In studying some 30 high-growth companies and their less successful competitors around the world during the past five years, we found that pursuing competitive advantage has a paradoxical effect. When asked to build competitive advantage, managers typically assess what competitors do, and strive to do it better. Their strategic thinking thus regresses toward the competition. In the end, companies expend tremendous effort but often achieve no more than incremental improvement -- imitation, not innovation.   

     Consider what happened in the microwave oven and VCR industries. As companies fought ferociously to offer sophisticated features, they ended up with products that were nearly mirror images of one another -- and that were, from the customers' perspective, overdesigned. Most buyers not only had no use for most of the features but found them confusing and irritating to boot. Companies may have kept up with one another, but they missed an opportunity to make a quantum leap in customer value by offering inexpensive microwaves and VCRs that were truly easy to use.   

   To achieve high growth in the future, companies need to break the vicious circle of competitive benchmarking and imitation. Rather than competitive advantage, companies should strive for what we term 'value innovation.' Emphasis on value places the buyer, not the competition, at the center of strategic thinking; emphasis on innovation pushes managers to consider totally new ways of doing things.   

   High-growth companies question everything an industry and competitors are doing. Their leaders understand the difference between what industries are competing on and what the mass of buyers actually value. Think of CNN, Home Depot, Intuit or Starbucks. The innovative ideas fueling these companies' highly profitable growth are the result not of benchmarking or building advantages but of relentlessly driving to offer buyers radically superior value.   

   Here's how to change your company's strategic thinking to get beyond the fallacy of competitive advantage:   
  
.  Challenge managers to dominate the market. Offering a little more than your rivals for a little less will not lead to market domination.  Instead of cheering managers on to beat the competition, challenge them to come up with blockbuster ideas to dominate the market and make the competition irrelevant. The crucial question is:  What would it take to win the mass of buyers even without marketing? When companies frame their strategic questions in this way, the futility of benchmarking the competition becomes clear.  

.  Pursue radically superior value for the mass of buyers. It's crucial not only that a product or service be radically superior, but also that it  be priced at a level accessible to most customers.  Offering a radically superior product or service at a price most people can't afford is like laying an egg that some other company will hatch.   

     In the early 1990s, Apple Computer was betting on the Newton, its pioneering personal digital assistant. Compaq managers were getting ready to counter Apple's move by coming out with their own PDA, the Mobile Companion. But Compaq stepped back and asked whether the Mobile Companion would make sense for customers. Would it make their lives dramatically more productive, more fun or less complicated? And could the company sell it at an affordable price? Compaq's answer to both questions was no -- at that time it was an innovation that wouldn't provide value for the mass of buyers. Thus the  company spared itself a Newton-like disappointment.  
  
.  Raise frame-breaking questions. Confront the conventional ways competitors think by asking four fundamental questions about the characteristics of the products or services you sell: Which characteristics that our industry takes for granted should be eliminated?  Which ones should be reduced well below the industry standard? Which ones should be raised well beyond the industry standard? What characteristic should be created that the industry has never offered?  

     The first question forces managers to question whether the factors over which companies compete actually deliver value to consumers. They often don't, either because they are embedded in industry traditions that have never been questioned, or because buyers' values have fundamentally changed but companies -- so focused on one another -- haven't noticed.  Accor's Formule 1, the dominant low-budget hotel chain in France, was able  to cut costs significantly by eliminating standard hotel features -- costly restaurants, appealing lounges and architectural aesthetics -- that were of trivial value to budget-hotel customers.    

     The second question spurs managers to examine whether product or service features have become overdesigned, as in the case of VCRs and microwaves. The third question helps uncover and eliminate the compromises industries are imposing on customers. When Accor managers asked this question in developing Formule 1, they found that many budget-hotel customers were saving money by accepting lower standards of comfort, hygiene and quiet. By raising its standards in these areas to an unprecedented level, Formule 1 rapidly dominated the market.   

     The last question compels managers to break out of the industry's established boundaries to discover entirely new sources of value their industry has never offered -- as CNN did by offering a world-wide 24-hour newscast.   
   
     The logic of value innovation is elegant if ironic: Companies that abandon a misguided focus on competitive advantage are often the ones that leave their competitors in the dust.