Is Concentration the New Competitive Advantage?


Technology has been a double edged sword for business. On the one hand, it allows companies to do all kinds of things they could never do before. On the flip side, it has slowly eroded many forms of competitive advantage by making many corporate tactics easy to imitate.

ZenPundit got me thinking this morning when he picked up on a Nicholas Carr post about the downside of our massive exposure to information.

"Like me, you've probably sensed the same thing, in yourself and in others – the way the constant collection of information becomes an easy substitute for trying to achieve any kind of true understanding. It seems a form of laziness as much as anything else, a laziness that the internet both encourages and justifies. The web is "a hall of mirrors" that provides the illusion of thinking, Michael Gorman, the president of the American Library Association, tells Orlowski. "No one would tell you a student using Google today is producing work as good as they were 20 years ago using printed sources. Despite these amazing technical breakthroughs, these technologies haven't added to human wellbeing."

Is Carr on to something? One year ago I would have said he was nuts. Now I find myself nodding in agreement with his statements.

The human brain uses a lot of energy. One way that evolution has minimized this impact is by providing us a brain that can automate things. The more times we perform a task, the easier it becomes. We save energy by putting less thought into things we have done before. This is a blessing and a curse. I read somewhere that Warren Buffett reads 6000 annual reports a year. The reason he is so damn good at understanding the health of a company is because much of his understanding of financial statements has become automated. He has calculated so many financial ratios so many times, he just has a *feel* for what they are when he looks at an income statement. The bad thing about our brain's tendency towards energy conservation is that we naturally prefer easy things to hard things. But you don't become Warren Buffett by doing easy things.

So the question arises – will the successful companies (and employees) of the future be the ones that can do the hard things? Will concentration be a major source of competitive advantage in the coming years? When everyone is focusing on strategy, leadership, and technology as their sources of competitive advantage, will you be able to win by building a workforce that can execute because they can block out the mass of digital distraction and get things done? If thinking is the primary skill of knowledge workers, will the depth of your thinking determine your success? And if so, is it better to spend your time reading financial statements (for example) than scanning Digg for the latest Web2.0 app? I have cut back on blog reading the last 6 months, trying to search for quality over quantity. I've changed most of my RSS subscriptions to not display full posts anymore. That way, if I want to read something all the way through, I have to click to the site, which means I am much more discerning about the content I consume.

The development of sustainable competitive advantage often requires that you be a contrarian. You go where other people aren't. You don't follow the masses. You let other companies move on from fad to fad while you question each "new thing" and focus on boring ideas like execution. Don't get distracted. Build a culture of concentration. While everyone else is searching for a long tail and a blue ocean, you can keep focusing on niche markets and differentiation, just as you always have. Concentration, focus, execution, the ability to tune out the fluff – that will be the competitive advantage of the future.

UPDATE: Don't expect to see any business books to help you with this. Titles like Become a Great Investor By Spending All Your Free Time Studying Annual Reports would be about as popular as Lose Weight With A Balanced Diet and Exercise or Automatic Millionaire: Work Really Hard and Live Below Your Means.