Markets were never really static; they just moved to higher levels of competition so slowly that they appeared to be static. But today markets are driven by the forces of global information processing and technological competitions that have transformed relatively low-intensity static environments to high-intensity dynamic hypercompetition overnight. These forces create opportunities to unseat the established leaders. This has reshaped the competitive options of all companies.
1. Secure Fortresses
In the old view of markets, companies focused on building monopolies in a specific market or market segment, limiting competition in those segments, and making excess profits by using their monopoly power to raise price, as illustrated by Figure 11-1. If new entrants occasionally shouldered their way into the market, competitors formed oligopolies that essentially limited competition by tacitly colluding to be less competitive. Either way, companies sought to build secure and sustainable fortresses they could defend against competitors without actively fighting. Antitrust laws tried to counter this approach by herding companies toward perfect competition, where excess profits and competitive advantages are nonexistent. A “fair,” or “level,” playing field was forced upon the players, and the market was frozen in a state where no one dominated. At least, that was the theoretical plan.
2. The Disruptive and the Dead
Today the fortresses of the past have crumbled, and the knights who once defended them are left exposed on the open fields of combat. Monopolies are virtually nonexistent. Even where they were once protected by government regulations, they have been dismantled through policies of deregulation and privatization in response to competitive pressures. Oligopolies are also very hard to sustain. They last only as long as all competitors play by the same rules. If one player steps out of the bargain or a new one enters the market, all bets are off. In today’s markets perfect competition often develops because firms hold on to their old advantages until their competitors have imitated them, resulting in bankruptcy or long-term poor performance.
FIGURE 11-1
TRADITIONAL TYPES OF COMPETITION IN A STABLE WORLD
In the current environment companies no longer have the option of sustaining monopolies or oligopolies. They now have two choices: to disrupt or to be dead. As shown in Figure 11-2, they can choose between perfect competition or hypercompetition. Hypercompetition does not offer the excessive profits of monopolies, nor does it offer the sustained profits of oligopolies. But it does provide intermittent profits through temporary advantages. Stringing together these advantages is the best strategy for long-term success in an environment that would otherwise offer few opportunities for using old strategies designed to create and defend monopolies or oligopolies. In other words, companies have little choice but to enter hypercompetition because it is superior to the state of perfect competition that would result if firms were left to imitate each other and reach a state of stable equilibrium. Disrupting that equilibrium by using the New 7-S’s is essential to break out of it.
FIGURE 11-2
NEW REALITIES OF COMPETITION DRIVEN BY CHANGES IN THE TECHNOLOGICAL, GLOBAL, AND
INFORMATION PROCESSING ENVIRONMENTS
3. The Danger of Short-Term Profit Orientations
Traditionally, oligopolistic and monopolistic strategies are preferred to hypercompetition by American business. These corporations seek the greater short-run profits provided by seeking oligopoly and monopoly. However, over the long run, profits and market position require a longer- term view of what happens when firms are trying to compete by avoiding competition. The aggressive firms eat their lunch, leaving devastation and starvation where once short-run profits prevailed.
The United States has been criticized for its short-run profit orientation, and researchers have blamed the problem on the stock market and government policy. The real problem is the American ideology of maximizing profits by avoiding competition. Instead firms should be maximizing their hypercompetitiveness to protect their relative strategic positions in their markets by racing up the escalation ladders faster than competitors do and by heating up the competition to even higher levels.
4. The End of a Chivalrous Age
The rise of hypercompetition and the subsequent erosion of the fortresses of monopolies and oligopolies have brought an abrupt end to the age of chivalry. The gentility of tacit collusion and avoiding head-on competition is gone. The days in which it was uncouth to destroy a competitor are gone. Similarly, the usefulness of antitrust laws designed to protect “fair play” by pitting equally weighted players against each other is gone. The world of strategy has moved away from an ideology where “fair” competition was supposed to be like fixing wrestling matches between wrestlers of equal weight. It has moved to a new view where winners take all and combatants of unequal weight use any tactic available to them.
This shift in the definition of competition has been relatively rapid and was largely unexpected. It is no wonder that both managers and regulators have been slow to acknowledge this new vision of what competition is and should be. Companies can no longer compete according to the old ideology of fair play and chivalry. They are increasingly realizing the need for a new ideology of hypercompetition. The most aggressive firms have already given up the traditional ideology that guided strategy and policy in a chivalrous age. They realize that they are not fighting on the contained fields of combat of relatively tranquil and insulated domestic markets. They are in the midst of the head-to-head, fight-to-the death, global business war. They are now adopting a new ideology more appropriate to the hyper-competitive environment of all-out war, as summarized in Figure 11-3. As Ernesto Martens, CEO of Vitro (one of North America’s largest firms) said, “You could actually feel it sweep through the company, this realization that the world was becoming a different place.”1
FIGURE 11-3
CONTRASTING IDEOLOGIES OF THE PAST AND FUTURE
5. Hypercompetitive Exhortations to Battle
Cooperation and chivalry are not the model for the future of competition, even though cooperation and fair play have been the American tradition. The new model is Honda’s battle cry of Yamaha o tsubusu! (“Annihilate, destroy, and crush Yamaha!”) during the H-Y War or Komatsu’s motto Maru C (“Encircle Caterpillar”).
The signs of a more aggressive approach to competition can already be seen and heard across the United States. Employees in an AT&T factory are exhorted to “declare business war” against Northern Telecom.2 United Parcel Service, in its intense competition with Federal Express and others, asserts in its television advertising, “The arms race may be over, but the package race is just heating up.” Edward E. Crutchfield, chairman and CEO of First Union Corporation, comments on the shifting financial service industry. “We bankers are throwing snowballs [at each other] and there’s someone out there with an Uzi.”3 Robert Lutz, president of Chrysler, declares, “The war isn’t over but we’ve definitely landed on the beaches.”4
There is a new intensity of competition. There is a new recognition of the demands of hypercompetition. There is a growing realization that chivalry is dead.
6. Kill or Be Killed
This new aggressiveness of competition is perceived by some as a ruthless drive to dominate. An industry analyst described the strategy of Intel as “a scorch, bum and plunder strategy with one aim: Kill off competitors. If you think Grove is determined to control the future of computing hardware, you’re absolutely right.”5
But Intel CEO Andrew Grove doesn’t see himself as a ruthless and powerful Visigoth preparing to sweep through the countryside. He is fighting for survival. As he commented in a 1993 article, “The history of high- tech industries is filled with the cadavers of companies that lived for a while and are no longer around. I drive up and down this peninsula and see the buildings of companies that are now on their third owner. The previous owners are gone. I have daily reminders of the mortality rate when you live in the fast lane.”6
In this environment it is kill or be killed. The aggressiveness of hypercompetition demands a new ideology. The business environment today is as untamed as the Wild West. Entry barriers and deep pockets are leveled. The rich and poor are equally in danger as they ride through the sagebrush. It takes a new breed of rugged and fearless competitor to survive. And it takes a new ideology of competition.
This recognition of the need for a new ideology is by no means universal. But as those fighting by the old rules of chivalry take a beating in world markets, it is becoming harder to avoid acknowledging the reality of hypercompetition. Still, it is not clear that U.S. managers and policymakers understand the full depth of the changes in the current competitive environment. Such a recognition is vital to the future competitiveness of the nation.
Source: D’aveni Richard A. (1994), Hypercompetition, Free Press.