Write Geoffrey Moore and Paul Wiefels in Optimize (link via Abhay Bhagat):
Your IT strategy should be linked to changing business models dictated by early-warning signs of deteriorating competitive position such as:
The product category you represent has diminished prospects in the near or long term. A competitor has changed the category dynamics by launching a highly successful product. Customers are spending less time in your stores and more on the Internet. An archrival’s IT platform can support new customer-enabling or supply-chain capabilities that you can’t.
Because such negative surprises are public knowledge, they can quickly cause your revenue and margins to degrade and your share price to suffer. Even if you have a sizable head start over your competitors, investors want to know whether you can hold onto your lead, and for how long. They want to understand how much weight to assign to the future years of your earnings forecast in determining your present value. We call this projected interval the competitive-advantage period, or CAP. Because length of CAP is a measure of sustainability, it belongs to the domain of discount for risk. It’s here that companies most often lose their way and diverge from investors’ expectations.
A company’s ability to sustain its competitive advantage is a function of its position and status in its product category, and the status of that category relative to others. The stronger it is in access to customers, barriers to competitive entry, brand position, market share, and switching costs, the more inertia there’s likely to be among customers, and the better the chance of sustaining its lead.