A Hypercompetitive World: Part 1 – Globalization & Technology
This is the first 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.
The Disruptive Impact of Globalization & Technology
Take a look at the changes happening within essentially any industry today, and it’s obvious how quickly the pace of change is accelerating. In fact, new innovations and new products are being brought to market with such increasing frequency, that the acceleration of change can seem a bit daunting.
We hardly need any evidence of our rapidly changing world. After all, we’re inundated daily with ads for new products and media stories of the next big thing. But to gain a little perspective on the increase in innovation and change, think back just two or three decades about a couple every day examples with which we’re all familiar – groceries and automobiles.
Cleaning Up In Aisle Six
Everyone has some first-hand market and product experience here. My parents had a small grocery and meat store, and as someone who stocked the shelves year after year, I can tell you that there were relatively few new product introductions. The big news was the cola wars and the Pepsi Challenge of Pepsi vs. Coke, which was a genius move by a brilliant marketer and business leader – John Sculley. But the ingredients were unchanged. As far as innovative new products, there was not a lot happening.
Today it’s a different story. It seems there is a constant influx of new grocery products fighting for attention. And often there are entirely new categories emerging and changing the product landscape. Take energy drinks as but one example. To get an idea as to the rate of growth, Red Bull was launched in the US in 1997, and the category grew to approximately $28 Billion worldwide in 2013. Wikipedia currently lists 56 different energy drink brands alone (Red Bull, Rockstar, Monster and 5-Hour Energy among the popular ones), and there’s probably a couple more launching by the time I finish this sentence.
Zero to Sixty in 60 kWh
Another example of an industry undergoing rapid change is the automotive industry. Before the influx of Japanese automobiles, the cars coming out of Detroit really didn’t change that much from year to year. There just wasn’t an environment of fierce competition to drive consistent and significant innovation.
But consider what began with the introduction of Japanese automobiles into the U.S., and what continues today within the automotive industry. Cars are continually being released with significant mechanical and electrical advances. Even a partial listing of automotive features being added now or in the near future reads like a dream list from Popular Mechanics: Rear-mounted radar, night vision with pedestrian detection, automatic high beam control (unlike old controls that switched from high to low beam, this technology actually gradually increases or decreases the light pattern), parental control (to limit speed), GPS vehicle tracking (watch your car live on the internet), built-in cameras, Internet for passengers, etc.
And that doesn’t even mention self-parking, self-driving, hybrid or fully electric cars like Tesla Motors– which in turn promise major change beyond the innovative automobile itself – including fueling stations, recycling batteries, cleaner emissions, etc.
The Tesla Model S Brings State-of-the-Art Technology to the Automobile
Two things are very clear to me, more innovation is occurring and faster than ever before, and the global business world has undergone profound changes. But what are the reasons behind these fundamental shifts?“
Global Business Strategist Richard D’Aveni
To further understand what is driving all this innovation and change within the world of business, I had the privilege of speaking with Richard D’Aveni of the Tuck School of Business at Dartmouth. D’Aveni is one of the world’s pre-eminent strategists who has worked for three decades with multinational corporations and major governments throughout the world to assist with their strategies. D’Aveni has been listed for the past 7 consecutive years as among the top 50 strategists and management thinkers in the world according toThinkers50 ranking as published in The London Times, Forbes, CNN.com, Harvard Business Review, etc.
As evident from his several books on the topic as well as his enthusiasm, Professor D’Aveni is passionate about understanding the seismic changes happening and in communicating new strategies for success. He explains the corporate strategies companies used for decades have been under attack as a result of globalization and technology. In fact, according to D’Aveni the old corporate strategic theories, along with the old business models are falling apart. The resulting impact on businesses has ranged from creating a challenging business environment (i.e. automobiles, consumer electronics) all the way to creating major industry upheavals (i.e. music, newspapers).
Traditional Business Strategies
Historically, the first rule of business strategy corporations used, was to find and leverage a sustainable competitive advantage. Perhaps the company had access to a geographically concentrated pool of factory workers or engineers. Or it had the critical mass to have it’s own fleet of vehicles for product distribution, had a secret manufacturing technique, or was geographically situated in a location that had a unique advantage. Such sustainable competitive advantages were often the reason a customer would pick a company over their competitor.
But in today’s global business environment, and with technology that connects everyone at the speed of light, many competitive advantages have greatly diminished or even been eliminated. Access to engineers and scientists is now readily available anywhere there is Internet, UPS will handle distribution and logistics for a multitude of small and medium-size businesses, world-class cloud software is affordable and readily available to even 1-person company, and a small business can reach customers around the world for next to nothing.
Another primary business strategy used during the 20th century was for companies to use their strength against a competitor’s weakness. Typically, this strategy was ascertained by the business development and marketing folks completing a SWOT analysis – wherein the company would describe its strengths, weaknesses, opportunities and threats. And then the managers, with their SWOT analysis in hand, would begin planning and executing how best to deploy their strengths against a competitors weaknesses. But D’Aveni points out that many new disruptive technologies and business models now force firms to build their weakness and to overwhelm the strengths of rivals. The old SWOT rule of leveraging your core competence is now a way to milk you firm’s current assets. Instead firms should be preparing for the future by turning weaknesses into new competitive advantages that shift the rules of the game.
Managers have been taught the above strategies for decades, and in fact those strategies are still being taught today in many institutions.
According to D’Aveni, who has researched and written about this topic in several books, continuing with these primary strategies has been a mistake for which businesses paid dearly.
Traditional Strategies No Longer Work
Professor D’Aveni explains in his books, classroom and consulting engagements with companies, that those long-held traditional strategies were premised on a slower change of pace and lower levels of disruption. And that while they were viable strategies decades ago, he has shown how globalization and technology (and to an extent regulation) have long negated those practices. He wrote about this new environment early on in his book “Hypercompetition”, and in fact coined the term. These concepts of temporary competitive advantage and hypercompetition were first discussed by D’Aveni in 1994, and since that time, there have been many imitators, followers and adopters of his ideas.
What D’Aveni explains, is that the old rules are being destroyed as a result of a global shift in business competition caused by globalization and technology. This fundamental shift, results in a world wherein finding a “sustainable competitive advantage” is no longer viable. Where using your strengths against a competitor’s weakness will eventually lead to failure.
As an explanation, Professor D’Aveni describes a general history arc of the automotive industry over the past 100 years, which he adds is similar to many other industries during the same period.
A Brief History of How We Got to Where We Are
When the automobile industry began, there were tremendous innovations related to engine performance, braking and suspension systems. There were also major innovations concerning manufacturing and production assembly. In fact, Henry Ford, the founder of Ford Motor Company, was a champion of the assembly line. Eventually as the industry matured and a few key competitors emerged, the industry evolved into a small oligopoly, and the innovations lessened. The model was not to drive the other competitor out of business, but more or less to divide up the market.
The market changed to one where there was “planned obsolescence” of the products. Many executives considered this a great management practice. It allowed car companies to overcharge, and make good profit while producing mediocre products.
D’Aveni describes the result as “one where the manufacturers treated the customers and suppliers poorly, while treating the competition well.” He points out that “this is something that seems backwards today.”
But the unwritten rules were within the U.S., and foreign competitors had different rules of competition. Previously, the automotive industry could discredit a cutthroat attitude. But Japan entered the market and they didn’t care about our rules. The Japanese vehicles were of high quality, reliable and affordable; and over the ensuing years, Detroit and the U.S. auto industry was decimated. D’Aveni explains “The world is full of people wanting to wipe you off the court.”
As further evidence of the changing world and strategies, D’Aveni mentioned a couple hugely popular business books, Built To Last , by Jim Collins and Jerry Porras; and In Search Of Excellence by Tom Peters & Robert Waterman. According to D’Aveni, these books profiled companies that were at the top of their industries for over 50 years. However, today only about 1/3 of the companies have continued to earn money for shareholders at about their same historic rate. D’Aveni mentions that, “Historical performance didn’t predict the future.” According to D’Aveni, much of the work by Harvard’s Michael Porter, including the Five Forces Analysis is now outdated as it was developed before we were in a hypercompetitive world.
And that’s the point D’Aveni has been trying to make for decades – “The old rules don’t apply. The old rules have contributed to creating the weakest economy in decades.”
The New Hypercompetitive World: Good News & Bad News
The historic strategies of the 20th century were about the ability to sustain leadership position by putting up barriers to entry and competing systematically with the competition. This was done in hundreds of industry sectors and by thousands of companies, as was primarily accomplished by:
1) Finding a sustainable competitive advantage, such as superior resources.
2) Conducting a SWOT analysis, and using your strengths where the competitors are weak. (This is also typically used historically as a military strategy).
But, technology and globalization have leveled the playing field, and allowed new players to come into virtually every market, creating a world of hypercompetition wherein the old strategies are no longer effective.
The good news is that on the whole people benefit. The bad news is that competition is escalating. Competition is becoming increasingly fierce. There has been major disruption in numerous industries, and indeed some industries have been experienced such upheaval that they have had to deploy completely new business models.
So, exactly why don’t the old strategies work any longer? In a word, because of “hypercompetition” – as Richard D’Aveni explains by use of an analogy in part 2. (note: to be posted in just several days)
NOTE TO THE READER: I know this is a fairly long article in comparison to the typical content posted on LinkedIn (and it’s just the first of a three part article). However, given the scope of Richard D’Aveni’s work (and the importance) – it required a few parts to adequately summarize. In any event, I hope you enjoy. Absolutely welcome your thoughts and comments.