Living on the Fault Line
by Geoffrey A. Moore
HarperBusiness, 2000, 288 pages, $27
In Living on the Fault Line, Geoffrey Moore, author of the highly successful books Crossing the Chasm and Inside theTornado, continues his exploration of what it will take for companies to survive in the Internet Age. Specifically, he asks andanswers two fundamental questions:
- How does a company gain a competitive advantage today?
- How do you measure competitive advantage?
He attacks the second question first. His answer: shareholder value.
Why Stock Price Matters
A rising stock price reflects a successful strategy, writes Moore. The reason is that shareholder value does not only reflectpast performance, as commonly believed, but also the ability to sustain that performance in the future.
Specifically, Moore argues that competitive advantage consists of two dimensions: the competitive advantage gap (he usesthe acronym GAP for this dimension), which refers to the (metaphorical) distance between your products and those of yourcompetitors; and the competitive advantage period, or CAP, which refers to the length of time that you can sustain thatadvantage over competitors. The higher the GAP or the longer the CAP, writes Moore, the greater your shareholder value.Thus, an increase in shareholder value means that you are doing something right.
Levels of Competitive Advantage
The question is, What can you do right? How can a company increase its competitive advantage today? To answer thisquestion, Moore offers five levels of competitive advantage -- a step-by-step process for separating your company and itsproducts from those of your competitors.
Step #1, Moore writes, is to catch the technology wave. Technology lights the path to competitive advantage.
But technology alone won't do it. To transform technology into products and services that meet customer needs requires avalue chain. The battle here can take two forms: either attempting to hook into a new winning chain, or fighting competitorsfor a winning position in an existing chain.
At first, new value chains support a single market -- for example, the PC market. As the new market matures, however, it willdivide itself into market segments -- each with their winners and losers. After technology power and value chain power,market power is the third road to competitive advantage.
Whether competing for value chain domination or market segment leadership, companies will need to differentiatethemselves and their products in the two final steps of the competitive advantage hierarchy. First, companies mustdifferentiate themselves in execution. Here Moore uses the value disciplines offered by Michael Treacy and Fred Wiersemain their book, The Disciplines of Market Leaders. Treacy and Wiersema argue in this book that competitive advantage isgained by focusing on either product leadership, customer intimacy, or operational excellence.
Effective execution leads to differentiated offerings, which Moore only briefly discusses.
Chasms and Tornadoes
In the second half of the book, Moore adapts the concept of shareholder value-driven competitive advantage to thetechnology adoption life cycle he presented in his earlier books. Readers thus learn strategies for crossing the "chasm" (thehold period when a few "early adopters" have adopted a new technology, but the rest of the market has yet to follow) and forparticipating in the "tornado" (the name Moore gives to the period when a dominant application of the technology leads to asudden rush of demand). The tornado leads to "main street": the peak of the adoption cycle before demand starts to fall off.
Moore's knack for presenting his important concepts in clear, evocative language makes this book a pleasurable,thought-provoking read on strategy in the Internet era.
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