The Past and Future of Competitive Advantage

C H A P T E R S I X

The Past and Future

of Competitive Advantage

CLAYTON M. CHRISTENSEN

Competitive advantage is a concept that often inspires in strategists

a form of idol worship—a desire to imitate the strategies

that make the most successful companies successful. It is interesting,

however, that strategists have viewed precisely opposite factors

to be sources of competitive advantage at different points in the histories

of a number of industries. For example, Henry Ford’s emphasis

on focus has been touted right next to General Motors’

product-line breadth as the key to success. Today, the outsourcing

flexibility inherent in the nonintegrated business models of Cisco

Systems and Dell Computer is held up as a model for all to emulate,

whereas a generation ago IBM’s vertical integration was widely

considered an unassailable source of competitive advantage. In the

1980s, power-tool maker Black & Decker aggressively consolidated

its diffused international-manufacturing infrastructure into a few

global-scale facilities so that it could counter the aggressive marketshare

gains that Makita had logged by serving the world market

from a single plant in Japan. At that very time, Makita was moving

aggressively toward manufacturing in smaller-scale local facilities

around the world.

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Indeed, strategists whose anecdotal understanding of competitive

advantage runs only as deep as “If it’s good for Cisco, it

must be good for everybody” at best are likely to succeed in building

yesterday’s competitive advantages. If history is any guide, the

practices and business models that constitute advantages for today’s

most successful companies confer those advantages only because

of particular factors at work under particular conditions at this particular

time.

Historically, several factors have conferred powerful advantages

on the companies that possessed them—economies of scale and

scope, integration and nonintegration, and process-based core competencies.

What are the circumstances that cause each factor to be

a competitive advantage? How and why do competitive actions

erode the underpinnings of those advantages? Strategists need to

peel away the veneer of what works, and understand more deeply

why and under what conditions certain practices lead to advantage.

In so doing, they might begin to predict successfully which of

today’s powerful competitive advantages are likely to erode and what

might cause new sources of advantage to emerge in the future.

(Many of the insights presented here are rooted in work on disruptive

innovation presented in my 1997 book The Innovator’s Dilemma:

When New Technologies Cause Great Firms to Fail.)

ECONOMIES OF SCALE

In the 1960s and 1970s, concepts of competitive advantage often

were predicated upon steep scale economics, and many tools of

strategic analysis were built upon those economics (for example,

growth-share matrices,