Living with Hypercompetition: The New 7-S’s

Paraphrasing George Bernard Shaw, while the reasonable person adapts himself to the world, the unreasonable one persists in trying to adapt the world to himself. Thus, all progress depends upon the un, reasonable person. In hypercompetition the reasonable strategies that focus on sustaining advantages do not lead to progress. Companies make progress in hypercompetition by the unreasonable approach of actively disrupting advantages of others to adapt the world to themselves. These strategies are embodied in the New 7 ,S’s.

1. Shoveling Sand Against the Tide

Such concepts of strategy as strategic fit and strategic planning are focused on sustaining advantages. They are often concerned with slowing down the escalation of competition in each of the four arenas described in Part I. If all advantages erode rapidly in hypercompetition, then these attempts to maintain the status quo are about as effective as shoveling sand against the tide.

Strategy, as it is widely practiced in American firms, involves establish, ing goals, then tactics, and then finding the resources to carry them out. Strategy is the “determination of the basic long,term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.”1 “Traditional theory suggests that management is a tightly structured, systematic, linear mental activity. Managers presumably formulate goals with painstaking precision, then undertake carefully prescribed actions. In reality, however … man, agers never have enough information to make perfectly reasoned deci, sions.”2

Managers are realizing that these current strategic approaches are inad-equate. Managers do not have the luxury of such a painstaking planning process when environments are highly dynamic. By the time a formal plan is agreed to and subsequently implemented, competitive conditions have changed. Moreover, the formal plan is based on assumptions such as these:

  • fundamental, deeply held values and beliefs
  • the ability to sustain the uniqueness of assets
  • the goal of sustained dominance over geographic or product markets
  • enduring policies
  • the ability to create a five- or ten-year plan that sequences steps to victory

All of these assumptions – are static in nature. In hypercompetitive envi­ronments, competitive conditions change and rivals outmaneuver other players based on the inflexibilities that are created by the very assumptions that are fundamental to formal plans and strategic planning processes. But what approaches to strategies are effective in achieving a series of tempo­rary advantages? How do companies successfully compete in hyper­competitive environments? And if sustaining advantage is not the goal of strategy, what is the goal of strategy?

2. The Need for a Dynamic Theory

The inability of such strategic approaches to deal with or explain dynamic strategic interactions in hypercompetitive markets has been widely recog­nized. Most of past strategy has focused on success at a given point in time, rather than what Porter calls “the longitudinal problem” or “the condi­tions that allow firms to achieve and sustain favorable competitive posi­tions over time.”3 He points out that game theory, models of commitment, and resource-based models all fall short of describing the complexity, un­certainty, and change of the current business environment.

Others, recognizing the weaknesses of current strategic thinking, have called for abandoning conventional formal plans and planning processes in favor of less rigorous planning—what has been called variously “strate­gic opportunism,”4 “hustle as strategy,”5 or “confidence as strategy.”6 These approaches stress flexibility and change, rather than permanence, sus­tainability, and commitment to a single course of action. They suggest that “strategic intent, a will to win, appears to be a far more significant catalyst for success than concepts such as ’strategic fit.”’7 This will to win is an intent to seize the initiative by escalating up the ladders in all four arenas, never looking back and never stopping. This type of aggressive be-havior results in a continual and unrelenting pounding for those who are left behind trying to achieve fit among all their internal functions, people, processes, and skills. Fit diverts attention away from the dynamics by fo­cusing the firm on creating a logical consistency among organizational characteristics that takes years to accomplish and, once completed, takes years to undo.

Thus, recent experience leads to one conclusion: Current views of strat­egy are inadequate to deal with the competitive environment. Given that traditional approaches to strategic planning may no longer be appropriate, some have suggested that strategy should be dismissed altogether. As one writer comments, “Strategy is good luck rationalized in hindsight.”8 This puts companies in the position of flying blind through the turbulence of hypercompetition with a rabbit’s foot. Not surprisingly, some companies who have seen current strategic approaches as a distraction have chosen this course. On the other hand, companies that rely on serendipity may find profits in the short-term but are often saddled with confusion within the organization and uncertainty in dealings with the world. They fail to develop “strategic intent” and usually are undermined by a more strategic thinking competitor.

The formal approaches to strategic planning are more appropriate for environments of traditional, slower and less aggressive competition. As noted in Chapter 6, these environments are characterized by long periods of stability between disruptions. These periods call for more of an emphasis on carefully considered thought and deliberate action. Hypercompetitive environments, on the other hand, draw more upon the instant reaction and reflexes of the company. It is the difference between a rigidly planned and carefully orchestrated invasion, as practiced by the German military in World War I and World War II, and attacks based on the doctrine of flex­ible response, as practiced by the U.S. military in the 1990s. Strategy in the current environment is more a process of fine-tuning reflexes and searching out or creating temporary opportunities than it is a product of long and deliberate planning of specific actions in product markets.

3. Disrupting the Status Quo

Traditional models of strategy look at ways to sustain advantage or sustain the status quo in markets. Once a company has established an advantage, strategy seeks to sustain that advantage and protect it with entry barriers. Thus, traditionally, strategy was concerned with dampening competition and protecting the status quo.

The U.S. government has countered this view of strategy with antitrust regulations designed to create the stable equilibrium of perfect competi­tion in which no competitor has a significant advantage. Leading U.S. companies have, however, traditionally sought to freeze the competition at a point of imperfect competition—namely, when they have an advan­tage that nonleaders will accept because the leader has not used that ad­vantage to annihilate them.

The goal of a dynamic approach to strategy, in contrast, is to disrupt the status quo of the industry. Nonleading companies can then find advantage in this disruption and create disruption that leads to advantage. Leaders are, therefore, forced to disrupt the new status quo if they wish to maintain their past dominance, and an endless cycle of hypercompetitive behavior is triggered.

Obviously a company whose competitor has a stronger advantage in the given market would be interested in disrupting the status quo. When Pepsi began building its position in the cola market, it clearly wanted to act aggressively to undermine the advantages of Coca-Cola. Such underdogs have little to lose and much to gain from shaking up the market.

But in an environment in which no advantage is sustainable for long, forward-thinking companies realize they need to create disruption even when they have an existing advantage. They realize that control of the evo­lution of competition in the market is more important than earning current prof­its. They disrupt the status quo, even if it means eroding their own advan­tages, because they realize that if they do not erode their own advantages, competitors will. If a company with an advantage waits for a competitor to disrupt the status quo, the company that is ahead will not only lose its current advantage but lose its leading position in directing the movement of competition in the market. Thus, Microsoft introduces NT software, even though it will disrupt its current dominance of operating systems with MS-DOS.

As discussed in the preceding chapter, the resources expended to sus­tain an advantage can detract from the company’s ability to build new advantages. With a limited pool of resources, the company must choose whether to try to sustain the past or build the advantages of the future. Only one of these paths will lead to future success.

4. Beyond Strategic Fit

Key to the concept of sustainability was the concept of fit. The old 7-S framework, for example, is concerned with sustaining advantage by creat-ing fit between the structures and processes of the organization. Tradi­tional theory says that companies should be concerned with both internal fit (i.e., matching structure and processes so that they are logically consis­tent) and environmental fit (i.e., matching structure and processes to cope with the demands of the external environment). Advantage is said to be created if a firm focuses all its parts on one consistent goal and purpose that the external environment is willing to pay for. This may work well in fairly stable environments. But when the environment is one of increasing uncertainty and rapid change, the concept of internal fit becomes more problematic. Environmental uncertainty, for example, requires more dele­gation of authority and organizational differentiation and specialization. Internal fit increases the need for coordination, counteracting the need for delegation, differentiation, and specialization.

Although contingency theory contends that organizations should achieve fit with the environment as well as synergies between internal processes and structures, these two goals can sometimes be incompatible, particularly in environments of rapid change. A recent study of ninety- seven companies indicated that “the alignment among structural and pro­cess variables needed for good environmental fit seems sometimes to vio­late the dictates of internal consistency.”9 The study found three reasons for this incompatibility. An uncertain external environment calls for cre­ative adaptation rather than the more rigid structure found in a company with strong internal fit. Loose coupling of structures and activities within the organization and with the firm’s environment also allows for greater ability to adapt to changes in the environment. Finally, a focus on internal fit tends to lead to tunnel vision, in which managers often ignore changes in the external environment.

Clearly the environment has a more powerful role than ever to play in the evolution and success of the firm. The movement through the escala­tion ladders and the more frequent use of hypercompetitive actions de­mands a switch from an internal to an external focus. For example, a few decades ago Coca-Cola rarely if ever acknowledged that it had competi­tors—either in its advertising or its boardroom. But now it has no choice but to watch competitors like a hawk and to pay strict attention to the changes in the external environment.

The old 7-S framework, with its focus on internal fit, is less useful in hypercompetitive environments. The New 7-S’s, described below, are not concerned about internal fit, nor are they designed to create fit with today’s external environment. Instead of merely adapting to changes in the environment, they allow the companies to reshape the environment through their actions. They are designed to provide a more flexible struc-ture for corporate decision making and actions. The focus is on structuring the future rather than adapting to the present.

5. The Perils of Commitment

It has been suggested that commitment, the tendency of an organization to make investments in irreversible courses of action and to persist with a certain strategy, is a key component in competitive success.10 This is con­sistent with the traditional view of formal strategic plans, which were ap­propriate for stable markets. But commitment is much less fruitful in un­stable, uncertain environments. Commitments are so rigid and consistent that they become easily understood, overcome, or imitated by competi­tors. In hypercompetitive markets flexibility allows companies to seize op­portunities as they present themselves and to create new opportunities.

The New 7-S’s, because they are focused on disrupting the status quo, lead to unpredictable actions that often seem to lack any commitment other than the commitment to win. The vision proposed by the New 7-S’s is not a vision carved in tablets in the lobby of the corporate headquarters. It is, paradoxically, a vision that looks farther forward by looking more closely at short-term market conditions, the dynamic strategic interac­tions among rivals. Under the New 7-S’s, resources are not fixed resources for carrying out one vision that lasts for decades. The New 7-S,s stress flexible resources, such as capabilities for speed and surprise, which can be deployed in countless ways to carry out visions that last for short periods of time. Actions are not formulaic generic strategies but rather a diverse and unpredictable array of options that keep competitors guessing and allow for last-minute shifts in strategy when appropriate. The only long-term vision under the New 7-S’s is to create the continual, enduring ability to manage the escalation ladders by executing superior dynamic strategic ac­tions.

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

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