When Tesla CEO Elon Musk said that “moats are lame” during the company’s earnings call last week, he was calling out Warren Buffett, the chair of Berkshire Hathaway, who uses “moat” to describe barriers to imitation that stave off competition. “If your only defense against invading armies is a moat, you will not last long,” Musk continued. “What matters is the pace of innovation — that is the fundamental determinant of competitiveness.” In response, Buffett defended the idea of moats at Berkshire Hathaway’s shareholder meeting, which prompted satirical tweets from Musk.
A 40-Year Debate Over Corporate Strategy Gets Revived by Elon Musk and Warren Buffett
When Tesla CEO Elon Musk said that “moats are lame” during the company’s earnings call last week, he was calling out Warren Buffett, chair of Berkshire Hathaway, who uses “moat” to describe barriers to imitation that stave off competition. “If your only defense against invading armies is a moat, you will not last long,” Musk continued. “What matters is the pace of innovation — that is the fundamental determinant of competitiveness.” In response, Buffett defended the idea of moats at Berkshire Hathaway’s shareholder meeting, which prompted satirical tweets from Musk. Nothing about this debate is new, except maybe the tweeting. As entertaining as it is to watch these two billionaires argue in public, their different perspectives are near-perfect expressions of the two most influential strategy ideas of the past half-century. Perhaps the strategist Musk most sounds like is Columbia’s Rita Gunther McGrath, who in 2013 wrote a book titled The End of Competitive Advantage. McGrath put forward two main ideas: First, companies should give up on the idea of sustainable competitive advantage and admit that any advantage is transient. Second, strategy and innovation are best thought of in conjunction. “The assumption of sustainable advantage creates a bias toward stability that can be deadly,” she writes. Musk couldn’t have tweeted it better.