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It’s essentially a holy grail for many businesses—identifying sustainable competitive advantage. But Chris Zook points out that it’s elusive for most companies. He notes that, on average, less than one in 10 achieve profitable growth over the course of a decade.
Zook is the former head of Bain’s global strategy practice. He’s also coauthor of the book Repeatability: Build Enduring Businesses for a World of Constant Change.
In this episode, he shares three key principles that can help your organization find and maintain an enduring competitive advantage—with real world examples drawn from IKEA, Enterprise Rent-A-Car, and Nike.
This episode originally aired on HBR IdeaCast in March 2012 . And just a note—we recorded this by phone. While the audio quality is not great, the conversation is. I think you’ll enjoy it. Here it is.
SARAH GREEN: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Sarah Green. I’m talking today with Chris Zook, a partner at Bain & Company, and co-head head of their strategy practice. He’s the co-author, with James Allen, of Repeatability: Build Enduring Businesses for a World of Constant Change. Chris, thanks so much for chatting with us.
CHRIS ZOOK: Oh, thank you very much.
SARAH GREEN: So part of what drew me to your idea is that, while you talk about this world of constant change, which sounds exciting and exhausting at the same time, your strategic prescription for companies is actually to focus on simplicity and to fight against complexity. Is that realistic in today’s world?
CHRIS ZOOK: Well, it’s quite interesting. The work in the book Repeatability was really borne of a paradox that we began observing, which was that from a database, we created about 8,000 businesses in the last 25 to 30 years at Bain & Company. We found that only now less than 1 in 10 companies achieve even a modest level of sustained and profitable growth over a 10-year period on average. And yet, the paradox comes in collision with a very interesting additional fact, which is that 9 in 10 executives nearly, when surveyed, say that they actually feel they face adequate opportunities in their business.
And yet, the reality is that only 1 in 10 actually succeed in achieving the targets. And when we began drilling down into this in what turned out to be about a three-year project on the root cause of more enduring competitive advantage in a world where it seemed shorter, we asked 377 executives what was the number one barrier to achieving their goals. And 85% of them answer it in a way that was related to the broad theme of complexity. They either felt it was becoming more difficult to react to an increasingly fast world in businesses that are more complex and more muscle-bound, or to see and perceive what they need to react to or internally to decide, and to mobilize, or to focus resources for a long enough period of time. But we were fascinated that it was not being in the wrong market, some amazing competitor move, some technology that they coveted but did not have that served as their main barrier. They actually cited, over and over again, this topic of complexity.
SARAH GREEN: So in your view, complexity– rising complexity– is not just like a bad weather system that’s moving through and we have to deal with it. It’s something that can actually be managed with the right strategic approach?
CHRIS ZOOK: Yeah, I think that the clash of complexity and speed, maybe several decades ago, was a world of long periods, of more calm, punctuated by brief periods of turbulence when those two things come into conflict. I think we’re now finding that, in a separate piece of work we did, for example, that we called “The CEO’s Agenda,” we asked CEOs what was their number one issue in their job.
And they actually said– and we’d never heard this before– they overwhelmingly said it was managing their time and energy in the face of growing complexity. And when we probed further, it was really a sense that the world is moving faster. I just came from Davos. In one talk after another, I would hear economists, and historians, and even the leader of the forum say that it was almost as if history was happening faster.
History is happening at warp speed. Product cycle times are shorter. Companies stay in their position for shorter times. There’s more you have to react to. And yet, institutions– whether government institutions or businesses– are more complex and slower moving, and therefore less adaptable. And I think adaptability is becoming much more a headline in the success factors of businesses than it used to be. A general direction and adaptability is proving to be one key element of success factors.
SARAH GREEN: Yeah. So that’s a little bit about the current moment we’re in. But of course, the idea of looking for a sustainable source of competitive advantage has been the holy grail for business for a long time. As you say, it’s about as common as a holy grail since no 1 in 10 of the companies in your study actually get to something like that. So how does Repeatability help companies get closer?
CHRIS ZOOK: Well, we began looking a lot more closely at the drivers of enduring success because we found many, many companies– a very large percentage– would have two, or three, or even four good years. But not very many, only 1 in 10, would achieve that on average for 10. And when you got to 15, the odds of success went down even more.
And so we began a process of interviewing CEOs, and executives, and building another database of about 200 companies with a lot of their practices and characteristics of their strategies in search of what we call the design principles of enduring strategies. And what we found were three design principles that, when all three were adhered to at a very high level, resulted in businesses, on average, being able to have as much as five to six times longer duration of maintaining competitive advantage. And all three of them we’re actually related, in some way, to the theme of simplicity. What we found– I guess the headline, in a way, for the whole study– is the idea that complexity proved to be the silent killer of profitable growth.
SARAH GREEN: Hm. So can you walk us through some of those principles quickly?
CHRIS ZOOK: Sure. The first one is much more borne of classical strategy. It is really the presence of an e
