This is the last in a three-part posting on the changing rules of global business competition and a summary of my discussions with Professor Richard D’Aveni, of the Tuck School of Business at Dartmouth, winner of the prestigious A. T. Kearney Award for research, and a recognized leading worldwide strategy consultant. D’Aveni is often ranked in the top 20 management thinkers, and top five strategists, by the Thinkers50.
In With The New, Out With The Old
The business world used to be different. Business strategy in the 20th century focused on the rules codified by Michael Porter: slow-down the competition by finding a sustainable competitive advantage, establish oligopolies by creating barriers to entry, reduce rivalry through avoiding price competition and attacking a competitor’s weaknesses. And then use this non-competitive environment to maximize margins by taking advantage of consumers through higher prices and lower quality. One other important rule codified by Porter was that firms should only offer higher quality for a higher price, or low quality for a low price, because this prevents margins from eroding.
Business schools in the 20th century taught generations of managers that this was considered fair competition, ignoring the detrimental effects of non-competitive oligopolies and planned obsolesence. This was the thinking, Richard D’Aveni explains, which led the U.S. automotive companies to essentially offer higher priced, low quality cars, and to open the doors for Japanese competitors to take market share by offering high quality and low prices at the same time. The major manufacturers made money, and lots of it, by acting as an oligopoly with power over customers and suppliers.
However, this environment didn’t foster innovation, with a notable exception being the Tucker Corporation in the late 1940′s which developed many automotive innovations. As noted in Wikipedia, the innovative Tucker car called for a rear engine, a low-RPM 589 cubic inch engine with hydraulic valves instead of a camshaft, fuel-injection, direct-drive torque converters on each rear wheel (instead of a transmission), disc brakes, the location of all instruments within the diameter and reach of the steering wheel, a padded dashboard, self-sealing tubeless tires, independent springless suspension, a chassis which protected occupants in a side impact, a roll bar within the roof, a laminated windshield designed to pop out during an accident, and a center “cyclops” headlight which would turn when steering at angles greater than 10 degrees in order to improve visibility around corners during night driving.
Unfortunately, the SEC investigated Tucker Corporation amid concerns about investments. Although the jury reached a verdict of “not guilty” on all counts for all accused, by the time the investigation and trial was completed, the Tucker Corporation – now without a factory, buried in debt, and faced with numerous lawsuits from Tucker dealers angry about the production delays – was no more. Perhaps you’ve seen movie starring Jeff Bridges, called “Tucker: The Man and His Dreams“. (As an aside, the U.S. attorney named Otto Kerner, Jr., who had aggressively pursued the Tucker Corporation, was later convicted on 17 counts of bribery, conspiracy, perjury, and related charges for stock fraud in 1974. He was the first federal appellate judge in history to be jailed.)
In any event, the oligopoly continued until the foreign automakers entered the U.S. and global market with a new competitive (zero-sum) attitude. They came to conquer and they acted as disrupters. The old business models may have assumed reasonably fair competition, but the new competition didn’t play by our old rules. The U.S. auto industry was vulnerable with poor products and a lack of innovations. Furthermore, our product quality was weak. The onslaught of aggressive competition resulted in a drop in sales that shook the foundations of the U.S. auto industry for decades.
It was a very difficult period for Detroit, but after decades of turmoil and improvements, the U.S. automobile manufacturers are once again building vehicles with world-class product innovation and quality.
The Cutting Edge of Innovation
And it’s not just cars and trucks that are operating within a continually changing market. Even something as seemingly staid as razor blades have experienced continuous innovation over the past twenty years. Gillette pours massive amounts of time and money into product R&D, and their frequent new product launches are major campaigns involving hundreds of millions of dollars. As soon as a competitor is
about to introduce a new product, Gillette introduce something better. Each shaving system generation was about more blades. The single blade was replaced with dual blades, which was in turn replaced by three blades. Then four and now….. yes, five! At some point this approach is going to reach the point of diminishing returns – after all, you can only shave so close before it comes to cosmetic surgery.
So where do you go from there? For Gillette, the marketing strategy will change from closeness of the shave to one of safety, comfort and confidence. Gillette will keep the branding consistent – “the best a man can get”; but the changing strategy will move towards safety and convenience with the Gillette Fusion ProGlide with FlexBall™ Technology (safety), and a new subscription service (convenience) that will cost $1 per week for a replacement ProGlide cartridge.
Property and Casualty Insurance
Even the insurance industry is constantly evolving. Every several years over last 20 years, there has a been shift from one competing position to another in the interest of gaining market share.
As a quick overview, the first objective for the insurance companies was to make sure they made money and could make necessary payments. That involved the traditional work of risk analysis, balance sheet management, etc. Then the insurance industry shifted to a focus on delivering service and a variety of products. That involved expanding availability of agents and speedy claims processing. Then the industry shifted to a focus on bundling programs. Then the industry moved to value-pricing, and worked to meet these cost constraints by consolidating and adding technology and automation to the back room. As we’re all aware from the ubiquitous little Geico Gecko lizard and Progressive’s Flo, recently, insurance companies have been focused on their brand, direct selling to consumers and marketing to small niches – such as motorcyclists.
10 Strategic Lessons for the Here & Now
D’Aveni argues that globalization and technology have negated the long-held business strategies of finding a sustainable competitive advantage and competing by positioning your company’s strength against a competitors weakness. And explains today’s world requires stringing together a series of temporary competitive advantages. He’s studied this for decades, examined dozens of industries and given strategic advise to numerous companies and governments.
Here are the 10 Strategic lessons learned over the past three decades:
- Globalization and technology (and to a lesser extent policy) have created a hypercompetitve world.
- The speed of change continues to increase dramatically.
- Business success will not be achieved with the old business strategies requiring long-term competitive advantages, nor by solely positioning of your strengths against a competitor’s weaknesses.
- Products will battle frequently for market share. Competitors will win by executing on a temporary advantage, and then executing on another temporary advantage, and so on.
- Business victories will be achieved by a series of temporary advantages strung together in a sequence.
- In a world competing on temporary advantages, the fierceness of competition goes way up.
- The watchword of the future is – disruption. The disruptive players will win the competition.
- The availability of technology as a dynamic now favors offensive strategy vs. defensive.
- Strategy is now about timing and speed of maneuvering.
- The only way to a decisive victory – to trounce the competition – is to overwhelm the competitor’s strength.*
* And here’s something else the old business rules don’t mention, the truly decisive victory comes when “strength overwhelms strength”, and not when you use your strength against a competitors weakness. Using the tennis match as an example, D’Aveni explains “The goal is to run the other player ragged, tucker him out, and then hit the ball straight at him so he realizes he can never win against you and encourage him to go home with the goal of learning to play baseball.”
Questions for Your Organization
Given the changing strategies necessary to compete in today’s world, here are some questions for your organization.
- How have the wants of your market changed, and how do you anticipate them changing over the next 5 – 10 years?
- What technologies, services or other offerings from other industries could add value to your product?
- What can you do to better understand your customers wants? When is the last time you asked your top twenty customers “Tell us what you want?” (and then took copious notes)?
- What are the primary benefits of your offering? Also, what are the marginal benefits your offering provides? (and all according to the customers).
- Is your company working on new offerings that really matter? Have you stopped work on offerings that don’t?
- What does your product development process look like, and what can be done to reduce the timeline?
- How could you change the basis of competition?
- What are the sequence of product disruptions you’re going to introduce?
- How can you best bring those disruptions to market?
- What are the market positioning shifts you’re going to introduce?
And when considering the above, remember – the world is transforming before your very eyes. The rapid change is taking place because hypercompetition is driven thru globalization and technology. It’s not a bad world, but it is a disruptive world – where ongoing innovation and fierce competition are the new norm. If you don’t drive change and compete fiercely, a competitor of yours will (and that includes China or India).
The good news is that you have the opportunity to make things better, to improve your organization and its products and services. To continuously innovate, compete and lead the way.