Requiem for the Economic Moat: The Former Strengths of Industrial Age Companies

How do we keep an overview when the business world is changing dynamically?

Pundits and Media are busy telling us about the next big trend, drawing us into the next click.  Some of it may be interesting. But not all of it is signal, and more important not all of it is relevant for us specifically. The problem with noise is, it is very efficient in drawing us into many directions, sacrificing our focus and valuable resources.

Then how do we separate signal from noise?

We take a step back to determine the bigger patterns.

That’s why we will explore the transformation of the former cornerstone of  business success, the economic moat, also known as sustainable competitive advantage.

Some of it you may already be familiar with. May be even all of it. Nonetheless it will help us put many of today’s changes into a larger context. Like your school history lessons hopefully help you put today’s geopolitical happenings into a better perspective, our little history of the economic moat will enhance your understanding of what drives a business’ success in today’s world.

But before we dive in, let's have a quick look at how success factors of business have evolved over time.

When you play poker, do you continue with the strategy you started with in the first betting round, or do you adjust with each new set of cards? Since the Industrial Age, there have been quite a few sets of cards dealt. With each round, businesses have re-evaluated the skills that were needed to succeed in the marketplace.
Have a look at how we got where we are today.

 

We begin the story in the 1960’s

WITH MANUFACTURING

This era was about Manufacturing and owning factories. Capital, hard assets, and processes for manufacturing were key. Small players didn’t stand a chance against the powerful incumbents

 

... then came the 1990’s

DISTRIBUTION

Asian suppliers enabled cheap mass production and the economic upswing enabled mass consumption. As a result, mass marketing and mass distribution became critical for business success. Success was driven by access to capital, distribution channels, brand power, efficiencies in production and cost benefits through larger scale. All of this creates strong barriers to entry.

 

... to the 2000’s

TECHNOLOGY

Now technology and information start to enter the stage. New productivity tools enable companies to operate more efficiently, reducing the impact of scale. Product Development is gaining in importance as the speed of product lifecycles increases.

 

... and the Present Day

INSIGHTS

Low cost production tools, global factories and supply chains are now available even to small start ups. Production capabilities have been democratized, and as a result customer access and insights gain in importance. The advancement of data availability and analytics improve the ability of companies to generate these insights.