Sustainable Value Creation: From Competitive Advantage to Corporate Theory

When I started teaching Strategic Management in undergraduate and (post)graduate courses back in the 1990s and would address the goal of developing and implementing a strategy, I would present the purpose of strategy as that of gaining competitive advantage. I based my classes primarily on Porter, who argued that the pursuit of competitive advantage lay at the core of the formulation of strategy.

Competitive advantage was, without a doubt, the number one priority of strategists for a long time.

According to Porter, competitive advantage as a unique and valuable position enabling sustainable profits superior to those obtained by competitors derives from the value that the company can create for its customers and that exceeds the cost of manufacturing; this could only be achieved by occupying a unique, valuable position. In order to gain competitive advantage over competitors, the company must execute the activities of the value chain in such a way as to guarantee differentiation and additional value.

The idea of ​​competitive advantage as something to pursue defined many a study for nearly a decade. The big challenge was to identify, plan and develop positions in relevant markets that could provide a sustainable advantage in competitive markets.

Yet, the idea of ​​competitive advantage contains a paradox: investors reward this valuable market position only once. Once this market position has been achieved, investors expect more. In other words, past performance, however glorious it may have been, is not enough to ensure the valuation of a company’s actions in the present and future.

Because of changes in the environment, business, technology and society, the competitive advantage gained is increasingly ephemeral and, as such, unable to guarantee future results.

This realization is rendering obsolete the idea of ​​competitive advantage as guarantor of significant future results. The challenge is to develop more dynamic strategies, disruptive strategies, that allow companies to navigate volatile, uncertain, complex and ambiguous environments – the so-called “VUCA” world.

Ultimately, is it possible to achieve the sustainable creation of value? If so, how?

Zenger’s answer (2018) is that value creation is sustained through “corporate theory.” According to the author, a well-developed corporate theory presents a set of strategies and promising strategic alternatives. The better the corporate theory, the more likely the strategies are to succeed.

Corporate theory offers executives a model for thinking beyond competitive advantage that can foster the sustainable creation of value.

What does a “corporate theory” look like?

It is a model that shows the company how to measure the trade-off between maintaining sustainable growth and creating value.

According to Zenger (2018) it is a logic that managers use repeatedly to identify, among a wide range of possible combinations of assets, activities and resources, those complementary elements that are likely to create value for the enterprise. Thus, it is a structure that generates hypotheses to guide decisions about which assets, activities and competencies to pursue, which investments to make, and which objectives and strategic initiatives to adopt to create value.

Corporate theory provides executives and managers with a business perspective along three fundamental vectors: “foresight,” “insight,” and “cross-sight.”

“Foresight” provides a perspective aligned with the evolution of an industry, looking at client expectations, preferences and requirements, based on technological evolution and competitors’ actions.

“Insight” takes into account assets, resources, skills and activities that are unique to the company, sustainable, and reflect deep understanding of the company’s core competencies.

Finally, “cross-sight” addresses the interdependence and complementarity of the assets, resources, competencies and unique activities that the company possesses.

Based on the analysis and development of these three vectors, it is possible to guarantee organizations the sustained creation of value, going far beyond an ephemeral competitive advantage easily surpassed by the competition.

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