Hypercompetitive nations

In hypercompetition the advantages of nations are just as unsustainable as the advantages of companies. The past success of U.S. companies in world markets is no guarantee of their future success, as the rise of strong com­petitors from Europe and Asia has demonstrated. Nor is Japan’s success any indication of its future prospects; it is still unclear what Korea and China have in store for Japan and America. In the past decade America watched helplessly as control over key industries shifted to foreign com­petitors. Giants such as IBM and GM stumbled. This era was the Vietnam of U.S. business history—demoralizing and confusing.

The only meaningful prospect for future success results from corporate strategies and government policies that encourage companies to adopt this new ideology of no-holds-barred hypercompetition. As Michael Porter comments on the results of his exhaustive four-year study of ten nations in The Competitive Advantage of Nations, “Companies and economies flourish because of pressures, challenges, and new opportunities, not a docile envi­ronment or outside “help” that eliminates the need to improve. Progress comes from change, not from a preoccupation with stability that obstructs it.”7 U.S. managers and policymakers must promote a dynamic environ­ment that is the best hope for the U.S. economy and its companies.

1. Meeting the Challenge

The United States cannot afford to move back to aggressive attacks on its large, successful corporations by antitrust regulators. Antitrust laws often served to protect the underdog competitor from what was labeled a “pred­atory” firm. Yet it is this hypercompetitive predatory firm that survives in today’s world. The government must untie the hands of our best hope for winning against global forces such as NEC, ABB, and others. Managers also cannot be content to focus on sustaining their current advantages. They must actively develop a series of advantages by using the New 7-S’s.

Managers must abandon old strategic tools and theories that no longer apply in hypercompetitive environments. They must, for example, recon­sider the use of the following strategic frameworks and maxims:

Commitment Traditionally, increasing commitment by investing in fixed equipment or plants is thought to signal intent and increase focus. But in hypercompetition a rigid commitment tends to make the firm in­flexible and predictable. The more a firm is locked into a specific course of action, the more competitors can maneuver around the firm in creating new advantages. Also, long-term commitments tend to lock the company into a specific advantage rather than allow it to move flexibly from advan­tage to advantage. In hypercompetition the flexible, unpredictable player has the advantage over the inflexible, committed opponent.

Long-term planning Traditionally, managers are exhorted to develop long-term plans that set the company on a steady course for the future. All parts of the plan consist of and build upon each other over time. Instead managers need to plan to be opportunistic and flexible in hypercompeti­tion; they need to plan for change rather than consistency. Good compet­itors will destroy your plans. (There is an old military saying: A good plan lasts only until contact with the enemy.) Because long-term success de­pends on a series of short-term advantages, the exact nature of which can­not always be seen at the outset, the company needs to create a process of developing a series of advantages. This is in contrast to planning for spe­cific goals and results under traditional approaches to long-range plan­ning. In hypercompetition managers need to ask themselves what skills or assets are necessary to ensure that the company will have the necessary flexibility to meet the demands of building a series of advantages. In par­ticular, they need to focus on how they can best develop the New 7-S’s to prepare for the long-term process of hypercompetition.

Generic strategies Traditionally, selection of generic strategies, such as being a differentiator or low-cost producer, was recommended, but in hypercompetition these positions are only a short-term strategy at best. Firms actually move between such positions in the course of the evolution of the industry. Sometimes companies occupy two positions at once. As discussed in the Introduction and Chapter 1 (cost and quality arena), the actions of competitors can move a company from one position to another without any action on the part of the company. As discussed in Chapter 2 (timing and know-how arena), consistent strategies of being a follower or first mover are too static in hypercompetition. Companies shift from being first movers to followers and then back to first movers. In hypercompeti­tion the advantage goes to the firm that keeps moving up the escalation ladder—not to the firm that locks into a fixed position like one of the generic strategies.

Building entry barriers In hypercompetition managers seeking to build entry barriers or relying on entry barriers for protection against competí- tors will be frequently disappointed. As discussed in Chapter 3, even the most persistent entry barriers and strongholds are beginning to fall. In hypercompetition the best barrier to entry by new companies or expansion by existing players is for the company to move aggressively from advantage to advantage. Notice that this isn’t really a defensive barrier, since compa­nies keep on attacking, rather than defending, their current turf. This for­ward momentum and aggressive competition gives a clear sign to would-be competitors that entry will be a challenge. It also offers fewer windows of opportunity for competitors. In hypercompetition the advantage goes to the party with the initiative, not the player playing defense, using entry barriers to exclude players.

SWOT analysis Analyzing a competitor’s current strengths and weak­ness and playing strengths against weaknesses may work in the short term but is not an effective long-term strategy in a dynamic environment. As discussed in the introduction, consistently playing against the weaknesses of a competitor is both predictable and a strategy that ultimately builds its weaknesses into strengths. A tennis player who serves to his opponent’s weak backhand will eventually force the opponent to develop a stronger backhand. Then the first player faces a rival with a strong forehand and a strong backhand.

NPV analysis This method of analyzing projects to see if they generate a positive net present value (NPV) is predictable and fails to recognize the dynamic role that competitors play in shaping cash flows. Companies that use this model for capital budgeting will adopt a project only if the pro­posed project generates a positive NPV. In markets where opponents are willing to fight vigorously against a proposed investment, they can depress the expected cash flows for the company basing its decisions on NPV anal­ysis and make the project look less attractive. On the other hand, if the opponent does not fight, he allows his rival to have cash flows and to un­dertake this investment. Thus, in a dynamic environment the hypercompetitive opponent can actually decide where the company using NPV analysis competes. Further, using NPV analysis on one project at a time (as is done in most firms) does not allow the company to see the big picture needed to develop an effective competitive strategy wherein some projects are undertaken despite their negative NPV for the larger strategic purpose of disciplining the expectations of an opponent, letting it know its NPV for certain projects will be negative because of the competitive reac­tion to those projects.

Power over buyers and suppliers Traditionally firms are taught to gain power over buyers and suppliers, but this ignores the reactions of the buy­ers and suppliers. General Motors had power over its dealers. It squeezed their margins and off-loaded inventory onto them without much concern for their risks of bankruptcy. The response was that dealers picked up Toyotas and Nissans to give themselves power over General Motors and to play each off against the other. This dynamic reaction to a temporary GM advantage destroyed the advantage. In hypercompetition the advantage doesn’t go to firms that squeeze dealers and suppliers but to firms that en­list them in the effort to create new advantages through using the New 7-S’s.

To revert to old strategic doctrines, no matter how successful they were in the past, can be futile. Even to stand still in this environment is to move backward. As Ernesto Martens, the CEO of Vitro, said: “Our challenge is to change who we are without losing sight of what we are all about—— My challenge is to convince the people here that we can no longer be compla­cent in the face of world competition.”8

Our corporate and political leaders need to have the courage to address this new competitive environment by adopting a new view of competition that welcomes it and encourages it even if the business-is-war metaphor scares them or has an unpleasant sound to them.

Many companies and policymakers realized that change was needed. Forward-thinking companies have restructured themselves to become leaner. Courts and enforcers backed away from aggressive antitrust actions in the light of the decline of once-powerful corporations in hypercompeti­tion.

The danger now is that we may misinterpret the lessons of the 1980s. We may be tempted to see these changes as a single anomaly in the envi­ronment. For managers it is tempting to think that a single restructuring or intense reengineering process can cut out the fat and set our corpora­tions on an upward course again. It is tempting to limit the erosion of our current advantages through cooperation without hypercompetitive in­tent.

In politics there is a temptation to see the swing away from aggressive antitrust enforcement as a product of a Republican administration rather than the result of new realities of competition. Instead the shift to less aggressive enforcement of antitrust laws by the judicial and regulatory sys­tems is a recognition of the new realities of hypercompetition. The drag­ons of monopoly power no longer roam the earth. But the threat of foreign competitors to U.S. jobs is very real. U.S. companies are no longer fighting to build monopolistic empires; they are fighting for survival. If U.S. policy fails to support its corporations in this struggle, we may wake up too late to find that the corporate giants of the world have died or moved overseas. The outcome of this struggle affects U.S. jobs, competitiveness, and the economy. The antitrust implications of hypercompetition must be ad­dressed by regulators more explicitly. The Appendix provides some sugges­tions for what must be considered if America is to adjust to the new world of hypercompetition.

The challenge facing the United States today is whether it can recog­nize the reality of hypercompetition and rise to meet the demands of this new environment. The United States must have the courage to overcome the tired ideologies and policies that made it successful in the past but are now keeping it in that past. America’s old advantages are running out. The United States now must move on to its next advantage: the creative ability of its people to disrupt markets with sudden and overwhelming force through using the New 7-S’s.

2. Lean and Mean: Hypercompetitive Intent

The New 7-S’s are the smelling salts that can wake up the sleeping giants of industry after a long period of sleep. Those large and small companies that wake up and fight will be the ones to succeed in the intense competi­tion ahead. Instead of defending the status quo with entry barriers, the New 7-S’s encourage the next generation of advantages, not sustain those of the past.

During the 1980s U.S. corporations became leaner. Now they must be­come meaner, adopting a hypercompetitive intent to dominate. This does not mean engaging in endless price wars, however. Chapters 1 to 4 indi­cated more sophisticated ways to race up the escalation ladders faster than competitors. Part III indicated that jumping to new or recently dormant arenas of competition is a good option. So too is restarting the cycles within each arena. The key is to dominate in each arena by having the superior position relative to the competition. If it moves, the firm must move, and preferably in a way that seizes the initiative (as the New 7-S’s suggest). Reactive moves and playing catch-up are not enough.

The process of becoming leaner has stripped away the structures and strategies designed to support and sustain old advantages. Like mollusks that have shed their old shells, companies now have a critical decision. They can seek to create new shells, new, rigid structures and strategies to support and “sustain” a new advantage. These structures and strategies will soon become as stifling as their pursuit of their old advantage had been. Or these companies can use their newly found leanness to become aggressive hypercompetitors, flexibly and unpredictably moving from advantage to advantage.

Becoming hypercompetitive may appear to be a risky route for corpora­tions. Certainly, stable, consistent, long-term plans sound more rational, less risky, and less costly than jumping from advantage to advantage. A natural sense of conservatism may cause some companies to opt for the seemingly safer option of shoring up and sustaining an old advantage. But becoming mean by using the New 7-S’s and pursuing a series of temporary advantages, as dangerous as this may be, is far less dangerous than being trapped in a rigid company trying to sustain an advantage long after it has begun to slip away. Companies that choose this latter route could find themselves the next IBM, valiantly defending the mainframe business throughout the ’80s even as it evaporates beneath them.

3. A Sleeping Giant Awakens

There is new evidence that U.S. companies, despite the regulations that often hold them back, can seize the initiative and win in global competi­tion. U.S. companies are becoming more hypercompetitive without mov­ing across the line into antitrust violations. In the first five months of 1992, Business Week reports, U.S. car makers seized 72.4 percent of the domestic auto and light truck market, up 1.6 points from a year earlier. At the same time, Japanese automakers lost 1.4 points.9 In 1992 Ford Taurus moved ahead of the Honda Accord as the best-selling U.S. passenger car for the year. The Saturn is a roaring success. Lou Gerstner has a new vision for IBM that no longer defends mainframes, but moves on to what IBM is now calling “Power Architecture.” Clearly the American dinosaur is not dead but is evolving to meet the new demands of its environment.

In 1993 U.S. companies began to see growing profits and investments.10 The United States was making gains across a wide range of industries, in­cluding autos, steel, food, computers, chemicals, semiconductors, telecom­munications, and banking. Analysts predicted that the largest U.S. indus­trial corporations were “poised for a comeback.” General Motors actually led the Fortune 500 in sales in 1992, and old-line companies such as Gil­lette, Whirlpool, and Union Carbide made great gains through stronger attention to customers, technological advances, and other moves.11

U.S. companies increasingly are using the New 7-S,s to boost stake­holder satisfaction, engage in strategic soothsaying, increase speed and surprise, shift the rules, signal, and use simultaneous and sequential strate­gic thrusts. They are moving ahead in the four arenas of competition by competing more aggressively on price and quality, timing and know-how, attacking strongholds, and building and using deep pockets.

Meanwhile, Japan has stumbled, and its bubble economy has been de­flated. Most of what has been lost is the sense of invincibility gained dur­ing its rise after World War II—what has been called the Godzilla myth.12 Toshiba, Honda, and other large corporations are changing their ap­proaches to business.13 They are discovering, as U.S. firms did during the 1980s, that all advantages are temporary. What worked in the past must be rethought to seize the advantage in the future. As always in hypercompeti­tion, the vanquished have the chance to rise like a phoenix from defeat while the victors have the potential to lose their dominance because their hubris causes them to sustain their old ways of doing things.

4. Only the Dynamic Survive

Political and regulatory shifts will most likely occur too slowly to meet the immediate challenges of hypercompetition. Companies cannot wait. Of course, no one should intentionally break the law, but the dangers of standing still in hypercompetitive environments outweigh the dangers and costs of provoking an antitrust investigation by the government or a lawsuit from a competitor. The most aggressive companies realize this. Throughout its history General Electric, for example, has been no stranger to antitrust controversies.

American Airlines and Microsoft must continue to move as quickly up the escalation ladders as possible, to act decisively and aggressively, de­spite carrying the weight of government investigations or private lawsuits. (American had this point driven home when it began relying almost solely on price competition to win and its smaller competitors, which had been nipping at its heels, suddenly took a bite out of its rear, contributing to American’s substantial losses in early 1993.)14 The antitrust actions may have had a dampening effect, but they seem not to have affected the most aggressive companies’ fundamental approach to competition. Remember, the courts are beginning to come down on the side of antitrust defendants in many situations that were previously thought to be illegal (so consult legal counsel on current law). Most of all, remember that you are helping America when you are hypercompetitive because winning in the market­place will defend U.S. jobs and pursue dynamic efficiencies described in the Appendix.

The world has moved forward and continues to move forward into hypercompetition. For U.S. managers and policymakers the choice is clear. We can stand still and allow this wave of constant change to wash over us. We can try to resist the dynamics of the environment by clinging to concepts of sustainable advantages, by believing in the power of entry barriers. Or we can actively embrace the environment and take advantage of its opportunities. We can actively seek to disrupt current advantages, build new ones, and move competition up the escalation ladders. There is only one course that leads to long-term survival and success in hypercompetition. In a dynamic world only the dynamic survive.

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

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