Capabilities for disruption

To capitalize on the advantages identified through the first two S’s, hypercompetitive firms develop capabilities for speed and surprise. Speed and surprise are capabilities that can be used in many ways.

Fixed capabilities, such as investments in plants and other resources, tend to commit a company to a certain course of action. In static views of competition, this clear commitment to a certain course or to sustaining a certain advantage tends to warn away competitors from attacking that ad­vantage. It makes it clear that they will have little chance of success.

In a dynamic environment, on the other hand, a commitment does not necessarily warn competitors away from an advantage. Because advantages can be eroded, a strong commitment merely gives away the company’s hand and makes it easier for competitors to disrupt it. The predictability of commitments also makes it harder for the company to surprise and disrupt its competitors.

In hypercompetition companies develop flexible capabilities that en­hance their actions but do not give away their strategic position. Capabil­ities for speed and surprise are deployed in a variety of different ways.

Therefore, if a competitor knows a company has capabilities for speed and surprise, it does not necessarily know how the company will use those ca­pabilities, making it unpredictable and, hence, more threatening. This flexibility and unpredictability create disruption and force an opponent to act differently as a result of the potential threatening posture of its com­petitors.

S-3: Capabilities for Speed

In static environments, where advantages eroded more slowly, speed was concerned with increasing the efficiency of current processes. Speed was viewed as a way to strengthen existing advantages by making current or­ganizational processes move more quickly. The innovations of Frederick Taylor and the Scientific Management School, for example, increased the efficiency and productivity of manufacturing companies many times over. The pace of organizational and strategic change, however, was not of great concern, and companies tended to move very slowly in shifting their di­rection because they were focused on sustaining their current advantages rather than disrupting them.

Because of this focus in static environments on speeding existing oper­ations, the conventional wisdom was that companies had to sacrifice qual­ity or flexibility to achieve greater speed. If a machine runs at a faster rate, the quality will usually go down. If service is delivered more quickly, it will be more standardized and less courteous. So to speed operations, compa­nies increased their focus. Producing a narrow range of products or services allowed firms to speed delivery to customers. Speed was concerned with the speed of operations rather than the speed of organizational and strate­gic change.

In dynamic environments, in contrast, companies are focused on speed­ing up their ability to move and to change. All advantages are temporary, so the clock is always ticking. Because they must move quickly from ad­vantage to advantage, organizations need to develop the capacity to turn on a dime. They need to be able to move in new directions and pursue new opportunities before their competitors. Companies reengineer their orga­nizations to increase quality and flexibility while achieving higher levels of speed in current operations and greater speed in taking advantage of new opportunities.

To achieve speed, companies reorganize their organizational structure, processes, and individual behaviors. Rigid and slow hierarchical structures are replaced with flatter, team-oriented structures that allow for rapid de­cisions and actions. Processes within the company are streamlined or reen­gineered, and excessive work is forced out. Individual behaviors and the culture of the organization are being changed to create a more involved workforce and facilitate teamwork. All these approaches contribute to the company’s capabilities for speed.

Hypercompetition is often unforgiving to the slow-moving company. As Monsanto’s patent for aspartame was about to expire in December 1992, Business Week reported that competitors were lining up to move in on the market with lower-priced versions of the sweetener. More troubling, how­ever, was that the company’s next generation of sweeteners appeared to be years away from a rollout, according to Business Week. Meanwhile, com­petitors such as Johnson & Johnson and Coke were preparing to launch new sweeteners of their own that could seize the market away from Monsanto.15

Gallo’s shift from screw-top wines to high-class varietals was a rapid trans­formation. In a period of a few years, the company was able to transform its operations and reputation from a high-production, low-quality factory to a premium-quality winery (without abandoning its high-production capabili­ties). Its ability to quickly build a large cask winery, to change its advertising and marketing, and to shift its grape growing allowed it to move quickly. In Gallo’s case, this speed resulted, in part, from the central control of the win­ery by the Gallo brothers.

Komatsu’s ability to roll out a series of new products continued to chip away at Caterpillar’s market and then keep going to outpace Cat in technological development. Komatsu made a rapid and aggressive push overseas to move quickly into new markets. The company’s “management by policy” system allowed it to set broad policies of innovation to get staff to work to­gether to achieve common goals. It also instituted a system of feedback loops, known as the PDCA system (plan, do, check, act) to provide consis­tent and rapid midcourse corrections. Caterpillar’s more rigid organizational structure, constrained by its contract with its unions, slowed its progress.

Speed creates disruption by preempting competitors. Even if two com­peting companies are able to recognize an opportunity at the same time through the first two S’s, the one that has the capability to act quickly will be the one that is able to seize the initiative and disrupt the other compet­itor. Speed allows companies to be the first mover if this is to their advan­tage, forcing competitors to be reactors.

By moving quickly, the company also disrupts competitors by giving them less time to find out about the move or prepare to respond to it. This extends the time it takes for competitors to duplicate or undermine the advantage and also increases the shock of the move. In this way speed works to enhance surprise.

S-4: Capabilities for Surprise

In static environments consistency and commitment are the keys to sue- cess because they help the company sustain its current advantages. Conventional wisdom says that companies, like athletes, only become excellent by concentrating on and practicing an activity over and over. Companies are encouraged to “stick to their knitting” and develop strategic fit. Consistency and commitment make it virtually impossible to create surprise. The company’s actions and strategies are visible and un­changing.

In dynamic environments, in which the focus is not on sustaining but on disrupting the status quo, consistency and commitment undermine the company’s ability to move from temporary advantage to temporary advan­tage. A constant course decreases flexibility, gives away the firm’s position to competitors, and leaves it open to be outmaneuvered. Hypercompeti- tive companies recognize that the skills developed by an athlete in one activity can be applied to others, so they invest in generalizable resources. Not only does this give the company more flexibility, this approach also increases the firm’s ability to surprise competitors. In dynamic environ­ments companies use surprise to delay, confuse, or outmaneuver their competitors. Surprise results from disrupting the status quo, and when companies build new temporary advantages, the new advantages that cre­ate the most surprise also create the most advantage.

Because surprise is, by definition, unpredictable, it is something that usually can’t be planned for explicitly. Instead, companies develop capabili­ties for being able to create and carry out surprises that will move them in unpredictable directions. These capabilities for surprise result from stealth, flexibility, and creativity.

The capability for stealth is an important way of keeping competitors guessing about the company’s next move. At the same time that surprise has become increasingly important, the growth of public information and burgeoning of industry analysts has made it harder to keep secrets by stealth. Even closely held private companies, such as Gallo, have been the subjects of magazine stories and books. So while companies still use stealth, most depend more heavily on flexibility and innovation.

Companies achieve flexibility in a variety of ways. A flexible cost struc­ture within a firm allows it to shift resources quickly. Companies also ac­tively develop and manage flexible knowledge bases and core competen­cies that can be applied in various ways. For example, Honda’s abilities in small engines could be applied to motorcycles, cars, snowblowers, and a wide range of other products, and its competitors still don’t know which product it will be applying this competency to next.16

Finally, hypercompetitive firms work to surprise themselves. Through a commitment to innovation, companies create opportunities to come up with creative new technologies and products that shake it up internally and shake up its external markets. For example, 3-M’s Post-its were as much a surprise to the internal organization as they were to the market­place. But they were a result of the company’s commitment to allowing its employees the time to exercise their creativity.

Gallo’s tight-lipped policies helped to sh’eld its strategies and moves from competitors, but a public court case in which the two founders’ younger brother sued for an interest in the business opened much of the company’s operations to public scrutiny. E. & J. Gallo Winery also created surprise through its commitment to innovation, developing new technology to pro­cess wine and new varieties of grapes. Its flexibility has also surprised com­petitors. For example, California Cooler introduced the first wine cooler in 1981, but Gallo had the flexibility to move aggressively into the market with its Bartles & Jaymes coolers. The New York Times reported in 1987 that Gallo’s B & J had gained a quarter of the market while California’s share fell to 16 percent.17

Komatsu used its competencies in flexible new ways and encouraged inno­vation through its F and F (future and frontiers) program. This led to products such as arc-welding robots, underwater-excavation equipment, and new sil­icon materials, as well as new uses for solar energy.18

Surprise creates disruption by catching the competitor off guard through an unexpected action. Because the competitor is never sure of where the next volley is coming from, it is in a constant state of disruption, even when its unpredictable opponent is not acting on its opportunities for surprise. The capacity for surprise forces competitors to sustain a higher level of vigilance and creates the uncertainty that throws opponents off guard.

Surprise, therefore, disrupts the competitor’s ability to successfully de­fend against an attack because the competitor cannot plan for the attack. It also gives the surprising company a longer window for its temporary ad­vantage before the competitor recovers from the surprise and successfully mounts a counteroffensive.

Source: D’aveni Richard A. (1994), Hypercompetition, Free Press.

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