Avenues for attacking industry leaders

Successfully attacking a leader always requires some kind of strate­ gic insight. A challenger must usually find a different  strategy in order to neutralize the leader’s natural advantages, and recognize or create impediments to leader retaliation. W hile the strategies that  have suc­ ceeded against leaders differ widely from industry  to industry,  three avenues of attack emerge as possible:

  • A challenger innovates in the way it performs activities in the value chain or in the configuration of the entire chain.
  • A challenger redefines its competitive scope com­ pared to the leader.
  • Pure spending. A challenger buys m arket position through supe­ rior resources or greater willingness to invest, out of which competitive advantage

Each of the   three  avenues changes  the   rules   of competition  in an industry   to   offset a leader’s advantages  and  allow   the   challenger to gain a cost or differentiation advantage of its own. The three avenues are not mutually exclusive and have been successfully pursued  in tan­ dem.    Redefinition   of  scope   usually    requires   parallel    reconfiguration of the value chain, for example. Employing more than  one of these avenues of attack generally raises the odds  of success in attacking  a leader. The three avenues are displayed in Figure 15-1.

The avenues of attacking a leader differ along two important dimensions that  are represented  in   Figure  15-1: the configuration of the challenger’s value chain compared to the leader and the competitive scope of the challenger compared to the leader’s. A challenger  can employ the same value chain or one in which it has reconfigured individual activities or the entire chain. A t the same time, a challenger may compete with the same scope of activities as the leader or for a wider or narrower scope. As described in Chapter 2, scope encompasses segment scope within the industry,  degree of integration,  geographic scope and   industry  scope, or the   range  of industries  in   which the firm competes with a coordinated strategy.

Figure   15-1.    Avenues for Attacking   Leaders

Pure   reconfiguration   involves   reconfigured   activities   or   ultimately a significantly different value chain,  though  with   the   same   scope as the leader. Pure  redefinition   involves a different scope but  the same basic value chain for competing. Reconfiguration and redefinition com­ bines both a new chain and a different scope. Pure spending neither reconfigures the value chain nor redefines scope, but relies on greater investment by the challenger to lead to competitive advantage.

1. Reconfiguration

Reconfiguration allows a challenger to compete differently though it is competing with the same scope of activities as the leader. The challenger performs  individual  value activities differently or reconfig­ ures the entire chain to either lower cost or enhance differentiation. Reconfiguration of the value chain  m ust be sustainable against imita­ tion if it is to serve as the basis for attacking  leaders. Sustainability comes   from   first-mover   advantages  and   the   other  sources   described in Chapters 3 and 4 .1

The ways in which reconfiguration leads to competitive advantage have been discussed throughout this book, and can involve any activity in the value chain. Chapters 3 and 4 described in detail how reconfigur­ ing the value chain can lead to cost advantage  or differentiation. In wine, for example, Chapter  3 described how Gallo  was able to achieve a significant cost advantage through reconfiguring value activities in procurement,   blending,   bottling,   logistics   and   marketing  compared to competitors. In frozen entrees, similarly, Chapter 4 described how Stouffer’s reconfigured marketing, technology developments, procure­ ments, and broker relations to achieve and sustain differentiation.

The more  value activities that  can   be reconfigured,   the   greater the possibility will usually be that the challenger’s competitive advan­ tage   over   the   leader  is   sustainable.   Reconfiguring  the   entire   chain, as   in   the   no-frills   airline   and   Iowa  Beef examples   described   earlier in the book, is usually the most  potent  source of advantage  against leaders who are often highly committed  to the   traditional  industry value chain.

Some illustrative examples of reconfigurations that have been the basis of successful attacks on leaders are the following:

Product Changes. A challenger  can attack  a leader through changing the product.

SUPERIOR    PRODUCT   PERFORMANCE   OR    FEATURES.Products with attributes that are valuable to buyers grow out of an understanding of the buyer’s value chain (Chapter  4). P& G’s Charmin  bathroom tissue was softer and more absorbent than Scott Paper’s product, which allowed P& G to emerge as a leader. Similarly, CooperVision’s and Barnes-Hind/Hydrocurve’s (a Revlon division) extended-wear soft contact lenses provided  the vehicle for attacking  Bausch  and  Lomb.

LOW-COST PRODUCT DESIGN.   Chapter 3 describes how product design can affect relative cost position. Canon’s  NP200  copier, using toner projection development technology, required many fewer parts than competitors’ machines. This low-cost design allowed Canon  to improve position significantly in small plain paper copiers.

Outbound Logistics and Service Changes.   A challenger  can at­ tack a leader through changing such things as product support, after­ sale service, order processing, or physical distribution.

MOREE EEFFICIENT LOGISTICAL SYSTEM.  Chapter 3 described how opportunities to improve relative cost position in the logistical system can be analyzed. Relative cost position can sometimes be significantly reduced by reconfiguring its value   activities   as Federal  Express did.

MORE    RESPONSIVE    AFTER-SALE   SUPPORT. Chapter  4 showed how to assess the parameters  of service that  are most  valuable to buyers. A challenger  can create differentiation if it reconfigures   the value chain to make it more responsive in terms of response to buyer inquiries, documentation,  etc. Vetco, for example, a division of Com­bustion Engineering  that  sells offshore oil drilling equipment,  has gained position significantly through providing excellent training mate­ rials and other after-sale support to help its buyers master the complex underwater drilling task.

ENHANCED ORDER PROCESSING.  Chapter 4 described how possi­ ble enhancements  to the delivery system can be identified and evalu­ ated,   and   create   differentiation.    Enhancements   include   such    things as   performing   new   functions   like controlling  buyer  inventory— this, in effect, takes over activities in the buyer’s value chain. Several whole­ saling firms, for example, have created  differentiation by allowing on­ line ordering to take over inventory management for their  retail cus­ tomers. McKesson, for example, has substantially improved its position through its 3PM order processing system for distributing pharmaceuti­ cals. The system allows pharmacists  to order  directly and  provides them other valuable information.

Marketing Changes. Challengers have employed innovations in marketing  value activities to launch  successful attacks  against   leaders in many industries. Some of the most  common  innovations  include:

INCREASED      SPENDING   IN    AN     UNDERM ARKETED   INDUSTRY. Challengers   can   attack   a   leader   by   escalating   marketing  spending. In mustard, frozen entrees, and frozen potatoes, for example, Grey Poupon,  Stouffer’s, and Ore-Ida  respectively have   succeeded   or are now undertaking to raise the traditional rates of advertising spending. Higher spending levels allow firms to signal value better, gaining high levels of brand recognition and premium  prices.

NEW POSITIONING. A   challenger  can   conceive of a new   way to position a product in order to attack  a leader. Stouffer’s repositioning of frozen entrees as a gourmet  item   was one   of the   key elements of its ascendancy, as discussed in Chapter 4.

NEW TYPE OF SALES ORGANIZATION.    A new type of sales orga­ nization,   perhaps  with   a different type   of salesperson, can   sometimes be the basis of a successful attack on a leader. Crown Cork and Seal’s technically proficient sales force, reorganized  to sell the complete  line of Crown’s cans,   bottle caps,   and  packaging  machinery  to canners, was one of the reasons   for Crown’s  success   against   American  Can and Continental Can.

Operations Changes.    Changes in operation’s value activities that lower costs or enhance differentiation have provided the basis for many successful attacks  on leaders.   As was discussed in Chapter  3, Iowa Beef pioneered an entirely new   value chain  in meat  packing.   Cargill and ADM  employed  new   continuous  process plants  to   enter  corn wet milling. A   modified   production  process   that  enhanced  quality also contributed to Ore-Ida’s success in frozen potatoes. Sometimes entirely new technologies emerge that change the process, or a subtech­ nology changes that allows an old process technology  to be re-invigo- rated (Chapter 5).

Downstream Reconfiguration.      Employing  channels neglected by the leader or preemptively concentrating on emerging channels  have served as avenues   of attack  against   industry  leaders.   Some examples of downstream innovations include:

PIONEER A NEW CHANNEL.  Timex  opened  up the drug  store and mass merchandisers as channels for watches in the 1950s, allowing it to gain a leadership position in the industry  despite the entrenched position of Bulova and the Swiss watchmakers. The traditional leaders had employed the jewelry store channel.

PREEMPT AN  EMERGING CHANNEL. Richardson-Vicks pio­ neered the sale of  quality   skin   care   products  in   supermarkets  with its Oil of Olay product line. Supermarkets  were an emerging channel for this type of product, and Richardson-Vicks gained substantial first- mover advantages that have allowed Oil of Olay to remain a leader.

GO DIRECT. YK K, the Japanese zipper company, took on Talon successfully by bypassing wholesalers and selling directly to apparel companies.

The  most successful attacks  on leaders often involve   more than one innovation in the value chain. Stouffer’s combined a product change with several significant marketing innovations. Cargill and ADM com­ bined a process change  with product  line and  marketing  changes. Timex combined a new channel with low-cost manufacturing technol­ ogy and unprecedented  TV   advertising.   Competitive  advantage  that is sustainable usually stems from   multiple  sources,   as Chapters  3 and 4 have illustrated.

Structural  changes often create the opportunity  for reconfiguring of the value chain. Timex’s attack on the Swiss exploited the emergence of TV and mass distribution channels, in addition to wartime improve­ ments in manufacturing technology. At the same time, growth in buyer income and shifting attitudes made a watch a product purchased for everyday use. In many industries, however, reconfiguration hinges on rethinking what has been done rather than exploiting external changes. Ultimately, however, reconfiguring the   value   chain   is a   creative   act that is difficult to achieve routinely or predictably. Industry  analysis, value chain analysis, technology analysis, industry scenarios, and other concepts in this book can help   identify   possibilities   for   reconfigura­ tion.

2. Redefinition

The second broad avenue for attacking a leader rests on redefining the scope of competition. Broadening scope may allow the achievement of interrelationships or the benefits of integration,  while narrowing scope can allow the tailoring of the value chain to a particular  target. As I have discussed extensively in earlier chapters,  particularly  Chap­ ters 2, 7, 9, and 12, the scope of a firm’s activities can greatly influence competitive   advantage.   A   challenger  can   change  competitive   scope in four ways which   reflect the four  types of scope. These four  modes of redefinition are not mutually exclusive:

  • Focus within the Industry. Narrowing the basis of competition to a segment rather than across the board.
  • Integration or De-integration. Widening or narrowing  the range of activities  performed in-house.
  • Geographic Redefinition. Broadening the basis of competition from a region or country to worldwide, or vice versa.
  • Horizontal Strategy. Broadening the basis of competition  from a single industry to related industries.


Successful focus strategies against leaders have taken all the forms described in Chapter 7:

  • Buyer focus.  Motel firms such as La Quinta have focused on middle-level business travellers and   created   a   new   low-cost value chain to meet their particular needs.
  • Product focus. Canon, Ricoh, and Savin focused on small, plain paper copiers to challenge Xerox.
  • Channel focus.   Stihl focused on serving buyers only through servicing dealers to succeed against Homelite  and   McCulloch in chain saws.

A focus strategy often has the advantage  of being difficult for a leader to retaliate against without compromising its own strategy. This delays leader retaliation  until the challenger has gained a secure foot­ hold in the industry.  In addition,  focus   strategies   to   attack  leaders can serve as part  of  sequencing strategies.2 In   a sequencing strategy, the challenger initially attacks a leader through focus, and then broad­ ens its scope over time to compete across-the-board with the leader. Japanese   producers   have   employed   this   strategy   in   such   industries as TV sets and motorcycles.   In   each   instance, they began at the low end of the product range and gradually broadened their lines. N IK E also used this approach against AD ID AS  in running shoes, beginning with a focus on the premium segment and then leveraging the reputa­ tion gained there to broaden  its line downward.  Sequencing strategies rest on the presence of segment interrelationships  (Chapter  7) that allow a firm in one segment to gain competitive advantages in others. Sequencing has the added advantage of not provoking  the leader to retaliate early in the process.


A challenger may employ integration or deintegration as a means of attacking a leader. Backward or forward integration can sometimes lower cost or enhance differentiation.3 In the wine industry,  for exam­ ple, Gallo’s integration in bottles is an im portant part of its cost advan­ tage. Migros, the leading Swiss food retailer, owes a part of its dramatic ascendancy in its industry to backward integration into products and packaging. Changing circumstances may also make  deintegration  a means of gaining competitive advantage against a leader who is inte­ grated.


A leader operating in one or a few countries may sometimes be attacked successfully with a regional or global strategy.4 The challenger widens the geographic boundaries of the market to gain cost or differen­ tiation advantages through geographic interrelationships. A global strategy, that integrates and coordinates value activities in many coun­ tries, may allow economies of scale in production  or product develop­ ment, create the ability to serve worldwide buyers better, and other advantages   I have described elsewhere.   Globalization  of an industry has been an im portant  part  of successful strategies of challengers in such industries as autos (Toyota and Nissan versus General Motors), motorcycles, lift trucks, TV sets, and various types of medical equip­ ment.

Where an industry is multidomestic, however, local country differ­ ences imply that a global strategy is counterproductive.  Here  a leader with a global strategy  is vulnerable to a challenger  who tailors its strategy on a   country-by-country  basis.   Castrol  has   been   successful in automotive m otor oil with such an approach. Even within global industries there may also be segments where a country-centered strat­ egy can be sustainable though other segments require a global strategy. In both cases, de-globalization can be the route to attacking a leader.

In many  industries, firms have  concentrated  on a particular city or area of a country to succeed against national or even global competi­ tors. Where  competitors  are local,   however,   competitive   advantage may come from   taking   a   national  approach.  G annett’s   USA   Today is attempting this in newspapers.


Challengers   may   exploit interrelationships  among  business units as another means of broadening the scope of competition.  As Chapters 9 and 10 discussed in detail, interrelationships may lead to a competi­ tive advantage for a firm operating  in related industries. A challenger with a horizontal strategy encompassing related industries may success­ fully attack a leader operating in a narrower  or different range of industries. In personal computers, for example, IBM exploited interre­ lationships with its other business units to overwhelm early leaders such as Apple and Tandy. Interrelationships also serve as a possible substitute for market share in any one industry and neutralize a leader’s competitive advantage.

A particular form of interrelationship, complementary products, has been discussed in Chapter 12. Bundling can create competitive advantage in some industries, while unbundling  can do so in others. Merrill Lynch’s CMA, a bundled  product combining previously sepa­ rate financial services, allowed M errill to gain significantly   vis-a-vis other broad line financial services firms.


The four modes of redefinition are not mutually exclusive. A challenger can globalize   its strategy   and  pursue  interrelationships  at the same time, as M atsushita has done in consumer electronics. M atsu­ shita employs shared manufacturing, distribution channels, and other value activities across its many consumer electronics products. It also integrates and coordinates its strategy worldwide. The strategy has overwhelmed single-product, single-country competitors.

A challenger can also combine  narrow  scope in one dimension with broad scope in another.  A challenger  can attack  a leader by focusing on a   segment  (scope within   an   industry)  at   the   same time as it competes globally (geographic  scope). A firm may also focus within an industry but exploit interrelationships with related industries, another example of combining broad and narrow scope. Redefining competitive scope simultaneously in several ways has proven to be a powerful source of competitive advantage, because the competitive advantage from each redefinition cumulates.

The  scope diagrams  in   Figure   15-2 illustrate several dimensions of scope schematically. They  suggest how challengers should  examine each dimension of scope to see if it might be a means of attacking  a leader. A leader’s scope is plotted, and then alternative redefinitions (narrower  or broader or both)  are probed  to see if they might  create a significant competitive advantage for a challenger. The top diagram, for example, represents the situation  in automobiles  in the 1970’s. General Motors (GM ) competed with a broadly targeted strategy in­ volving a full range of models.   While  GM  competed  internationally as well as in the U.S.,   its strategy   was   essentially   country-centered and global coordination  was minimal.  Toyota  and Nissan chose to focus instead on small cars, and employed coordinated global strategies. They gained a substantial competitive advantage over GM in the pro­ cess.

Figure   15-2.    Alternate Scope of Leader and Challenger Strategies

Figure 15-3 uses the scope diagram to illustrate the pattern of competition  in the U.S. newspaper  industry.  The  traditional strategy in the industry has been to serve a single city with a broad  range of news, even though a number of city papers might be part of the same chain. The Wall Street Journal  and  to a lesser extent the New York Times have adopted national strategies aimed at segments of the m ar­ ket. The Wall Street Journal has recently embarked on a partial global strategy involving European and Asian editions. At the same time,

Figure   15-3.    Alternative Scope in Newspapers

USA Today is an attem pt to sell a broad-based daily newspaper nation­ wide, appealing   to   national  advertisers.   Both   USA   Today   and   the Wall Street Journal’s strategies have been made possible by modern communications  and  computer  typesetting  and  printing  technology. In the newspaper  industry,  then, redefining scope has been a vital element in gaining competitive position.

Many of the examples of redefinition that  have been described illustrate how redefinition   and   reconfiguration   usually   go   together. The   Wall Street Journal  would not  have been so successful if it had not adapted  its value chain to a national  and   then   global strategy. Thus a firm must view redefinition and reconfiguration as complemen­ tary ways to attack an industry leader.

3. Pure  Spending

The final and riskiest way to attack  a leader is through  pure spending, without  reconfiguration or redefinition. Pure  spending in­ volves investment to buy market share, cumulative volume, or brand identification through low pricing, heavy advertising, and so on. By making sufficient investment, a challenger seeks to gain enough market share, volume, or reputation  to   take   the   lead in relative cost position or differentiation. The challenger does not do anything differently or better than the leader, but simply overwhelms the leader with resources or with a greater willingness to invest.

This approach  to offsetting a leader’s advantage  is often   costly and frequently fails.   Leaders typically have sufficient financial resources to counteract  such a   strategy,   when   coupled   with   their   advantages in cost or   differentiation.   Leaders   also   are   usually   commited  enough to be willing to spend heavily to defend position. A particularly vivid example of the risks of pure spending is the diversification of oil compa­ nies into fertilizer and chemicals. Despite enormous financial resources, their lack of a competitive  advantage  gained   through  reconfiguration or redefinition has led to a generally dismal track record.

The success of pure spending rests on superior access to financial resources by the challenger, or on unwillingness by the leader to   invest in the industry.   Even a   well-financed   leader may be complacent,  have a higher hurdle rate, have other priorities, or be under corporate pres­ sure to generate cash. Pure spending has proven most  successful in industries where leaders are small and undercapitalized.  These leaders may not be able to afford to m ount  sufficient retaliation to discourage the challenger, despite possessing a competitive advantage.

Pure  spending,   by itself,   remains  the   least preferred  approach for attacking  leaders. However,  superior  willingness to invest is often an important supplement to strategies based on reconfiguration or redefinition. In cans, for example, Crown Cork invested heavily while American  and Continental  were harvesting,  accelerating   the   process by which Crown gained a cost advantage through having more modern equipment.

4. Alliances To Attack  Leaders

A challenger may need to form an alliance to obtain the necessary resources, technology, market access, or other strengths to attack an industry leader. Alliances can be a means of achieving reconfiguration, redefinition or   pure   spending,   though  in-and-of-themselves   they   are no guarantee of success. Alliances of various types have played impor­ tant roles in many successful attacks  against  leaders. The  two broad forms of alliances are the following:

  • A firm either acquires another firm (or firms) or is itself acquired.
  • A firm joins forces with another firm without out-right merger, through such means  as licensing, joint  ventures, and supply agreements.5

Acquisitions provide a way to broaden  a firm’s scope through adding positions in new segments, positions in new geographic  areas, greater integration, or a beachhead in a new related industry. IVECO, which   merged   a   number  of European  truck  builders,   has   produced a greatly strengthened  competitor.  Acquisitions  can also play a key role in reconfiguration or pure  spending  strategies. Acquisitions  can allow two organizations  to combine  resources  and skills in such   a way that reconfiguration or  pure spending is possible.

Coalitions also bring together  skills and   resources  of firms   in ways that may allow reconfiguration, redefinition, or pure  spending. Japanese TV set producers licensed R C A ’s color TV technology, pro­ viding an im portant starting point for their own product and process innovations, for example. Similarly, the coalition that  led to Airbus Industries has made a world-class competitor out of a group of strug­ gling national firms. Coalitions are also frequently  pursued  in tandem with   a firm’s own activities   to broaden  scope.   In   the valve industry, for example, W KM  sells only in the U.S. and  uses licensees elsewhere in the world.

Coalitions can also play a more subtle role in attacking leaders. Challengers sometimes  form   coalitions with   leaders that  later provide the basis for attacking the leader, as discussed in Chapter 5. Licensing technology from a leader, or joint ventures in marketing or manufac­ turing,   may   allow   a challenger  to   learn   a leader’s strengths,  making it possible to leapfrog. A number of Japanese firms have licensed foreign technology from leaders which they later improved.

Acquisitions and coalitions are not  without  their problems, how­ ever. Acquisitions are difficult to integrate, and coordination among coalition partners  can prove troublesome.  In copiers, for example, Canon has benefitted from the problems Xerox has had in coordinating with its joint venture partners Rank Xerox and, through Rank Xerox, Fuji Xerox. Canon’s greater global coordination leads to some of its competitive advantages.

Source: Porter Michael E. (1998), Competitive Advantage: Creating and Sustaining Superior Performance, Free Press; Illustrated edition.

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