Hypercompetition theory

The hypercompetition theory analyzes the rapid and dynamic competition characterized by unsustainable advantage. It is the condition of rapid escalation of competition based on price-quality positioning, competition to protect or invade established product or geographic markets and competition based on deep pockets (financial capital) and the creation of even deeper pocketed alliances. Often a

Introduction to Hypercompetition

1. HYPERCOMPETITION While cost and quality, timing and know-how, strongholds, and deep pockets have always played a role in competition, the difference today is the speed and aggressiveness of interaction in these arenas. Part I of the book will examine patterns of interactions in each arena and show how they have taken on an

New ways of thinking about competitive advantage

1. Every Advantage Is Eroded The pursuit of a sustainable advantage has long been the focus of strategy. But advantages last only until competitors have duplicated or out- maneuvered them. As will be seen in the discussions of Part I, protecting advantages has become increasingly difficult. Once the advantage is cop­ied or overcome, it

Old ways of thinking about competitive advantage

To be effective in times of change, strategy must look to an industry’s fu-ture. It must provide an understanding of possible moves and counter-moves of rivals and offer a map of where the interactions between compet, itors might be headed. This requires a dynamic view of strategy. Static models of strategy provide an invaluable

Beyond static competitive advantage

The theories of strategy and competitive advantage described above have been helpful in focusing the attention of managers and researchers on stra­tegic decisions. But have they enabled managers to improve their strategic viability? As Gary Hamel and C. K. Prahalad note, strategy, as it is cur­rently practiced, may be a distraction from real strategic

The big picture: Escalation ladders and hypercompetition

1. Two Types of Escalation Research of the trajectories within each arena of competition reveals two types of escalation. The first is the escalation within each arena. As outlined in the discussion of trends in each arena, moves lead to counter­moves, and the competition continues to escalate. Firms move to higher and higher levels

New rules for hypercompetition: The new 7-s’S

In hypercompetition success depends on developing a series of new advan, tages that disrupt (not sustain) the status quo and that cope with other firms trying to disrupt the status quo. But what is it that allows companies to rapidly and continuously identify and develop new advantages? What is it that allows them to

Traditional views of cost-quality advantages

Cost and quality are the staples of competitive positioning. As discussed, Porter identified three generic strategies based on cost and quality advan­tages: overall cost leadership, differentiation, and focus strategies.1 The cost-leadership strategy involves offering a mass-marketed, low-priced, low-quality product. The differentiation strategy involves offering a pre­mium-priced, high-quality good, and the focus strategy targets a

Dynamic strategic interactions and the escalation ladder

We begin this chapter with the most primitive of all economic situa­tions—the case where two companies make the same product ( with the same quality) and thus are forced to compete on price. We see how this simple situation escalates into price wars, then differentiated markets, then full-line producers, and then niche strategies, as

Beyond cost and quality: no product positioning advantage is sustainable

Sometimes, when this point of ultimate value is reached, firms may tum to one of two strategies that abandon the market because the market seems too competitive to be profitable. Product-line extensions: Just as service can enhance product quality, companies can also add new products to fill in excess distribution ca­pacity. For example, McDonald’s

Hypercompetitive behavior in the cost-quality arena

Hypercompetitive firms attempt to (1) stay ahead of competitors who are attempting to catch up to or overtake them on the escalation ladder and (2) slow down competitors’ efforts to overtake them without slowing down their own advancement up the escalation ladders. These hypercompetitive actions are efforts to avoid perfect competition (where no one

Traditional views of timing and know-how advantages

The Hoffmann,LaRoche and Wang examples illustrate that arriving first to market can give a company a substantial advantage. If the first,mover firm arrives long before competitors, it may be the only seller of a product or provider of a service, allowing it to charge a premium because of its status as a monopolist. In

Timing-based strategies and dynamic strategic interaction

The timing of a firm’s rents and cash outflows depends upon the timing of its competitors’ movements into new markets and the timing of the firm’s own development of new technology and other know-how. This often de­pends upon whether firms choose to make revolutionary or evolutionary product changes. Moreover, the timing of the rents

Timing and know-how advantages are not sustainable

Even if the company successfully negotiates its way downstream or up­stream, it experiences yet another barrier that limits the continued use of new downstream moves to create advantage. As firms move into more and more downstream activities, the complexity of the organization grows. Management finds it more and more difficult to coordinate all the

Hypercompetitive behavior in the timing and know-how arena

We have observed how first movers and followers maneuver against each other to move ahead on the escalation ladder with new product introduc­tions and new generations of products. We have also seen how these ma­neuvers speed up over time and get bolder. Hypercompetitive firms at­tempt to avoid or break out of perfect competition (where

Limiting competitors

When it is apparent that competitive advantage can be lost in the first two arenas—cost and quality, timing and know-how—firms resort to using the powerful impact of entry barriers. By creating hurdles for their potential competitors, established firms try to head off competitors that might en­gage in the price-quality and timing-know-how cycles before they

The dynamic view of strongholds: turf battles and breaching entry barriers

Thus, entry barriers and the five forces play an important role in competi­tive strategy. However, as competitors have become more aware of the strategic importance of entry barriers and as the market becomes more dy­namic, companies have become more creative and aggressive in cir­cumventing entry barriers. These barriers, as we will show in examples

Barriers to entry and strongholds are not sustainable forever

Over the long run the result of most of these turf wars will be to heat up the competition in the strongholds both of the incumbent and of the orig­inal entrant. Both strongholds are eventually eroded and destroyed as safe havens. Often the two markets merge into one larger market. Thus, we may tend

Hypercompetitive behavior in the stronghold creation/invasion arena

Competition does not always become bloody. Competitors sometimes learn from the signaling process to tacitly divide the turf into different territories. This allows parties to create local monopolies and make profits by avoiding direct competition. But many competitors either don’t con­sider this or, believing they will win, draw their opponent into battle. They want

Traditional views of the deep-pocket advantage

The deep-pocket advantage appears to be intuitively obvious. Common sense tells us that a larger and better-supplied firm will usually win against a smaller, weaker competitor. Its resources give it the ability to outlast the smaller firm or to win in a test of strength, such as a war of attrition. Besides the ability