Even though moats have not gone out of fashion, sustainable competitive advantage is dying. The theory of the firm (organizing for profit maximization) needs a temporality re-frame. Originally, charters were granted to organizations to fulfill a specific purpose, which once fulfilled, would be dissolved (once the road/building/turnpike/ocean crossing was completed). Today, companies seek to live forever: IBM, GE, and Google have no intention of going away (and their investors would prefer they stuck around indefinitely). However, organizations seem to reach a Hayflick limit, decaying to a Nokia-Yahoo whimper or heading directly to the Lehman-Toys R Us graveyard. What’s the antidote?
High-gloss transformation narratives, Gerstner saviorism, and innovation teams are the investor-approved prescriptions today, but these remedies are often merely snake oil. It may be prudent to consider the viability of more radical measures.
Private equity has come close to letting go of permanence. By buying a company outright and selling their stake after executing a major change, PE leaders create value on a transient basis. They don’t have a sustainable competitive advantage beyond the ability to create value again and again while attracting investors. There are radical transience-acknowledging strategic moves available to boards and investors that don’t require giving up control to private equity, however.