Defend your core by going abroad

The Only Sustainable Edge

November 9, 2006

The Only Sustainable Edge is not a general book on strategies, which have enabled companies to strengthen their core businesses, by reducing costs and improving efficiency, but have thereby reduced future core business opportunities. Growth opportunities have migrated to the "edges" of companies, industries and the global economy, so this book offers a "forceful reinvention of business strategy and the very nature of the firm".

Its authors, John Hagel (formerly with McKinsey) and John Seely Brown (formerly with Xerox), insist that "edges" are where the action is. This may be where economic entities - not least firms and markets - interact with each other. More broadly, there are "edges" between generations where, shaped by pervasive IT, younger consumers and employees learn and collaborate, while baby-boomers retire or switch careers and companies have to adapt their offerings to stay in business. New are large geographic edges where consumers in rapidly growing economies such as India and China crave Western goods or services, while their compatriots export low-cost products in competition with Western businesses.

The authors see edges as important because they contain the next sources of innovation and value creation. But, as the example of Asian competition shows, edges also imply threats. Unless the company can capture enough edges today, it will have no core tomorrow. The authors therefore identify "imperatives" on which managers should focus. One is "dynamic specialisation", which they link with outsourcing at home and "offshoring" - to use the Americanism - abroad while they recognise that creating such opportunities overseas inevitably brings related challenges.

Rightly, this issue is powerfully discussed. When an economist as revered as Alan Blinder refers to "the third industrial revolution", in which 40 million US jobs will head overseas, we cannot play down the challenges facing business and government. While the authors' analysis of offshoring makes clear the threats of globalisation, it also points to ways of sensing the excitement that offshoring can offer.

Their descriptions of developments in companies such as Li and Fung of Hong Kong are challenging to Westerners and should lead Western businesses to consider seriously the authors' suggestion that "the entire senior management team and the board of directors should... spend at least a week together, visiting key offshoring centres and meeting with executives of companies already active there".

The second imperative, "productive friction", calls for the creation of situations where the task set for groups of managers, with diverse but appropriate specialisations and characteristics, is to resolve business issues creatively, and outsourcing/offshoring provides one obvious opportunity.

Most of us will recognise the challenge that working in this way poses. As the authors put it: "When people with diverse backgrounds, experiences and skill sets engage with each other on real problems, the exchange usually generates friction - that is, misunderstandings and arguments - before resolution and learning occur." They also argue that "most business executives have become conditioned to believe that all friction is bad". On the contrary, Hagel and Brown say, only if we can effectively embrace, even foster, such friction, drawing especially on new developments in fields such as IT, can we learn to manage "edges" effectively.

This leads the authors to "the only sustainable edge", which is "accelerated capability building". A successful business must, above all, develop and use world-class capabilities as "platforms for aggressive growth". Again the authors link this with offshoring, pressing businesses to collaborate with carefully selected companies, often from overseas, each pushing the other to improve performance.

This is a highly relevant volume for all attached to businesses and business schools. Yet, from the very beginning of the prologue, Hagel and Brown insist that "the book actually puzzles through problems quite common to policymakers, educators and leaders of non-governmental organisations".

This is surely overselling. Non-business organisations do face similar challenges to those for businesses, but I believe the context for organisations and executives outside business is sufficiently distinct to call for a different book.

Given their emphasis on the role of IT and the web as sources of change, Hagel and Brown unsurprisingly offer us all the opportunity of visiting  and also  and . I hope that thus updating us on their "research and findings" will mean that these websites track how practices such as outsourcing and offshoring are developing, and what this implies.

Sir Douglas Hague is an honorary fellow of Templeton College, Oxford, and an honorary visiting professor, Manchester Business School.

The Only Sustainable Edge: Why Business Strategy Depends on Productive Friction and Dynamic Specialisation

Author - John Hagel III and John Seely Brown
Publisher - Harvard Business School Press
Pages - 218
Price - £14.99
ISBN - 1 59139 720 0

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