An organization’s capacity to improve existing skills and learn new ones is the most defensible competitive advantage of all.

There is an important distinction between barriers to entry and barriers to imitation.

Competitive innovation works on the premise that a successful competitor is likely to be wedded to a recipe for success. That’s why the most effective weapon new competitors possess is probably a clean sheet of paper. And why an incumbent’s greatest vulnerability is its belief in accepted practice.

A study of the performance of more than 400 companies over 30 years reveals that firms find it difficult to maintain higher performance levels than do their competitors for more than about five years at a time. Long-term superior performance is achieved not through sustainable competitive advantage but by continuously developing and adapting new sources of temporary advantage and thus being the fastest runner in the race.

When we ask, “What works in all companies?” we’re looking for an absolute formula in a field — competition in a marketplace setting — that is inherently relative. The answer is, “There isn’t one formula.” If everybody in the industry follows the same prescription, they won’t all be successful. Once we accept this, we’re in the realm of making judgments under uncertainty that are different from the judgments our rivals make. If everybody knew how to be different from their rivals in the best way and everybody did it, they would no longer be different from their rivals.

Competition brings out the best in products and the worst in men.

In business, unlike in nature, the fittest often survive by helping create the environment that favors them.

Most organizations are good at collecting internally focused data, but few systematically provide insight about a company's external environment. For example, only 21 percent regularly track how their competitors are performing. Business is not an us-vs.-us exercise, yet management reports rarely touch on the world outside.

If you gave away every idea you ever had, people would still step up to ask you to help them, or do it for them. The same can't be said if you don't share with them at all. ...As our friend Sean D'Souza likes to say, "Give the ideas. Sell the system."

Over the past few decades, many companies have become obsessed with benchmarking-comparing their performance with rivals on industry-wide standard metrics. But benchmarking pulls companies in exactly the wrong direction, because it leaves them looking more similar to their rivals, rather than more different.

Lazy orthodoxies can allow new entrants to thrive in niches that seem full of capable incumbents.

Performing similar activities better than rivals may be essential to superior performance, but tends to drive companies to competitive convergence rather than uniqueness.

When growth rate exceeds the cost of capital, the competitive relationships become inherently unstable. Aggressive competition then produces revolution instead of evolution in competitive relationships.

It is possible to demonstrate that at various stages of product development the critical strategy element shifts from technical lead, to financial resources, then organization policy coordination and finally to market share.

It is also possible to demonstrate that competitive equilibrium is highly unstable under certain conditions, conditionally unstable under others, and finally the equilibrium will become almost certainly essentially stable.

Failure to gain market share even with superior costs is failure to compete. This failure is also a failure to achieve even lower costs.

The majority of the products in most companies are cash traps. They will absorb more money forever than they will generate. This is true even though they may show a profit according to the books of account. Continued investment sends good money after bad. Escape from the trap requires extreme measures. Either stop investing and manage solely to maximize cash withdrawal, or invest so heavily that a leading position is reached in the market.

...Prices could be lower to customers and profit could be higher at the same time if all competitors would recognize their cash traps and stop wasting money on them. Anytime there are more than two or three active competitors in a given product-market segment, then someone is making a mistake. The leader may be failing to compete by holding an umbrella over higher cost competition at his own expense. Or, it may be that competitors are caught in cash traps. Either way, there are major opportunities being lost.

The fact is that some markets yield more opportunities for advantage than others, and some none at all. Some companies invest heavily in pursuit of the mirage of a secure future competitive edge. Nowhere is this more likely to end in disappointment than where there is blind faith in the value of market share or in the rewards of technological superiority.

Many executives believe that competitive advantage is best achieved by providing the most value for the lowest cost. This is the traditional paradigm for corporate success. Providing the most value for the lowest cost in the least amount of time is the new paradigm for corporate success.

Any dimension of performance that is the basis of competition must be a dimension on which existing offerings are not yet "good enough" to meet customers' needs. That is why they are willing to pay more in order to get more of it. On other dimensions, where performance is already more than good enough or simply not as important, still greater levels of performance will not differentiate a product in ways customers value. The most successful product in a given market at any point in time will be-all else equal-the one that is able to outperform alternative offerings on the basis of competition. Responding to the rewards of market dominance, firms rush to find ways to push the limits of what is possible in order to deliver the performance that customers are willing to pay for.

In the outsourcing realm, core competence thinking typically manifests itself as a prescription for firms to outsource IT-intensive processes because the IT elements that drive process capabilities rarely qualify as a firm's core competence. But outsourcing vendors make running IT infrastructures the focus of their business. For them, these activities are their core competence. This reasoning is encapsulated in marketing slogans such as "make your back office our front office."

Problems arise, however, when the processes these non-core IT functions support are, or become, a critical element of the value chain configuration needed to deliver improvements on that dimension of performance that is the basis of competition. In other words, just because something is not your core competence does not mean you should not do it yourself. The challenges of learning and mastering new capabilities are daunting and difficult, but the alternative is frequently competitive irrelevance.

When the performance of two or more competing products has improved beyond what the market demands, customers can no longer base their choice on which is the higher performing product. The basis of product choice often evolves from functionality to reliability, then to convenience, and, ultimately, to price.

While markets are competitive, competition works more slowly than we sometimes assume, i.e. customers can be slow to shift allegiance. This, however, is less a result of positive loyalty than of sheer inertia which means that customers put up with unsatisfactory products and services to a remarkable degree.

Let me suggest that the military metaphors should be replaced with the language of sports. Despite the desire to win, all sports have a cooperative element as well as a competitive element. One has to agree on the rules of the game, the referees, and what trophies go to the winners. One can want to win, yet remain friends both during and after the game. The economic game of the 21st century will not be economic warfare, but a game that combines the characteristics of World Cup soccer and those of world-class chess.

World Cup soccer is a fluid, aggressive game in which the desire to win is intense. Players must be superb athletes and capable of real teamwork. World-class chess, in turn, requires strategic thinking: the player who is planning his game five moves ahead loses to the player who is thinking six moves ahead.

Americans have never been World Cup soccer champions. Only once in recent history has an American been the world chess champion. Basically, Americans are going to have to learn to play a new, faster game. The rest of the world is not going to learn American football. In the economic game about to be played, Americans will have to learn to live with no time-outs, no huddles, and very limited substitutions. And they will need to learn the skills of chess - long-range planning and strategic moves. In the new economic game about to be played, Americans will have to acquire a lot of new skills.

[In the past,] a new product gave the inventor a monopoly power to set higher prices and earn higher profits. The inventor had a new product that others did not have. In contrast, a new process still left the inventor in a competitive business making a competitive product. The inventor's competitors knew how to make the product, and they could always lower their prices to match the inventor's prices as long as they were covering marginal costs in their old facilities.

In contrast, to establish a similar monopoly position by inventing new process technologies, it was necessary to drive one's competitors out of business completely. To do this, the new process technologies had to have average costs below the marginal costs of the old process technologies. Since marginal costs are typically far below average costs, an enormous (very unlikely) process breakthrough was necessary. Driving one's competitor out of business was also likely to get one into trouble with the antitrust laws. With new products, in contrast, there were no old competitors to be driven out of business. Since new process technologies were less profitable than new product technologies, it was reasonable for a firm to spend most of its R&D money on new product development.

Today, however, levels of technical sophisticationÂ…are not very different. Furthermore, reverse engineering has become a highly developed art formÂ…If I can make a product cheaper than you can, I can take it away from you even if you are the inventor. In today's world, it does very little good to invent a new product if the inventor is not the cheapest producer of that product.

Show me a [person] who is afraid to look bad, and I'll show you a [person] you can beat every time.