The 40-year business strategy debate

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When Tesla's CEO, Elon Musk recently stated that "the trenches are weak" at the company's last conference call he challenged Warren Buffett, the president of Berkshire Hathaway, who uses the word "gap" to describe the impediments to imitation that keep the competition at bay. "If your only defense against invading armies is a pit, you will not last long," said Musk.

"What matters is the pace of innovation, which is the determinant and fundamental factor of competitiveness". In response, Buffett defended the idea of ​​booths at the Berkshire Hathaway shareholders meeting, which resulted in Musk's satirical tweets. There is nothing new in this debate, except perhaps the tweets. While it's amusing to see these two millionaires arguing in public, their different perspectives are almost perfect expressions of the two most influential strategic ideas of the past 50 years. Buffett's concept of pits that avoid competition is almost as old as the strategic domain itself. Much of the pioneering work in this discipline was aimed at determining which industries and which positions within them gave companies an advantage by making them difficult to imitate.

In the 1990s, the "dynamic capabilities" common approach within the strategy. This idea, as described Pankaj Ghemawat in its history in this area, is that the capabilities of a company, and not just its strengths, can be a lasting benefit.

This seems to describe the Musk conception of strategy: that the strength of Tesla lies in its ability to innovate, rather than in its badets or in a particular niche in the market automobile. It is unlikely that one of the two parties in this debate can prove that he is right before long. However, even in dynamic and technology-driven industries, such as social networks, ditches are still a powerful force. Consider the competition between Facebook and Snap.

The latter argues that his abilities – his ability to deliver new and innovative products – have given him an edge over his biggest rival. Until now, the scale of Facebook and the effects on the network, a modern pit, seem to be the best bet. Companies are not the only ones to weigh the value of pits to generate stable profits. Musk's most controversial statement was: "To say that you like" ditches "is just a nice way to say that you like oligopolies."

Decision-makers start to worry about the exaggerated profits generated by a small number of star companies, and many of them agree with Musk that these profits are because there is no competition. A considerable number of badysts have suggested dividing Facebook, for example, or at least limiting its ability to absorb smaller competitors.