The Future of Competitive Advantage: Engineering the Future We Want

As you prepared for work today, did you do so with the belief that your company was working to save humanity? If you’re like the vast majority, the answer would be a resounding “no.” So firstly, my intention here is to convince you that your company does, in fact, have the power to do just that—the power to save humanity.  

But you’ll be relieved to know I’m not going to present my argument as a moral pleading. Your company, like most, exists to generate sales and profit. And that’s a good thing. So, instead, I’m going to present you with a business case. One that lays out not only how your company can change the course of humanity but, more importantly, why it may have little choice but to do so if it intends to thrive in the future economy. 

Without knowing who you are or who you work for, I can say without reservation that your enterprise has something in common with every other in your industry. And that is that you compete. Indeed, today, more than ever before, regardless of what you sell, you have unending competition. For about the last 80 or so years, the primary avenues of competitive strategy have been tactical things like customer service, selection, convenience, price, and product exclusivity. When those haven’t worked, some companies have turned to other tactical means like mergers and acquisitions. But for the most part, the lines of competitive advantage were clearly drawn and understood.

A New Era of Competitiveness

I am here to tell you that today, we stand on the cusp of an entirely new era of competition. One in which we will see these current and comfortable competitive pillars crumble, give way and be replaced by a new (and much-needed) set of competitive pillars. Pillars that are already being laid in place.

For example, imagine if, in 1994, someone had told you that by 2024, ”competitive advantage” would mean that retailers would begin producing their own fuel sources. You’d have thought they were crazy. However, as I write this, Amazon is doing just that. In a partnership with Plug Power, Amazon is now using an electrolyzer in its Aurora, Colorado warehouse, turning water into green hydrogen, which is being used to power the hundreds of forklifts and tow motors at work in that facility. It’s all part of the company’s push toward the goal of net-zero carbon emissions by 2040. But before you jump to the conclusion that Amazon is simply doing a solid for the environment, it’s important to understand that while the price of green hydrogen today exceeds that of carbon-based fuels, that is projected to be reversed by as early as 2030, with green hydrogen becoming not only more efficient but also more cost-effective than carbon-based alternatives. This is an innovation that, at scale, will afford Amazon a formidable, long-term cost advantage over its rivals.

More remarkable, perhaps, is that in this one move, Amazon has managed to do three important things: 

• Introduce an asymmetrical competitive tactic that steps outside the norms of conventional retail strategy, thereby throwing its competitors a knuckleball
• Build the potential for a long-term advantage in the sense that producing hydrogen is not simply something competitors can easily replicate or reverse engineer, as doing so requires an intrinsic organizational mindset and learning curve. 
• Most importantly, this is a tactic that contributes to repairing a broken societal system, which includes the damage done to our natural environment by fossil fuels.

All this got me thinking.

How It Started

The consumer world we see around us today, in all its enormity, is not accidental. It didn’t just magically happen. Rather, it is the direct product of a unique and historic set of societal systems that were established almost 80 years ago, beginning in 1945, on the heels of the Second World War. That is where the fuse for today’s global economy was lit.

With fascism defeated, the fresh breeze of democracy swept across most of the developed world. It was a period that saw unprecedented investments in education, job training, housing, job creation and domestic industry.

In Canada, so many military vets returned from war and enrolled in higher education that the campus of the University of British Columbia had to install converted army huts to house the overflow of students. Government subsidies such as family allowance were established. Free government hospitalization benefits were legislated, and loans for small business startups flowed freely. Investments in the growth of domestic industry fostered historic numbers of jobs with rising wages and benefits, and thanks to labour unions, worker protections like the 40-hour work week and overtime pay.

By the 1960s, the prospect of attaining higher education, home ownership, family creation and job security had become basic expectations for most. People could see their government actively working on their behalf. Sure, there were policy differences among conservatives and liberals, but they were minor compared to the collective political will to improve the lives of the average citizen.

One key byproduct of all this optimism, growth and economic security was babies—lots and lots of babies. By the early 1960s, the largest portion of the largest generation in history was between five and 15 years of age. The crest of a wave that demographers would later label the baby boom—a population explosion that would ignite the beginnings of our modern retail industry. From appliances, apparel and toys to lawnmowers, piano lessons and pets, families wanted and could afford more of everything. Consequently, the consumer goods industry burst at the seams.

Retail had only one problem, but it was a good one to have: keeping up with demand. It was a truly remarkable period of retail growth that reverberated well into the late 1970s and early 1980s.

So, if you’re a business that’s been around for more than a few decades, you were the direct beneficiary of this remarkable period. Because of it, you have been provided with a steady stream of trainable, educated workers, rising disposable incomes, burgeoning domestic growth and job creation, and political stability afforded by a productive and trusted democratic system of government.

How It’s Going

Flash forward to today, and the picture has changed. Once strong bipartisan government mandates have been replaced with increasing tribalism, partisan dogma, and invectiveness. Agreement is scarce, even on the most bread-and-butter issues. As a result, politicians have little consequence to show for their time in office, which has led to a widespread lack of trust in politicians of all ideological stripes. Even more shocking is the growing lack of public confidence in democracy as a governing structure. More than a third of Canadians, for example, claim to be dissatisfied with democracy—a metric that rises to a staggering 60% in the United States—heretofore a country self-described as “the world’s longest-standing democracy.”

Much of this distrust in our politics is rooted in economics because we’ve come from an era where if a retail company did well in any given year, frontline workers might receive a tidy Christmas bonus. Today, any available bonuses are reserved for executives and shareholders. Wages no longer rise with or above inflation but have lagged woefully behind inflation since the 1990s. In Canada, for example, the median annual wage of approximately $54,000 hasn’t budged in more than 30 years when adjusted for inflation. This condition is experienced to similar extents in most developed economies. In short, capitalism ceased to work for the average worker and began dispensing almost all of its gains at the top of the food chain.

In a few short decades, we’ve gone from a world where education, home, family, and material possessions like automobiles were packaged expectations to today, where young people have to choose which of these they will enjoy and which they will forgo. 

Take housing, for example. While wages for most middle-class workers have stagnated, real estate values in most major global cities have skyrocketed, forcing many to leave the dream of home ownership behind. That’s really bad news if you’re The Home Depot or any other home improvement retailer.

Birth rates, too, are plummeting as many young people either delay or forgo the cost of childrearing entirely. This is a catastrophic trend if you happen to sell baby clothes, formula, or strollers.

Rising fuel and insurance costs are putting automobile ownership out of reach for many, which spells disaster if you happen to sell auto parts or build toll highways.

In sum, we’ve gone from a place where the swelling tide of capitalism raised all the ships to a system that offers only yachts for the wealthy and life rafts for the rest.

When I attended university in the 1980s, you could cover your post-grad tuition with a part-time job. Today, a full-time job and tens of thousands in loans barely buy a Bachelor’s in Arts as tuition increases have far and away outpaced both wages and inflation. This is in large part because government investment in public education has all but dried up, forcing most Western academic institutions to ratchet up tuition costs while entreating more students from wealthy international families to pick up the tab. Thus, education is now a privilege available primarily to those who, it can be argued, need it the least and out of reach for those in our society who would benefit from it the most. 

But the punchline is that even if you manage to scrape together an education, it likely won’t prepare you for the dynamic and fast-changing work environment you’re entering. Indeed, a shocking percentage of executives surveyed today say that graduates often lack even the most basic academic skills to prepare them for their careers. The upshot is that unlike in the 1950s, 60s, and 70s, college and university enrolment today is dropping as kids question the pain-to-gain ratio of higher education.  For the first time in almost a century, young people are becoming less educated than their predecessors. 

Offshoring Our Future

Meanwhile, employment prospects for middle-class workers are dire, thanks to the increased movement of jobs abroad. From call centres to computer programming and even fast-food ordering, we’re now offshoring even the most menial and low-paid jobs to anyone in the world willing to work for less than a living wage.

Where we once invested in our own domestic businesses and products, today, we travel far afield in search of lower and lower prices, racking up monumental trade deficits in the process. For the last 30 years, China has been the world’s largest factory. For the next 30, it will be India, and after that, Africa and any other place where modern slavery remains acceptable. In the process, we’ve decimated a once-robust middle class, filled our oceans with plastic and our closets with petroleum-based garbage that will be out of style next year.

And for business, there is no longer a trusted, bi-partisan, democratic structure working for the common good. There is no more equitable system of capitalism raising the prospects of the average consumer, no more robust and widespread domestic investment or job creation, and no more steady stream of bright, educated workers filling the ranks of our industry. 

Crisis Meets Opportunity

At this point, you’re probably not feeling tremendously inspired. But you should be, because what I just laid out before you, while dismal and dire, are actually the pillars of the new era of competitive advantage—pillars that a small fraction of enlightened companies are already working to incorporate into their strategies. These businesses have awakened to a profound reality: The era of corporations selfishly extracting value from our societal systems is over, not because of some sort of new corporate consciousness, but rather because these systems have nothing left to give. We’ve bankrupted them.

Consequently, we have crossed over into a new era where competitive advantage will come, not through further extraction of value but rather through contribution of value. This is an era that will be marked by a historic rethink, the green shoots of which we are just now beginning to see emerge in the landscape.

Rethinking Democracy

It might surprise you to know that business has a vested interest in maintaining a healthy and functioning democracy. Because, as it turns out, democracy is good for business. As author and educator Donald Savoie put it, “A free-market economy is not possible without democracy, and democracy is not possible without healthy public institutions.” In other words, democratic institutions create the essential conditions for a free and fair market—a market where anyone with a good idea can succeed and where no limits are placed on their success. Healthy democracies ensure a system of equal opportunity where one need not be the child of an oligarch to occupy the C-suite. In short, capitalism loves democracy, and democracy thrives when capitalism works for all.

Therefore, it stands to reason that rather than spending billions lobbying against the government, rendering it feckless and ineffective, businesses would better serve their own interests by partnering with the government to jointly and positively affect social and economic progress. Indeed, government and business can and should be friends with benefits. Private-public partnerships afford governments speed to market, a leveraging of corporate expertise and enhanced levels of public trust. For companies, such partnerships open new business opportunities, enhance brand reputation and mitigate risk by giving them a seat at the table when regulatory measures are developed.

Case in point: CitizenShipper, a US-based company best described as an Uber for freight transport, created a competitive advantage by working with the United States Department of Agriculture to streamline the process for USDA animal transport certification for their network of drivers. This allowed CitizenShipper to become the number one pet transport company by marketing the USDA designation as a differentiator. In return, the USDA gained credibility by ensuring more animals are safely transported, earning them enhanced public trust as a government body. This is only one example of how private-public partnerships produce clear benefits for business but also work to restore trust in the effectiveness of our democratic institutions.

Rethinking Capitalism

I never thought I’d live to say this, but Walmart may well be rebuilding the American middle class. From raising starting wages for store associates to offering stock grants to store managers, Walmart has clearly been rethinking its view on capitalism. They’ve realized that unlike 200 years ago, the owner/investor no longer shoulders the majority of risk and is, therefore, not solely entitled to all residual returns. In today’s public market, with millions of shareholders, each holds only a tiny fraction of the total risk to capital. Put another way, if the Walmart stock in my mutual funds drops by a percentage point or two, it won’t send my life into a tailspin. However, if a Walmart in Lincoln, Nebraska, shuts down, it may indeed be life-altering for its employees. Today, employees shoulder most of the risk in businesses. It’s employees who can lose everything. Fairness would then dictate that employees should receive their fair share, if not the lion’s share of returns on positive corporate performance.

Because fairness matters, studies have clearly shown that equity and fairness boost employee productivity by at least 25% and employee retention by just as much. Yet distressingly, only 18% of workers in a recent worldwide survey feel they are treated fairly by their employers.

All this is to say that by raising the fortunes of its workers, Walmart is not engaging in charity but making a shrewd investment that will pay for itself many times over. However, I also believe Walmart, given its sheer size, has recognized something else. Suppressing wages has single-handedly driven a huge swath of the American middle class into the working class, thus stifling the spending power of its own target customers. If it were to stay the course of the old era, those working-class employees would fall further into the underclass. The underclass is not a great target market, whether you’re Walmart or any other retailer.

Rethinking Industrialism

In the 1980s, General Electric was among those leading the exodus of Western manufacturers to Asia in search of lower labour costs. Today, GE is repatriating a significant percentage of its production back to North America and creating tens of thousands of good-paying jobs. Why? They’ve recognized that the supply chain responsiveness and flexibility gained by doing so yields a lower total cost of production. In plain English, they save money by paying more.

But GE, as with Amazon and their hydrogen project, realizes something else. Institutional investors will no longer subject their capital to undue risks brought on by rampant labour offshoring and environmental destruction. The investment community now seeks the safe harbour of companies who maintain tight control of their operations and environmental footprint, two things that become increasingly difficult to guarantee as businesses push their labour, production and logistics further afield. By bringing production and labour home, companies are also recognizing dramatically lower logistics costs, reduced inventory and waste, better quality control, a smaller carbon footprint, and better protection of intellectual property—not to mention lowering their exposure to geopolitical instability. These are all things institutional investors are increasingly insisting upon.

And GE is only one of many companies driving the reshoring and nearshoring trend. A recent study by A.T. Kearny noted that “…American, Canadian, and Mexican nearshored and reshored industrial production efforts are continuing to take market share away from manufacturers in low-cost countries and regions—including mainland China.”

Rethinking Education

Target Corporation is paying university tuition for more than 300,000 of its employees. But don’t mistake this move as a simple act of generosity. Making employees smarter is a smart business move because it does two things. First, and perhaps most obviously, it makes them fundamentally more capable and productive at their jobs. Second, as Target itself has experienced, it dramatically reduces employee turnover, delivering a net cost advantage back to the company.

Likewise, Google is now offering programming certifications via Coursera for a mere $49 per month, making affordable and efficient education available to more people without the burden of debt. But in the process, Google is also creating a proprietary talent pool from which to pick new programmers rather than simply depending on the same stream of MIT and Stanford grads every other tech company is vying for. So, just like Amazon, Walmart, GE, and Target, Google is also contributing positively to society by creating a competitive advantage, offering people education without the mini-mortgage of debt other students are incurring.

I, for one, fully believe that within a decade, we will witness the rise of what I see as corporate-academic institutions, where a Walmart or Google University, for example, will hold equal, if not superior, status to Ivy League Universities. These accredited corporate-academic institutions will provide tuition-free, world-class education to those who commit to working for the company for a defined period, offering a combination of solid academics and applied, real-world, on-the-job learning. The net result will be yet another asymmetrical competitive advantage in the form of a proprietary flow of well-educated and highly capable workers filling the ranks of these companies while their competitors dredge the bottom of the academic swamp. And if the prospect of a Walmart or Amazon University sounds far-fetched, it’s worth remembering that our modern public education system had its earliest roots in educating workers to fill the ranks of 19th-century factories. 

Full Circle

There’s another important aspect of education that I’d be remiss in failing to mention. An educated public is more likely to maintain a healthy and stable democracy. The two go hand in hand, which feeds the virtuous cycle that our society, economies and future prosperity depend on.

The bottom line is this: the future of competitive advantage is not about shaving another tenth of a percent off labour costs by offshoring. It’s not simply a new cool store makeover. And it’s not about replacing people with robots or AI. The future of competitive advantage is a mindset, one based on the clear-eyed recognition that we, as an industry, have reached a critical fork in the road, where there is more risk in adhering to the status quo than there is in rethinking it entirely. As I often say, futurism isn’t about guessing at the future we get. It’s about engineering the future we want.

Engineering Your Future

I began this piece by saying it wasn’t a moral pleading but a business case, and I hope you feel that I’ve made that case effectively. But now, I’d like you to put your corporate goals aside and think about yourself. Think about your family and your community. What do you want for them? I suspect it includes a stable political environment, a living wage, an education and the opportunity to thrive. We all want to live in a country that is advancing economically and an environment that is clean, healthy and sustainable.

Well, what if by building these new competitive pillars today, you were also engineering that exact future? And what if every executive in this global colossus we call the global economy felt the same way? Just imagine the future we could build together.And if you feel that’s naïve thinking, I’ll offer you this: if the business world industry was big enough and powerful enough to cause the societal damage it has, it must also be implicitly powerful enough to repair it—powerful enough to save humanity.