The Idea in Brief

Traditional approaches to strategy assume a relatively stable world. They aim to build an enduring competitive advantage by achieving dominant scale, occupying an attractive niche, or exploiting certain capabilities and resources.

But globalization, new technologies, and greater transparency have combined to upend the business environment. Sustainable competitive advantage no longer arises from positioning or resources. Instead, it stems from the four organizational capabilities that foster rapid adaptation:

  • The ability to read and act on signals of change
  • The ability to experiment rapidly and frequently—not only with products and services but also with business models, processes, and strategies
  • The ability to manage complex and interconnected systems of multiple stakeholders
  • The ability to motivate employees and partners

We live in an era of risk and instability. Globalization, new technologies, and greater transparency have combined to upend the business environment and give many CEOs a deep sense of unease. Just look at the numbers. Since 1980 the volatility of business operating margins, largely static since the 1950s, has more than doubled, as has the size of the gap between winners (companies with high operating margins) and losers (those with low ones).

A version of this article appeared in the July–August 2011 issue of Harvard Business Review.