Talk to the senior executives of any progressive company today and they will tell you about its huge investments in innovation, bulging new-product pipelines, proprietary technologies and relentless drive to shrink time to market. They’ll also admit that these efforts have not helped them outrun the competition. Although businesses are moving faster than ever, competitors are constantly nipping at their heels, emulating new products, replicating entire product-development systems and processes, and keeping pace on the same treadmill. New products may generate hefty returns, but the advantage is short-lived. These days, a company’s rivals are likely to be world-class sprinters.
Eroding competitive leads are the result of forces that are equalizing companies’ ability to innovate: the increasingly rapid and free flow of information and knowledge, the movement to global standards and the advent of open markets for components and technologies. Today, a company such as Handspring can appear and, within a few months, launch a hand-held organizer similar to the Palm Pilot in design, functionality and performance. Thanks to open markets and open standards, Handspring has access to the same product designers and manufacturers that Palm uses.
This example is not the exception, and it raises profound questions about the sources of sustainable competitive advantage. If product parity is relatively easily achieved in today’s world, customers will turn to new criteria when deciding to buy one company’s products over another’s. We have attempted to establish the nature of these criteria over the past three years by collecting data from more than 1,500 senior executives in interviews and group discussions. In particular, we have focused on this question: “Why do your customers choose to buy from you rather than from your competition?” (See “About the Research.”)