Competitiveness: The capacity to compete

By Manuel Cermerón

When we use the word “competitiveness” in our vision statement, strategy documents, action plans... we usually mean just one thing: cost. We understand that a loss of competitiveness happens when production costs go up without improving the product or service delivered.

This indispensable conception of competitiveness centres on a company’s current activity – that is, its capacity to harness the added value that the organisation uses to compete in the marketplace. Though essential, this view of competitiveness is also fundamentally defensive, short-sighted and static.

This approach is based on what some scholars have called the resource-based view (Wernerfelt, 1984). It finds the source of competitive advantages in resources and assets that simultaneously meet several special conditions: they are scarce, valuable, not easily imitated and difficult to replace. Examples include size, highly efficient energy costs, and access to natural resources or cheap labour. 

But if you look up the word competitiveness in the dictionary, you find something like "capacity to compete." In order to compete sustainably over time, you have to be able to generate competitive advantages that tap into the dynamism of the environment where you are operating – and advantages of this sort are more than just a series of differential resources and assets.

Here, an analysis based on resource-creation processes (Bowman & Collier, 2006) finds its place by contributing a dynamic vision of organisations. The category of resource-creation processes includes contributions by academics working with concepts such as organisational capabilities (Collis, 1994), core capabilities (Leonard-Barton, 1992), dynamic capabilities (Teece et al., 1997) and knowledge (Nonaka & Takeuchi, 1995).

Knowledge is being generated faster than ever before in the history of humankind

In the analysis of competitive advantages and, therefore, of competitiveness, a distinction is drawn between the static and dynamic approaches. In the static approach, a company’s competitive advantage is derived from its position within the industry. In the dynamic approach, it has to do with the company’s abilities and capabilities to work more efficiently and effectively than its competitors.

Nowadays, knowledge is being generated faster than ever before in the history of humankind (the number of scientific articles published and the number of doctorates awarded are growing each year) and new innovations are constantly being launched (the number of patents registered is increasing each year). In this environment, the need to “regenerate” applies across the board, to all sectors of activity, making the static vision of organisations insufficient at best. 

Against this backdrop of constantly exploring and generating new ways of adding value, another “difficulty” often cited – sometimes as an excuse – is the fact that large organisations are unable to innovate, or at best, they do so very slowly and at great cost,  leaving external innovation as the only possibility. It’s easy to forget that it takes at least five years – and usually seven – to go from the generation of knowledge (TRL -1) to the market launch of a proven industrialised value contribution (TRL-9). This is what happens in the ecosystem of Israel, Singapore, the United States, France, Germany and Spain, and the difference probably lies in how frequently and how intensely it happens.

The Massachusetts Institute of Technology (MIT) has spearheaded an initiative known as The Engine to ensure that the knowledge generated by the university makes its way to the market without slipping through the cracks. While the policies, resources and mechanisms to address this issue differ substantially from one country to the next, we should all take heart from the fact that MIT faces the same challenge as everyone else. 

Large organisations are unable to innovate or do so very slowly

Some corporate cultures make it difficult or impossible to challenge the status quo. However, large organisations do have certain advantages, namely, direct access not only to clients but to demo spaces for working on proofs of concept and pilot tests. These advantages can differentially accelerate the development of potential new solutions, products and services.

To echo SDG 17, the way forward is to form alliances and pool our intelligence and capabilities to configure win-win situations. We must tap into the best of both worlds. Incumbents can provide their market knowledge, industrialisation capabilities, solid client base and assets, while new entrants can offer agility, new science and tech knowledge, and an eagerness to challenge the status quo.

Why not collaborate, through a well-established and well-positioned (i.e. incumbent) laboratory in the water-quality market, to develop new analytical techniques based on knowledge generated by a university spin-off? In return for its “contribution in kind”, the incumbent would obtain an ownership stake in the spin-off as well as valuable access to first-rate knowledge. The upstart organisation, meanwhile, would accelerate its go-to-market efforts and gain access to valuable capabilities.

Water sample
Photo: DuxX/iStock

In the global environment where today’s businesses operate, it is essential to set up resource-creation processes, adapt rapidly and lead changes in your industry if you want to have a chance of long-term survival. These sorts of resource-creation mechanisms can take numerous forms.

Let’s say you want to keep an eye out for technologies with the potential to play an important role in the sector. Why not create a tech observatory (focused on TRLs<=4)? Or let’s say you want to be on the lookout for new spin-offs or start-ups with a differential value proposition. Why not create a scouting system (focused on 4<= TRLs <=7)? Such an initiative could also – if appropriate – arrange agreements covering acquisition, integration and even exclusive rights to operate in a particular geographical area.

And what if you’re looking beyond continuous improvement and incremental innovation? What if you want to experiment and visit spaces that have nothing to do with your current “core”? You could allocate resources to develop proofs of concept (e.g., reinforcement learning for distribution networks), carry out pilot tests (e.g., digitalisation of the leak-finding process) and even set up temporary incubators (e.g., to explore the use of drones to inspect sewer pipes). This could be an opportunity to explore beyond “business as usual” – which must always be connected, but not subjected, to business itself. 

In today’s fast-changing context, under the “tyranny” of new knowledge generation, all organisations, regardless of sector, must meaningfully incorporate knowledge and technology with the aim of developing alternative solutions, complementary business models or vice versa.

But we must always bear in mind that the challenge is not to create an innovation department, a lab or an R&D centre, or to be like Amazon, Microsoft or Tesla, but rather to create a new capability within our organisations: the ability to generate new capabilities and therefore have a chance to compete sustainably in the long run.

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