Renewable Advantage: Crafting Strategy Through Economic Time

The task of continuously renewing a company is the greatest challenge confronting any chief executive. To enable managers to project renewal strategies likely to win in the future, Jeffrey Williams has constructed a dynamic road map of outcomes in what he calls "economic time," based on a ten-year study of growth, decline, and renewal patterns of hundreds of companies in forty-five industries. In this superbly readable book, Williams's revolutionary, award-winning concept of slow-, standard-, and fast-cycle economic time provides a unifying business language that the multicycle manager can use to compare the renewal opportunities of widely diverse products, companies, and markets. Using examples and studies from companies such as Starbucks, McDonald's, UPS, Compaq, Sony, Merck, Disney, Toyota, IKEA, Microsoft, Sony, Intel, IBM, Johnson & Johnson, Chrysler, and Hewlett-Packard, Williams explains that the key idea in economic time is being able to manage products and organizations according to the speed and means by which economic value arises, decays, and is renewed. The drivers of economic time are isolating mechanisms -- a firm's unique capabilities that lie at the heart of its competitive advantage -- and that, in Williams's framework, "delay" product obsolescence. Building on his intuitively appealing model, Williams describes how his three laws of renewal -- convergence, alignment, and renewal -- provide guidelines by which managers can gain command over strategy in complex, dynamic competitive situations. Renewable Advantage is not only essential reading but also will become a standard reference for senior and division managers, business scientists and strategists, and general managers in all industries.

CHAPTER 1: THE ADVENT OF ECONOMIC TIME
The central idea of this book is economic time.
When we think of the effects of time on a business, we imagine that markets are speeding up and that advantage is short-lived. But business time is becoming more complex than that. Time is not what you think.
The significance of time in business goes beyond the reality that markets and companies are moving faster. There is a more interesting force at work. Business time is not only speeding up -- business time is splitting markets apart, as well as the companies that compete in them.
Do we really think dynamically? Most of us don't. We are conditioned from birth to regard change with caution, even as we grow and explore the world around us. When we ask managers whether they think dynamically, we hear answers that range from a confident "of course we do!" to a perplexed "what do you mean?" Ask yourself these basic questions:

• What makes you special, different from all of your competitors?
• What is your organization ultimately capable of when stretched? What will you never be able to do, no matter how hard you try?
• What role is left for your corporate headquarters? Or should you leave your diverse businesses alone to run themselves?

As simple as these questions are, they get at the heart of modern business problems. The business opportunities in the new economy are complex and dynamic. Some are different. Other time-honored rules remain little changed. Facing this complexity, failure to equip yourself to think in terms of multispeed competition -- what we call economic time -- can reduce your effectiveness to that of a horse and buggy driver facing the onset of the automobile.
But how can time move at different speeds for companies? Of course, real time cannot. Each second marks the passage of linear time along precise, equally paced intervals that have changed little over the centuries. But in the new economy, the speed and means by which advantage grows and declines are becoming increasingly diverse. This is why business leaders in the new economy need to be able to manage across different business models with the agility of a decathlon athlete.
A company that operates in fast economic time is Compaq Computer. In the personal computer hardware industry, product advantage is slippery. Compaq's ProLinea line must be replenished with new products every three to six months to sustain advantage. A delay of thirty days in a pricing decision can have ruinous effects. One decision by Compaq to reduce prices was matched by a competitor and implemented through distributors nationwide in forty-eight hours. Dell, Packard Bell, and IBM can react to Compaq's strategic moves almost daily.
But is Compaq's fast-time orientation right for you? Consider Merck, the U.S. pharmaceuticals giant whose origins date to a seventeenth century German apothecary. One Merck product, the anticholesterol drug Mevacor, took three decades to bring to market, a development schedule that would be preposterous for Compaq. But Mevacor, with a product life of a decade or more, is effectively shielded from the ravages of economic time. First-mover advantage is inherently sustainable. Business advantage is sticky. The Merck organization, even as its managers work to renew advantage, travels over its business terrain in slow economic time.
Compaq -- fast time. Merck -- slow time. Traditional, single-speed business thinking is not equipped to capitalize on these differences. Why not? Companies like Compaq and Merck are well managed. Additionally, traditional thinking about industry rivalry, while important, does not provide the answer. The reason is that traditional business thinking treats change as unusual rather than as normal.
The pathway to renewing advantage for Compaq is like a high-speed raceway, filled with vehicles that enter fast but burn out quickly. No single product, no matter how successful, sustains its advantage for long. Sony's portable electronics business is similar to Compaq's. Sony managers have been required to introduce hundreds of Walkman variations to renew the Sony Walkman brand. Managers at fashion companies like Liz Claiborne and Benetton, and Wall Street securities innovators like Salomon Brothers, face the same high speed of product growth, quick competitive entry, and fast product decline.
For managers at Merck, in contrast, the competitive cycles by which one product displaces another are drawn out, over a decade or more. One product in five thousand makes it through the barriers of clinical development, testing, and approval. Pharmaceutical companies find it difficult and time consuming to displace one another. For Merck, the pathway to competitive renewal is like a rugged trail through a thick forest, narrow and tough to traverse.
Consider the evolution of Merck's Mevacor. Marketing efforts for Mevacor began eight years before commercialization with the process of educating physicians. For four years during Merck's long, winding regulatory process, development was slowed because of a rumor, proven false, that competitors were having side-effect problems with a similar drug. As Mevacor neared FDA approval, 120 regulatory specialists at Merck met six thousand individual target dates by dividing each task into small responsibilities. Merck's research laboratory took a delegation of fifty employees to Washington for a last run-through, supported by a van loaded with 104 volumes of documentation, each 400 pages long. When FDA approval for Mevacor was granted, the company's reaction was "like when your team wins the World Series," according to one Merck manager. Six years later Mevacor's revenue passed $1 billion and continued to grow with little competition.
In today's fast-paced markets is Merck's product sustainability an exception? The world's most studied company at the onset of the new economy is Microsoft, a company that wrote the book on how to build long-lived advantage in the software industry. Or consider Disney Corporation: Disney managers recently issued one-hundred-year bonds, a reflection of the expected duration of Disney assets such as The Lion King, the first cartoon to gross $1 billion in revenues and related sales worldwide. Thirty years from now, when our grandchildren are bored on a rainy day and sit to watch high-definition television on flat-screen displays the size of a wall, they will watch the same Lion King movie that we have seen, and they will pay Disney for the privilege. With products like Mevacor, Windows95, and The Lion King, managers at Merck, Microsoft, and Disney are creating long-lived advantages.
Consider: Does the three-billion-dollar Space Shuttle use higher technology than a three-dollar electronic wristwatch? In terms of newness, a throwaway wristwatch made from parts designed recently, scores higher. IBM designed the shuttle's on-board computers in the 1970s. Twenty-five years later, NASA managers upgraded to Intel 386-based computers, machines that had been commercially obsolete for a decade. The shuttle's ceramic tiles are fitted by hand, one after another. Processes used to make the Space Shuttle recall styles of management used to craft fine furniture for European royalty centuries ago.
Compaq, Sony, and Intel operating in one part of economic time; Merck, Disney, and NASA operating in another part of economic time. The styles of leadership in these companies are being pulled apart as they shape the new economy. Yet, at a time when multispeed business opportunities are unprecedented, management ideas remain grounded in the modern-day equivalent of the Iron Age: freeze-frame thinking that treats change as temporary rather than the rule.
As the director of a major electronics company put it to us, "It's not that things are moving faster. We know that they are. But for us some things remain stable. We have a whole constellation of stuff swirling around us with rules that we do not understand. Our challenge is to know constancy from change and to manage across both."
WHAT IS ECONOMIC TIME?
Although markets operate at different rates of competitive speed, you can't see this by looking at whether people in these companies run faster or slower to the coffee machine or whether they work longer or shorter hours. While these differences are real, traditional ideas about speed don't tell us enough about the economy's expanding competitive styles.
The growth engine of every company has distinguishing competitive mechanics, its own dynamic signature that gives clues as to how value for it is created, destroyed, and potentially renewed. The reality is that customers don't come first -- neither do companies. Each gains its meaning from its relationship with the other. Through economic time we see the dynamic forces rooted in these processes of value creation: how managers perceive environmental threats, learn and meet customer needs, and react to one another.
In physical systems there is a law: For every action there is an equal but opposite reaction. In a like manner, laws of action and reaction shape company growth and rebirth. In fighter pilot competition there is the OODA loop. This stands for observe, orient, decide, and act. Rivals observe an action of strategic significance, orient themselves to it, decide what action should be taken, and finally act.
At first glance, action-reaction cycles seem similar to product life cycles, which measure the rise and fall of a product's revenues. But action-reaction cycles go deeper, down to a company's growth engine, the underlying processes that create, sustain, and renew value. Action-reaction cycles, from initial information gathering to the final actions taken, dictate the management styles and organizational processes needed to serve customers. They also provide clues about the various options available for dealing with suppliers and competitors. Action-reaction cycles align a company dynamically with the key success factors in its markets.
Action-reaction cycles can differ greatly among companies, even when companies make similar pr...