Organizational Dynamics, Vol. 34, No. 1, pp. 6376, 2005 2005 Elsevier Inc. All rights reserved. www.organizational-dynamics.

com

ISSN 0090-2616/$ see frontmatter doi:10.1016/j.orgdyn.2004.11.002

Leaders Beware:

Some Sure Ways to Lose Your Competitive Advantage

HAO MA RANJAN KARRI

INTRODUCTION
From In Search of Excellence by Peters and Waterman of the 1980s, and Built to Last by Collins and Porras of the 1990s, to Good to Great by Collins of the 21st century, business bestsellers have helped articulate and popularize the varying paths toward the holy grail of competitive advantage. They have proled the success of many leading rms that dened the standard of excellence at the time. Yet merely a decade or so later, quite a number of those once excellent rms have had to struggle; competitive advantages for those strong-built rms did not exactly last. Is a tough, turbulent environment solely to blame for a sort of bad luck? Or is it possible that leading rms own actions contribute to their fall? Simply put, what destroys leaders competitive advantage; how do they actually lose it? On this question, bestsellers often remain silent. In the academic literature, the process of creating competitive advantage has been addressed from a variety of perspectives. For instance, the market-power approach emphasizes the importance of industry positioning; the resource-based view focuses on unique rm resources and capabilities; the commitment approach treats irreversible

resource commitment as both necessary and sufcient for sustainable advantage; and the Schumpeterian perspective centers on the core concept of innovation as source of advantage. Although the dominant perspectives of strategy literature mentioned above allude to the causes of competitive disadvantage, it is the omission of conceptual development on destruction of competitive advantage that motivates our research. Understanding destruction of competitive advantage is an important endeavor, especially in the context of explaining rmlevel decline during economic downturns. This may help to better explain decline at the rm level, rather than to simply blame macro-economic conditions such as lack of demand growth, recession, unemployment, tariffs, or the lack of tariffs. While blaming macro-economic conditions may be tempting and indeed self-serving for managers, it may also keep them from understanding rm-level contributors to the decline in competitive advantage. In this paper, we propose a framework to elaborate on the destruction of competitive advantage for leaders in the market. Given the scant attention to this important strategic issue, this effort has both theoretical value and practical relevance.
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FADING GLORY OF FALLEN LEADERS

There are several examples of leading rms that lost their competitive advantage across a wide range of industries. Some of the erstwhile leaders closed shop, and some are struggling to keep aoat in turbulent waters.  For more than a century, Eastman Kodak was a successful pioneer in the photography industry. Kodak was to the photography industry as Ford Motor Co. was to the automobile industry, and yet it lost the advantage it enjoyed. Is that because of new entrants armed with new technology, or is it because of Kodaks refusal to embrace changing trends in consumer preferences?  United Airlines Inc., the second-largest air carrier in the world, led for bankruptcy protection to restore the company to long-term nancial health. United was successful in holding on to a differentiation advantage based on high quality service, by building the Star Alliance network that maintained a strong customer base, among other initiatives. While the entire air carrier industry was affected by the 9/11 terrorist attacks, Uniteds woes are perhaps due to a more fundamental problem of loss of control over costs. Did Uniteds recent truncation efforts result in the creation of its small air carrier called Ted, or was it Uniteds eagerness to jump on the small is beautiful bandwagon to keep abreast of competitors who are willing to y customers for a Song (Deltas low fare carrier)?  Sears, Roebuck & Co. is the quintessential American retail giant that experienced a near-death experience despite its glorious past. By 1999, Wal-Mart Stores and The Home Depot Inc. had crept into the list of the thirty Dow Jones Industrial Average companies, unseating Sears, which had been part of the list since 1924. The highly diversied retailer, hurt by severe competition from the likes of Home Depot, Wal-Mart and Target Corp., got rid of its credit card operations and made acquisitions to bolster its quality image. Is Sears not aware of the faltering image that compelled it to
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reach out for Lands End, or is the acquisition really a well thought-out move to bolster its failing reputation?  Commodity futures traditionally involved goods such as oil, agricultural products, meat and coffee. Who would have thought of trading in energy futures or bandwidth futures? Brilliant and innovative business ideas propelled Enron Corp. from a distributor of natural gas and owner of a large network of gas pipelines to a gigantic market maker. The story of Enrons collapse is now part of folklore. Was it the case of a few bad apples, or was Enron a victim of its own meteoric rise? There is a litany of rms such as Enron, Adelphia Communications Corp., Global Crossing, WorldCom Inc., Parmalat and Vivendi Universalto name a fewwhere top management squandered and ravaged the wealth and competitive advantage built over several years. While it is easy to attribute the cause of rm failure to dishonesty and greed of top management, it is also imperative to understand the context that allows such disasters to occur.

WHAT DESTROYS COMPETITIVE ADVANTAGE?

We focus on Eastman Kodak to understand what triggers the destruction of competitive advantage. Kodak is an excellent example of how a company lost its advantage and how a company can attempt to regain its advantage. Based on the facts illustrated in the case outlined in Fig. 1, the key strategic issues facing Kodak include: (1) attacks on market share and global position, (2) the explosion of digital infrastructure, including the Internet, (3) rapid advancements in digital technology applications in photography, (4) the increase in the number of competitors resulting from the use of digital technology, and (5) slow growth in the traditional camera industry (Kodaks mainstay segment). Initially, Kodak ignored the potential threat from advances in digital photography. Later Kodak was compelled to pay attention

to the promise of digital technology in imaging. Despite its initial attempt at investments in research and development (R&D), Kodak neglected the comprehensive nature of digital photography markets. The major environment shift caused by advances in technology acted out Moores law in the digital camera market. By 2001, digital cameras had become extremely popular, and the trends suggested that digital photography

was bound to overtake the market for traditional photography. Kodak decided to focus on the application of digital technology in wholesale and retail photonishing, and to expand their presence in emerging lm markets. Kodak was arrogant enough to wager on the potential of markets for lm photography in India, China and other Asian countries. Kodak assumed that the consumers in developing countries could not afford the

FIGURE 1 KODAK: MOMENT PASSED AWAY . . .. DIDNT

GET THE

PICTURE?

FIGURE 1. Continued .

high prices of digital cameras. Currently, the trends suggest that digital photography is slowly becoming the norm in the rapidly growing economies of India and China. Rapid growth in digital technology had an impact on Kodaks current nancial situation and position within the camera and lm industry. Specically, digital technology threatened Kodaks mainstay lm-based segment. Dynamics within the market have Kodak on the defensive and reacting aggressively by engaging in erce price-cutting tactics. Such posture poses the risk of losing protability from its lm segment and the further risk of losing its status as the leading lm manufacturer. Thus, Kodaks future health faces a double threat. On one side, competitors such as Fuji are chipping away at Kodaks protable consumer lm business. On the other, the technology revolution is undermining Kodaks conventional camera and lm interests. Kodaks initial ignorance, followed by its negligence and arrogant posture, combined with the major shift in the technological environment caused by the convergence of several industries, attracted a host of new and formidable competitors. Kodak found itself in unfamiliar territories, including desktop printing and digital storage. Taking
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advantage of Kodaks reluctance to enter the digital market, rivals like Sony Corp. made aggressive entry into the market and developed the market by taking a lead in setting standards. Kodak is now alleging that Sonys infringement of Kodaks patents is an act of sabotage. As seen in the example of Kodak, multiple triggers are often at work initiating the destruction of a leaders competitive advantage. These triggers, internal or external to the rm, spontaneous or purposeful, interact and jointly affect the rm. However, for analytical purpose and ease of presentation, we examine each one of these triggers in depth. Then we try to make sense of the whole phenomenon of competitive advantage destruction in a more integrative manner by exploring the potential linkages and patterns among the various triggers (Fig. 2).

INTERNAL TRIGGERS OF DESTRUCTION Ignorance

Leading rms can lose their advantage due to their own lack of knowledge of the drivers of their success. Firms may not be aware of the

FIGURE 2

TRIGGERS

OF

DESTRUCTION

existence or importance of their core competencies. Certain resources are unique and valuable because they are socially complex and causally ambiguous. Because of such subtleties, the owner of unique resources that provide sustainable competitive advantage may not be aware of the cause of competitive advantage. Thus, the rms management may ignore their unique resources. For instance, inappropriate hiring of new personnel who do not t in with the existing culture could jeopardize a superior organizational culture or mode of teamwork. A company that thrives on its dedicated and loyal employees may lose its edge if it tries to substitute people with machines in order to save short-term overhead costs. Managerial decisions with regard to acquisitions are spontaneous and without much thought to the potential problems in integrating organization cultures. AT&T Corp.s acquisition of NCR Corp. in the early 1990s yielded negative results, owing to the

disparate nature of the corporate cultures in the organizations. NCRs strong conservative (hierarchical) culture was at odds with the open work environment of AT&T. Managerial ignorance results in blinding some rms to external threats that emerge spontaneously. Actions of the rm arising out of ignorance can lead to shocking unintended consequence, such as eliciting strong retaliation from competitors, attracting environmental lobbyists or legal actions. Enhanced awareness about the nuances of each market will prevent rms from being surprised. General Motors Corp. got a rude awakening when they decided to introduce Buick Lacrosse in the Quebec market, as they were not aware of the colorful meaning of Lacrosse in French Canadian slang. As proclaimed by Sun Tzu centuries ago, know yourself and know your enemy. Take a good look at your own rm. Do an internal audit from time to time and assess your strengths and weaknesses. Know your com67

petitive advantage and its underlying sources, for what you do not know may cost you.

work When youve had a long string of victories, its harder to foresee your own vulnerabilities. Leslie Wexner, CEO, The Limited, Inc. Arrogance is not an uncommon trait of successful leaders. Arrogance leads to complacency and, as a result, rms develop blind spots to threats in the competitive environment. Blind spots make the rm highly vulnerable to spontaneous attack from competitors. Successful rms have their own paradigms that make them blind. Shifts in paradigms are required to bring about change. Mainframe computers are the basis of IBMs dominance; its reluctance to accept the advent of personal computers led to the erosion of competitive advantage. The same core competencies that help rms gain competitive advantage become core rigidities due to inexibility and shortsightedness. Think about the engineering and organizational apparatus Henry Ford set up for the making of the once perfect Model T. Despite its history of being in the leadership position, Ford Motor Co. was unable to embrace the total quality paradigm, thereby yielding its advantage to its Japanese rivals. Destruction of competitive advantage at Ford was quite apparent as their quality problems amplied in recent years. The arrogance of strong incumbents often blindfolds their top management teams and creates illusions that they are invincible. What worked before will always work. With this mentality, they unjustly belittle their rivals, mock their presence, and allow their smaller rivals to grow and experiment essentially unchallenged, until the rivals become too big to contain and too powerful to defeat. Think about Hondas famous entry into the U.S. motorcycle market, when Harley Davidson dismissed the Hondas as toys. Alternatively, think about the Wal-Mart encirclement of K-Mart Corp.s stronghold in the cities, or Fox Broadcasting Co.s ascent to an established and successful network broadcaster status thanks to the lack of major threats from the big three networks. Once

Negligence
Negligence and the lack of rewards and support for a skunk-works in a rm where innovation lies at the heart of its competition could also cause the rm to lose its advantage ` vis-a-vis rivals. Xerox Corp.s Palo Alto Research Center (PARC) pioneered the graphic user interface for personal computers. Yet due to the negligence of top management of the research done at PARC, Xerox failed to be a leader in the PC industry, giving away its initial advantage. Similarly, the fall of IBM Corp. and the rise of Microsoft Corp. in the software market illustrates the loss of IBMs competitive advantage in the software industry. The negligence of the top brass at Barings Bank of U.K. went so far as to let a selfillusioned traders bogus trading practice go unnoticed for so long that the accumulating loss almost rocked the bottom of the prestigious nancial institutions. Enrons fall is allegedly due to the negligence of its CEO, Kenneth Lay. If there is any credibility to Kenneth Lays I didnt know defense, the destructive impact of negligence is irreparable to the stakeholders of Enron. A rms top management might vaguely know its competitive advantage and its underlying basis; however, they might not be alert enough to match advantageous resource positions with emerging opportunity lines and commercial viability. Furthermore, failure in detecting accruing errors and, worse yet, failure in taking corrective measures, often give away a rms once enviable position, destroying its competitive advantage.

Arrogance
Success doesnt beget success. Success begets failure because the more that you know a thing works, the less likely you are to think that it wont
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a world-class engineering rm, Lucent Technologies Inc. was a victim of escalation of arrogance of company leaders. Arrogance at Lucent stems from their elite past, a culture that does not allow rapid changes in tune with the technological environment.

Overcondence
A rms competitive advantage can be destroyed through its own purposeful (in) action. At least two types of action can destroy or terminate competitive advantage: rms either do not appreciate the source of advantage, or do not want the source of advantage. Unlike arrogance, overcondence takes the form of apathy that arises out of a false sense of security experienced after success. Firms therefore see little need for purposeful strategizing and thus nd themselves in a storm. A rm may not appreciate a particular competitive advantage and easily gives it away. For instance, a major personal care rm in Shanghai owned a well-known brand in Maxim. In a joint venture with a foreign rm, it licensed its brand name to the foreign partner, allowing the promotion of the foreign partners brands. Years later, it found that the licensed brand was indeed a very popular one still attracting many loyal customers. The rm had to recover its brand by terminating the joint venture. However, the huge cost involved in this process taxed the rm heavily. Similarly, under-appreciation of a rms brand-image may also be reected in a rms choice to over-diversify and lose its distinctiveness. For instance, Liz Claiborne Inc., by diversifying into essentially every segment of the clothing business, washed down its distinguished image among professional women, its original target customers. Its competitive advantage over other designers in the career segment for professional women largely diminished. Advertisements featuring large, muscular, male drinkers gave Milwaukee-based Joseph Schlitz Brewing Company a macho image. As early as 1947, Schlitz became the worlds top producer of beer. Schlitz was successful

as a formidable rival to Anheuser Busch until the late 1960s. The overcondence of the rm led to a reckless expansion into a number of markets, including Hawaii; Shlitz eventually lost focus on its core message of high quality beer. Reveling in its success, Schlitz was far from being humble, as seen by its forays into diverse industriesranging from shmeal plants and shing eets in Chile and Panama, to a glass factory and a citrus concentrate plant in Pakistan. Finally, after an incident of hazy beer, consumer perception of poor quality sent the company in a downward spiral. Joseph Schlitz Beer Company was destroyed, and the only current presence of the brand is out of nostalgia; it is marketed by Pabst Brewing Co., a survivor of the old bastion of American brewing in the Midwest, now based in San Antonio. Similarly, overcondence combined with arrogance leads rms like Ford into activities outside their realm, resulting in stinging blows to their bottom line. For instance, Ford lost a billion dollars in 2001 because of its forays into trading a precious metal called palladium (used in the catalytic converters of SUVs).

Self-aggrandizement
Highly successful rms are often victims of their grand success. Chief executives of rms experiencing huge and rapid success are prone to actions that have more to do with ego fulllment than with the interests of the rm. Vivendis meteoric rise and fall in a span of ve years is a classic example of selfaggrandizement. Spearheaded by Jean-Marie Messier, Vivendi started off as a small group of diverse companies and rapidly grew into a large group through acquisitions in the telecommunications, Internet and entertainment industries under the pretext of the muchtouted convergence phenomenon. Messiers crafty persuasiveness resulted in the acquisition of Seagram (leading music publishing company in the U.S.) followed by the takeover of U.S.A. Networks. Messier became the head of Vivendi Universal, and multiplied its capitalization by four times. During the later
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part of 2001 (after the September 11 crisis), the shallow nature of the claims about the promised land made by Vivendi under the digital convergence phenomenon destroyed the company. Other notable examples are Enron, WorldCom and Tyco International, who lost their advantage due to their reckless pursuit of greatness fueled by initial success. The recently beleaguered Walt Disney Co. boss, Michael Eisner, is hailed as one of the most successful CEOs that corporate America ever witnessed, in a ranking that is no less than that of Jack Welch. Eisner achieved success through aggressive revamping of the Disney theme park business, and the decisive injection of strong doses of much needed creative power in its animation features. In the last ten years, however, Eisners suffocating micro-management style, at refusal to name a clear second in command, and super-sized compensation package even when Disneys stock value plummeted, all helped to contribute to loss of condence in him. The once unassailable Disney reputation and its host of competitive advantages due to customer goodwill, creative prowess, and service quality are at risk of becoming past memories. Mickey Mouse was perhaps a star larger than life. Eisner turned out to be an even bigger star than Mickey. In turbulent waters, a visionary and a decisive leader may save a rm from downward spiral and nancial distress. The irony is, however, that the same decisiveness or tyrannical power that once worked wonders isnt tolerated when the rms performance is in perennial distress. When a celebrated CEOs ego has to be massaged at the cost of the rms long-term success and its wealth creation, both the CEO and the rm lose.

Trade-offs and Missed Opportunities

Decisions to make trade-offs to pursue or enhance other advantages can result in termination of existing competitive advantage. In the early years of Sam Waltons retailing
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experience, he controlled more than a couple of Ben Franklin franchises. His advantages in the variety store business abounded; his franchises were ranked the best in sales and prot in the entire chain and among the best in the region. At that time, discount retailing only barely showed its potential; Sam Walton went against the industrys convention by launching Wal-Mart in small towns. However, discounting triumphed. The competitive advantage accumulated in Waltons variety store business was terminated voluntarily. Walton was not narrow-minded about his success in managing variety stores. He was decisively shedding-off the variety store mentality and embarking on a path that totally embraced the discounting concept, laying the foundation for the success of Wal-Mart. Similarly, consider Intel Corp.s exit from the memory chip business and entry in to the microprocessor business. Ted Turner moved away from the highly protable billboard business he had inherited, to the television business. Currently, Sun Microsystems Inc. is facing a similar problem. Sun Microsystemss decline is due to its unwillingness to shift course from its expensive R&D-intensive strategy. Scott McNealy was eventually compelled to settle his differences with Microsoft by entering into an agreement to allow Suns computer servers to run Windows programs. Sun also missed several opportunities; for example, it refused to adopt Intel chips, thereby yielding advantage to Dell Computer Corp. in the low-cost sever market, and did not take advantage of its acquisition of Cobalt Networks to develop the market for Linux. It appears that Sun is now stuck in the middle in Michael Porters terms, with its intent to be a contender in both the low-end server market and the highend software technology market. A rm has to know when to forgo an advantage (often a diminishing or potentially obsolete one) to gain a more important one for the future. As discussed earlier, attempting to hold on to a competitive advantage that has past its time may be even more harmful than voluntarily destroying it.

EXTERNAL TRIGGERS OF DESTRUCTION Imitation

Intense competition in domestic marketsdue to small market size, demanding customers, and a large number of competitorskept Japanese automakers on their edge. Such intense competition helps rms hone their skills and leads to competitive advantage as they expand into international markets. On the other hand, competition is capable of destroying competitive advantage through substitution and imitation. Imitation by competitors drives down a pioneering rms competitive advantage. Imitation often reduces the differential between the pioneering rm and the imitators in technological know-how, product distinctiveness, and manufacturing costs, hence destroying pioneering rms competitive advantage. For instance, although Intel pioneered the PC memory device business, the Japanese rms that quickly imitated Intels products and technology eventually drove Intel to make a deliberate decision to exit the business. Apple Computer Inc.s Macintosh derived its superiority and uniqueness from its graphical user interface (GUI), originally invented at Xeroxs Palo Alto Research Center. Graphic icons and the use of a mouse represented a big difference in ease and convenience compared with rival PCs running on Microsofts DOS operating systems. Microsofts ingenuity lies in its ready willingness to develop application programs on the Macintosh platform. The stealthy imitation by Microsoft resulted in the eventual dominance of the Windows operating system, nullifying the advantage held by Apple. After ignoring Southwest Airlines Co.s lowcost strategy, major airlines such as Delta and United began to imitate the low-cost carriers strategy with their own version of low-cost carriers, Song and Ted, respectively. WalMart, the torchbearer of successful discount retailing, is not beyond the temptation to imitate its competitors. Targets innovative introduction of apparel lines by popular

fashion designers prompted Wal-Mart to introduce the trendy George line of garments. Such imitation did not meet with success either with the airlines or with leaders such as Wal-Mart. Imitation can be competitive suicide, as the imitator is trying to play in the leaders home courts, where the leaders possess superiority in market and/or resource positions. Imitation with an innovative twist, however, may well turn the table against the leaders. Consider the rise of Japanese and Korean rms against Intel in the memory device business. On the other hand, consider Samsung, a latecomer, against Sony, a widely acknowledged pioneer. Do not write off a humble imitator too quickly. Imitation is the sincerest form of attery. Imitation is also the most deadly sugarcoated bullet that kills.

Competitive Substitution
Competitive substitution can happen at both the product level and the technology level. First, a rival can neutralize a rms product advantage by offering a substitute product that matches or surpasses the quality and/or function of the rms product, or one that simply downplays the uniqueness of the rms product. For instance, Compaqs IBM clone effectively neutralized the IBM PCs competitive advantage by offering a substitute product that was cheaper, with the same functionality and technology. Second, a rm can use substitute technology to bypass the technological barriers raised by the incumbents. For instance, Canons New Process technology in its plain paper copier helped minimize the technical advantage Xerox had held for decades. Amazon.com, Inc. succeeded in eroding the competitive advantage held by leaders Borders Group Inc. and Barnes & Noble, by entering the book retailing industry. By leveraging the capabilities of conducting commerce on the Internet, Amazon challenged the conventional mode of book distribution, compelling the incumbents to incur large investments to ensure their survival. While Barnes & Noble survived the
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onslaught of a number of retailers on-line, Borders conceded victory and decided to collaborate with Amazon. Substitution is often less easy to detect than direct imitation, which operates in the immediate domain of the leaders. A substitute rm often sails from a neighboring industry or areas outside the leaders radar. Incumbent leaders may not clearly identify the substitutors as serious challengers, due to the rivals seemingly nonthreatening manner in their initial foray into the leaders competitive maps. Direct imitation reduces incumbent leaders action space and chips away at their advantageous positions. Substitutors move the mountain and sea. They make the leaders games irrelevant and their corresponding core competencies obsolete.

Environmental Shift
Environmental changes can invalidate advantages of certain rms. Changes in social cultural trends, technological developments, and government regulations are among the major causes that can destroy certain rms competitive advantage. First, cultural trends change consumers perception of different rms in an asymmetrical fashion, creating competitive advantage for some rms while destroying competitive advantage of others. For instance, the health craze in America in the past two decades severely tarnished the brand-image advantage of KFC, while enhancing the promotional advantages of rms like Nike Inc. Second, changes in government regulation also affect a rms competitive advantage. For instance, increased governmental regulation diminished the competitive advantage of the tobacco industry. Similarly, the deregulation of the commercial banking industry brought a huge wave of consolidation, making the prior competitive advantage of many regional banks disappear because they now have to compete against large-scale national banks. Third, advances in technology can also affect rms in an asymmetrical fashion by
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redening the relative position of rms on certain strategic dimensions. For instance, Internet-based e-commerce allowed smaller players in the encyclopedia business to challenge the dominance of Encyclopedia Britannica. On-line offerings of encyclopediatype products largely changed the intense personal selling nature of the business, rendering Encyclopedia Britannicas huge sales force obsolete. Environmental shifts often redene the relevance of participating rms resources and capabilities. They may threaten the leaders positions from places where the leaders least expect it. General or macro environmental factors such as political upheaval, sociocultural trends and technological advancement may rock the foundations of leading rms. Incumbents nd it difcult to monitor imitators or substitutors, as they do not exactly initiate the changes in the environmental factors. The challenge to incumbent leaders is therefore even more daunting in this scenario.

Bad Luck
In imperfect markets, rms can enjoy competitive advantage over rivals simply because they are lucky. For instance, they could have acquired certain valuable resources in certain historical events, precluding other rms from acquiring the same resource. Just as luck has a role in a rms competitive advantage, bad luck or hazardous events are capable of destroying the position held by leaders in industry. Avian u in Asia poses a great threat to KFCs advantage, built on its motto We do chicken right. Similarly, the publics fear of footand-mouth disease had severely hurt the entire beef producing and marketing industry in North America and beyond. Crisis management is the key to prevent the loss of competitive advantage due to unforeseen events. Johnson & Johnson narrowly escaped its precarious situation following the deaths caused by cyanide-laced Tylenol tablets in 1982. Quick response and creative remedies in tragic situations arising

out of bad luck should prevent further damage. This should be true especially for single product line rms, for they have nowhere else to escape to and nothing else to lean on.

Sabotage
Internal acts of sabotage are not uncommon, as evidenced by the recent regularity of criminal trials prosecuting top managers. However, our concern is with the acts of sabotage competitors undertake to undermine the advantage of leaders and pioneers. Ensuing legal battles are waged at a great cost, resulting in the victory of the mightier and loss of the pioneer. Microsoft forced its way to become the dominant player in the Internet browser market by bundling its browser with its operating system, and by insisting that PC manufacturers place Internet Explorer on the desktop. Knowledgeintensive industries such as pharmaceuticals and software are constantly under the threat of deliberate patent infringements. While it is possible for pioneers to protect intellectual property rights, there are numerous possibilities for acts of sabotage by rivals. For instance, Cipla Ltd. a pharmaceutical manufacturer in India, introduced generic AIDS drugs at $350 per patient annually, compared with $15,000 for patented drugs from the pioneers of AIDS drugs such as BristolMyers Squibb and GlaxoSmithKline. AIDS being a serious problem in poor developing countries, the move made by CIPLA is an act of sabotage detrimental to the massive investments of leaders in the industry. Any move made to protect patent rights, however legal, is not viewed sympathetically, given the acute need for affordable AIDS treatment. Generic drug manufacturers in China dealt a damaging blow to Pzer Inc. when Chinese authorities overturned the patent for Viagra. (Anti) Competitive acts of sabotage are best dealt with proactive measures. Anticipation of rivals actions and containment strategies are the best defense. Containment strategies not only involve defensive posturing, such as litigation, but also offensive

actions that prevent acts of sabotage by competitors. Cooperation and cooption of potential competitors help create disincentives for any damage-inicting activity. For instance, multinational pharmaceutical rms now set up shop in India by entering into cooperative agreements and establishing wholly owned subsidiaries.

MAKING SENSE OF ADVANTAGE DESTRUCTION: PUTTING IT TOGETHER

A useful approach to understanding rmlevel decline would be to identify some of the triggers and relate the events that followed at the rm level. Triggers of destruction originate either at the top management level or due to events in the external environment. The airline industry serves as a good context to understand the triggers. The September 11, 2001 terrorist attack is an external trigger that was sudden (spontaneous) for the airline industry. The consequent change in the industry environment was a major upheaval resulting in a series of managerial actions within airlines aimed at preserving their positions. United Airlines (UAL) suffered a severe setback in the aftermath of September 11 events, thus revealing the airlines inefciencies. In an effort to imitate the successful and resilient Southwest Airlines, UAL decided to take the deliberate action of launching a new airline called Ted. It is yet to be seen whether Uniteds actions are indeed effective in regaining its lost competitive advantage. Therefore, it is imperative to recognize that sometimes, spontaneous external triggers can cause a urry of deliberate internal actions that can lead to the erosion of competitive advantage. Similarly, deliberate actions by entities exogenous to the rm can trigger competitive actions that will result in loss of competitive advantage. For instance, deliberate government regulations in the auto industry with regard to fuel consumption triggered competitive rivalry in the new hybrid segment. Firms such as Toyota
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Motor Corp. and Honda made a deliberate commitment to developing new product lines to take advantage of the regulatory environment. China recently passed legislation that will require automakers to meet more stringent fuel economy standards. Ford, General Motors and Chrysler ignored and neglected the regulatory environments and as a result are highly vulnerable to Japanese rivals in the Chinese auto markets.

Rising from the Ashes: Kodaks Valiant Attempts to Regain Dominance

In 1997, advances in digital technology started to have an impact on photographyrelated applications. New competitors began to emerge. While Kodak had ignored the potential of digital technology prior to this, Kodak now paid lip service to its commitment to digital technologies. Wall Street reacted favorably, and Kodak stock was at an all-time high of $90 in February 1997. In 1998, Kodak formed deals to expand its digital offerings, including collaboration with Intel and Adobe Systems allowing consumers to manipulate, print, and send personal photos from their PCs. Kodak did not embrace the digital route in consumer products and as result, its market capitalization eroded substantially, with a loss of 73% in market value over a period of seven years. Kodak realized that it had neglected the pioneering opportunities in the emerging industry and in the year 2000, it began its efforts to leverage its competencies in traditional photography to digital applications. Kodak formed a joint venture with computer giant HewlettPackard Co. to develop photonishing equipment for digital photography; extended its push into the on-line photo business by buying the remaining shares (it already owned 51%) of PictureVision, a digital image storage service; and acquired Lumisys, a maker of digital imaging systems for the medical industry. In 2001, Kodak acquired Bell & Howells (now ProQuest) imaging operations. With the introduction of the popular EasyShare digital
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camera, Kodak is now the second-largest in the U.S. digital camera market with 18% market share (in number of units). Kodak plans to invest $3 billion to leverage digital technologies in the photography market. In March 2004, Kodak led a lawsuit against Sony for patent infringement. Kodak hopes to recover lost ground in the form of license revenues from Sony. Analysts speculate Kodaks return to the top in the digital camera segment. However, Kodak is now in the digital imaging business. Being the largest manufacturer of equipment is not enough. The convergence of personal computers, handheld computing devices, photography equipment, data storage and printing requires rms to integrate a number of technologies. Competitive advantage is gained by embracing the key technologies and leveraging them effectively to maintain leadership. Kodaks decision to acquire Nexpress (its joint venture with Heidelberg) and Heidelberg digital, to deliver large-scale color printing solutions, appears encouraging.

CONCLUSIONS
We presented an array of examples from various industries illustrating the numerous ways in which leaders lose their advantage. Stakeholders can benet highly from models that can clearly discriminate between selfserving attributions of managers and the more plausible set of variables outlined in this paper that lead to erosion of competitive advantage. Our framework has important and practical managerial implications in understanding destruction of long-held competitive advantage for market leaders by providing clearer explanations of decline at the rm level. In the world of business, rms win or lose; leaders come and go. Unlike sports, where one can toil in minor leagues for life, business has no minor leagueyou lose, and you are out. There is rarely any lasting place for the mediocre. Unlike a Hollywood actor, who can win an Oscar in his/her 1980s, a

CEO doesnt enjoy the luxury of multiple failing roles. CEOs worry about achieving competitive advantages when they do not have possession of them. They worry about losing them once they possess them, thirsting for even more. While Andy Grove claims that only the paranoid survive, or Ted Turner believes that perhaps the only way to be secure is to never to feel secure, Ralph Waldo Emerson long ago remarked, Every hero becomes

a bore;well, some sooner, some not. It is perhaps against human nature to ask leaders to be always on the alert. Complacency seems so natural when a leader is showered with success. Yet awareness of various potential pitfalls, we hope, will help the heroes last longer.

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SELECTED BIBLIOGRAPHY

The most inuential work on competitive advantage by far is Michael Porters Competitive Strategy (New York: Free Press, 1980) and Competitive Advantage (New York: Free Press, 1985). While the industrial organization school of thought inuences Porters work, an emerging literary stream is based on the resource-based view, which focuses on the internal rm capabilities. The resource-based view was advanced signicantly by the work of Jay Barney, Firm Resources and Sustained Competitive Advantage, Journal of Management, 1991, 17, 99120. Amongst a host of books on competitive advantage, a few bestsellers are by Jim Collins and Jerry I. Porras, Built to Last: Successful Habits of Visionary Companies (New York: Harper Business, 1994), and by Collins, Good to Great: Why Some Companies Make the Leap and Others Dont (New York: Harper Business, 2001). Gary Hamel and C. K. Prahlads book Competing for the Future (Boston, MA:

Harvard Business School Press, 1994) had a profound impact in understanding the basis of competition. All of the above books provide excellent examples of the decline and success of major corporations. The dynamics of competition in the fastpaced economy is the subject of a popular book by Richard DAveni, Hypercompetition (New York: Free Press, 1994). Pankaj Ghemawats work Commitment: The Dynamics of Strategy highlights the importance of commitment in strategy formulation (New York: Free Press, 1991). Schumpeter introduced the notion of creative destruction in the seminal work The Theory of Economic Development (Cambridge, MA: Harvard University Press, 1934). A more recent work by Richard Foster and Sarah Kaplan presents the reasons why once successful rms under-perform, with a rich array of contemporary examples: Creative Destruction (New York: Random House, 2001).

Hao Ma is a Professor of Management and EMBA Director of Beijing International MBA Program (BiMBA) at China Center for Economic Research (CCER), Peking University, Beijing 100871, China. He is also a Professor of Management at College of Business and Management, University of Illinois at Springeld, Springeld, IL 62703, USA. He earned his Ph.D. in Strategic Management from The University of Texas at Austin. His current research interests are the nature and causes of competitive advantage, multiple market competition, managerial decision-making, and the entrepreneurial process (Tel.: +86 10 6275 6573; e-mail: hma@ccer.pku.edu.cn). Ranjan Karri is an Assistant Professor of Management at Bryant University, Smitheld, RI 02917, USA. He earned his Ph.D. in Strategic Management from Washington State University. His research interests are in the area of strategic exibility, strategic leadership, entrepreneurship, and business ethics (Tel.: +1 401 232 6069; fax: +1 401 232 6319; e-mail: rkarri@bryant.edu).
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