you’ve picked up on the notion that this concept of corporate theory is central to the book and what the book argues is that firms that are successful in relentlessly creating value have typically composed often very early in their history, what I term a corporate theory. This is a meta-strategy of sorts, something that reveals to a firm overtime, sets of strategic experiments or actions or even positions that the firm can go and pursue to accumulate value. An effective corporate theory really provides three key forms of sight. It provides a sense of foresight, articulating the firm’s beliefs about tastes and trends, demand–future demand in the industry or adjacent related types of industries. It’s an expression of what they believe about the future that’s relevant to their theory of value creation. An effective theory also reveals deep insight about what the firm believes is distinctive and unique either in terms of what it currently possesses in the way of assets and capabilities or that which it deems to be critical to accumulating this future world that they envision. Perhaps most importantly, it provides cross sight, a sense in which given expectations about the future and understanding of what’s unique and distinctive, what are the opportunities that the firm has advantage in pursuing the problems that the firm is advantaged in solving, so customer types of problems or the types of available assets, businesses that the firm is advantaged in pursuing.
Eccles School: Corporate theory sounds pretty fundamental. Can you give us an example of how corporate theory has guided a company?
Todd Zenger: One of my favorite examples is the Disney Corporation. We typically think about Walt Disney as this genius animator, who in some sense kind of developed that entire industry. I think his real genius was as a corporate theorist in composing what is just a remarkable corporate theory that has revealed over the last 80 years, a succession of strategic actions that this firm has taken that have accumulated value. Now they have not–they’ve certainly gone through periods where they have been less successful in creating value, but in almost in each instance, you can sort of point back to the fact that this is a period in which they kind of lost sight of the real engine of Walt Disney’s corporate theory. There’s a remarkable graphic that the Disney Corporation developed as sort of articulate this corporate theory. This is kind of what you would expect from a firm that is good at animation, but this graphic shows in the center of their sort of corporate theory, animated films, and then radiating around that, you have hotels and theme parks and books and music. Overtime, you can sort of see this graphic expand as they add new businesses, all of which are highly synergistic with this central asset of animated films. They not only sort of draw those basic elements of this corporate theory, but they very precisely label dozens, maybe even 100 little synergistic arrows that connect all of these assets. In some sense, it visually captures the essence of this firm’s corporate theory which is we’re going to develop these visual fantasy worlds through film and we’re going to replicate these and pieces of these in a variety of other assets and they move into Broadway shows and cruise ships overtime, and are sort of able to replicate pieces of this, sort of taking advantage of the visual fantasy world that has been embedded in the heads of their customers. It’s a remarkable corporate theory. You could point to other firms in that space who have similar assets by name and yet they have none of this corporate theory. They don’t really have the capacity to sort of pull off this engine that sort of connects all of these assets. You’re certainly seeing entertainment firms now trying to do this in an aggressive way, but Disney mastered this over the past 80 years and what’s important here is that it has been a meta-strategy or a corporate theory that has constantly revealed new opportunities for value creation. Composing one of those is difficult to do, but it’s the essence of–it’s the most important step in sort of sustaining value creation.
Eccles School: Wonderful. Is there anything else that you would like to add?
Todd Zenger: There are an abundance of challenges that arise as firms try to leverage their corporate theories to create value. Firms have to finance these theories. They have to go acquire assets. They have to design and structure their organizations, make decisions about what should be a part of the firm, not a part of the firm. They have to design that organization so that it successfully executes on this corporate theory. All of those are tremendous challenges with lots of paradox and conflict that arise and the book really helps the reader and the strategic leader to sort of think about how one uses a corporate theory to manage that series of decisions, it’s critical to sustaining value creation.
Eccles School: Wonderful. Well thank you again so much for taking the time to talk with me today.
Todd Zenger: It’s good to be with you and hope that you will all enjoy the book.
Eccles School: Beyond Competitive Advantage: How to Solve the Problem of Sustainable Growth While Creating Value is available on amazon.com. I’m your host Sheena McFarland, and this has been the Eccles School Podcast.