The Only Sustainable Edge

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The Only Sustainable Edge

by John Hagel III and John Seely Brown

Harvard Business School Press © 2005, 218 pages, $25.00 (ISBN 1-59139-720-0).

Productive Friction and Dynamic Specialization

Business strategist John Hagel III and innovation management expert John Seely Brown explain that there is only one way to gain sustainable advantage: Create an institutional capacity to work closely with other highly specialized companies to improve work faster. In other words, collaboration is the key to getting better faster. In The Only Sustainable Edge, they write that the race for market leadership will be won by those who leverage “accelerated capability” by using new generations of technology to support it and leveraging the specialized capabilities of complementary firms globally. This includes harnessing the new approaches to capability building that are emerging in China and India, using outsourcing to improve capabilities and shed nonessential activities, and determining where to best focus offshoring activities to access the best people.

The authors write that value and profit can be achieved — along with reshaped political, social and educational institutions — by business executives when they recognize the opportunity found in dynamic, non-zero-sum relationships. Companies must realize that they need other specialized players to deepen their capabilities more quickly. The people with whom we work hold the key to the acceleration of creatively building capability and the creation of new value. The authors explain, “By discovering new uses for the physical and intellectual property [e.g., patents and copyrights] we own, new capabilities in turn help make this property even more valuable.”

Working With Others

The authors write that there are three elements that are required to accelerate capability building: dynamic specialization, connectivity, and leveraging capability building across institutional boundaries. Although these elements are relevant to many political, social and educational institutions, in the commercial realm, the authors explain, “the focus for value creation and value capture is shifting from product and financial markets to talent markets. Institutions that can do the most effective job of accelerating the building of capability will create and capture value — the rest will inevitably fall by the wayside.”

To effectively get better faster by working with others, the authors write, organizations must master the mechanism of productive friction. This is the friction that can shape learning as people with different backgrounds work with each other on real problems if these people are provided with the right context. It is most valuable when it exposes people to different perspectives on problems and their possible solutions.

By orchestrating dynamic specialization, connectivity and leveraged capability building to move quickly from limited capabilities to leading-edge capabilities, organizations can create a powerful bootstrapping dynamic. The authors write that, over the next several decades, global patterns of economic development will be shaped increasingly by the relative convergence of these three elements. This convergence will spur both incremental and breakthrough (or disruptive) innovations.

The authors describe in detail how emerging markets in China and India will lead to disruptive innovations in both products and processes. They explain that these innovations will come about “as companies race to serve the needs of growing middle classes that demand higher levels of performance at lower prices.”

Dynamic Specialization

The authors write that we are currently seeing a wave of dynamic specialization building momentum and offering the prospect of breakthroughs in productivity on a global scale. For example, health care institutions are seeing major gains in productivity as they become more specialized in dealing with certain types of illness.

The authors point out that Indian entrepreneurs are driving many of the initiatives to create more specialized health care providers so more people can get access to better-quality care at lower prices. To meet their aggressive performance targets, they are redesigning their institutions from the ground up. Cardiac care institutions, such as Narayana Hrudayalaya in Bangalore, demonstrate the value of specialization in medical care. A recent study predicts that “medical tourism” could generate $2 billion in annual revenue in India by 2012.

By presenting these types of changes, The Only Sustainable Edge offers readers a glimpse of how value creation will increasingly focus on talent markets, rather than product markets or financial markets. The authors write that a company’s ability to attract, retain and develop talent will define comparative advantage for the enterprise. ~

Why We Like This Book

The Only Sustainable Edge encourages senior executives to take a serious look at the future of business, and provides many useful examples of companies that have been able to tap the possibilities of specialized capabilities and developing talent. The authors also show companies the best approaches they can take to develop appropriate strategies for the future. ~

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