The final three S’s are concerned with tactics for delivering disruptions— shifting the rules of competition, signaling strategic intent, and simultaneous and sequential strategic thrusts. The vision for disruption and capabilities for disruption help shape the tactics that will be used. And if a firm is good at specific tactics, the company may shape its vision and capability around these tactics.
Tactics in static environments are focused on sustaining existing advantages. They are concerned with holding the course and warding off attacks on a stronghold. Thus, in stable environments controls are important to prevent strategic drift, and signals are keys to deterring opponents.
Tactics in hypercompetition are faster, more flexible, and less predictable because they are used to create disruption. Tactics in hypercompetition are not based on five-year plans and the creation of fixed, inflexible plants. They are more like tactics used in boxing, in which the competitor trains his reflexes and plans combinations of moves but thinks fast and changes direction quickly in the ring. In this way the tactics themselves are constantly feeding back information so the company can adjust its vision and strengthen its capabilities based on reactions of opponents.
S’5: Shifting the Rules of Competition
Companies shift the rules of competition in hypercompetitive markets to disrupt competitors. Every industry is guided by conventional wisdom and unwritten rules of behavior. By attacking and overturning these rules, companies shatter the current advantages of their competitors and create the opportunity to build their own temporary advantages. Canon’s creation of the disposable cartridge for its personal copiers, which allowed customers to self-service their machines, defied the conventional wisdom that copier companies would need a huge service force to maintain personal copiers. Dell’s shift of computer sales from retailers to mail-order sales defied conventional wisdom that customers wanted and needed personal attention to buy and install a computer. Like the fall of communism in the former Soviet Union, this shift in rules creates a significant disruption for competitors and allows the initiating firm to seize the initiative.
In a static environment the rules of competition are rules that endure. The rules of competition ensure that companies do not overstep their bounds and trigger extreme retaliation. These rules of competition allow companies to sustain their advantages. The static firm lives by rules, such as IBM’s belief that competition in computers would center on mainframes or the Swiss watchmakers’ belief that watches would be based on mechanical movements in spite of the successes of quartz watches. These companies held on to to their old rules of competition until they were slapped in the face by the paradigm-shifting force of hypercompetition.
Hypercompetitive firms realize that the rules of competition are like the emperor’s new clothes—they are only there if everyone sees them and pre- tends to go along with the rules. The rules of competition are self-perpetuating, as long as no one challenges them. For example, as discussed in Part I, if all companies believe that there are barriers to entry, then these barriers become a reality because no one challenges them. It takes only one company to challenge the existing rules, to point out that the emperor is truly naked, and the system crumbles. This is a dramatic form of disruption.
When Gillette introduced its Sensor razor, forcing up quality and using Super Bowl advertising, it violated all the rules that guided the market for disposable razors. But the company successfully redefined the rules of competition and then seized a major share of this reshaped market.
In a dynamic environment, in which companies are focused on gaining temporary advantages, they look for ways to disrupt the existing rules of competition—especially if the status quo benefits their competitors more than themselves. The most successful hypercompetitive firms even challenge these existing rules when they work to their own benefit. These companies know that if they don’t challenge these rules, their competitors will. The rules cannot be protected, so the best situation is to be the first to see the opportunity to shift the rules and then to act upon that opportunity. Thus, Intel is working on the next generation of chip even before the current one reaches market.
Hypercompetitive firms realize that a shift in the external rules of competition begins first with a shift in the internal mind-set of the organization. They develop cultures that encourage iconoclasts and revolutionaries. They encourage the creativity that leads to surprise. As noted in S-2 above, they actively look to the future not just to react to trends but to create opportunities for shifting the rules of competition and disrupting the status quo.
As noted earlier, Gallo first rose to power by shifting the rules of competition in the wine industry. At a time when most small wineries left their marketing to distributors, Gallo built a powerful marketing organization that worked directly with retailers. This organization paid attention to details down to the placement of the product on the shelf. On the production side Gallo shifted the rules by abandoning the small-batch production of most small wine makers in favor of the high-tech, high-volume production of undated wine in huge stainless steel vats. Wine making shifted from an artist’s cellar to a chemical production plant. Then when tastes shifted, Gallo again shifted the rules back to the old oak-barreled aging process of the vintage and varietal wines.
Komatsu shifted the rules of competition by shifting away from using service and dealer networks. It was also able to boost its quality and cut its costs below Caterpillar, eroding Cat’s brand loyalty. In the 1960s Komatsu, with little know-how needed to be a world-class competitor, was a sitting duck for Caterpillar’s impending entry into Japanese markets. Komatsu shifted the rules of competition by forging alliances with Bucyrus-Erie and International Harvester. These alliances gave Komatsu access to the technology it needed to compete against Caterpillar in Japan. Komatsu used these alliances to build its own technological know-how until it outgrew them in the 1980s.19
Shifting the rules of competition creates disruption by shattering the existing beliefs and paradigms in the industry. The depth of competitors’ investment in the current paradigm determines the level of disruption that can be created by the move. A company that has based its entire structure and strategy on the assumption that current rules will be sustained will find itself severely disrupted by a shift in the rules. A company that is itself actively looking to shift the rules will be less disrupted by a shift in the rules caused by competitors. A shift in the rules of competition creates internal disruption, as well, by forcing the organization to change its men- tal models of competition.
The competitor is forced to shift its own direction in response to the shift in the rules. If it fails to follow this shift in the rules, it is faced with the loss of market share. If it does follow, it might still lose market share through slowness and costs associated with changes and catch-ups because it will have to reorganize its planning and thinking. The best response to a shift in the rules is another shift in the rules that turns the table to disrupt the disrupter.
S-6: Signaling Strategic Intent
In static environments signals (verbal statements or symbolic actions) are designed to reinforce the company’s strategic advantages. These signals show the company’s commitment to a specific course of action. The more commitment they involve, the more credible they are. They clearly show the direction the company is headed and warn competitors away from that position. They tend to lock the company into a specific course of action and provide little flexibility. This loss of flexibility is not a major concern, however, because the company is plodding on a course that will allow it to sustain its current advantages and deter others from attacking its strongholds.
Signals in static environments are also used to generate tacit collusion. For example, a company announces its intent to concede certain markets to a competitor rather than fight for them. Or a company signals a price increase, allowing time to see whether competitors are willing to match the increase. After the decline of the dollar against the yen in 1985, for example, Komatsu seemed to signal its willingness to de-escalate competition. In a 1985 interview in The Financial Times, Komatsu president Soji Nogawa said, “What is important is to have enough share so we can exist and cooperate in this market. If we take a combative attitude, it will be very difficult to survive. We have no intention of taking on Caterpillar and fighting them like an enemy until one of us falls.”20
Hypercompetitive firms use signaling to show their strategic intent to win, but not their specific actions.21 They clearly state that they will defend a certain market against all comers, or they describe their vision for a shift in a technology market. Their commitment to win is credible because they have a history of moving aggressively against competitors that challenge them. This reputation for fierceness makes their threats meaningful, even without a strong and visible commitment to a specific course of action. Signals in hypercompetition, therefore, do not require a specific commitment of inflexible resources to be credible, offering the signaling company greater flexibility for future moves. Competitors are kept guessing about the actual moves that will be made.
In an environment in which there is a constant flow of information, hypercompetitive firms use their signals to create uncertainty or make implied threats against their competitors. For example, the announcement of so-called vaporware by IBM and, later, by Microsoft is widely seen as an attempt to forestall moves by competitors and encourage customers to wait for their product rather than buy competing products that make it to the market sooner. This creates uncertainty for the competitor and disrupts its plans for launching the new software. Without having to have a successful, working product in hand, IBM and Microsoft were able to compete on signals alone.
Gallo has clearly signaled its intent to dominate the wine market, as can be gathered from the title of a 1986 Fortune article on the E. & J. Gallo Winery, “How Gallo Crushes the Competition,” and description of the Gallos’ “desperate will to dominate.”22 The relentless pursuit of markets by Ernest Gallo is legendary, as are the exploits of Gallo salesmen, who have a hefty sales manual outlining tactics for success. According to the Fortune article, the sales representatives reportedly have even oiled the bottles of competitors to make dust stick to them or turned their caps on tighter to make customers angry. While the company denies any official policy so aggressive or extreme, the stories reinforce the company’s reputation for fierceness and toughness. The Gallos have a reputation for being tough on growers, tough on retailers, and tough on competitors. While they have clearly signaled their intent to win, the Gallos have maintained an official silence about the nuts and bolts of their strategy.
Komatsu’s internal battle cry, Encircle Caterpillar, was reflected in aggressive external signals of its intent to move into Cat’s market, such as the announcement of plans to build a $21 million plant in Tennessee and projections that it would seize 20 percent of the u.s. market. Yet the specifics of its actions were left undefined. There are many ways to encircle Caterpillar, so a pledge to encircle it gives away little information about the company’s detailed plans of attack.
Hypercompetitive signaling creates disruption by unsettling the opponent with a clear statement of an intent to win, not an intent to cooperate on price. The attack is even more unsettling because the details of it are uncertain. The competitor knows that it will be attacked, but not how or where. Even when the signal conveys more detailed information, the recipient cannot be sure if it is a signal of real intent or a feint. As considered above, signals such as vaporware can disrupt the plans of competitors— sometimes winning the war before a single shot has been fired.
A company that is using signals aggressively also forces its opponents to more carefully analyze all the information flowing from the firm. Once it finds questionable information, it may have to question all the data it obtains. This creates further disruption because it has trouble conducting an accurate analysis of its competitors.
S-7: Simultaneous and Sequential Strategic Thrusts
In hypercompetition steady and linear actions (such as being a low-cost producer or differentiator) are too predictable. Hypercompetitive firms use more dynamic and less predictable strategies. These strategies are distinguished by their use of two or more strategic thrusts at the same time (simultaneous thrusts), a planned series of strategic thrusts against a competitor (sequential thrusts), or a combination of both.
In static environments strategy moves on a steady course of sustaining the company’s advantage. It moves in a single direction, like the old style of formal military engagement. The troops moved in the direction that they wanted to travel and clashed at the border. The company’s strategic thrusts moved it toward its goal of sustaining its advantage. Strategy is a steady-as-she-goes process. The organization has its marching orders, and it follows them, running over anyone in its path.
In hypercompetition, where success depends on stringing together a series of temporary advantages and disrupting competitors, companies plan to zigzag through a series of thrusts against competitors, or they hit the competitor from several different directions at once. These approaches leave the competitor harassed or stunned, in other words, disrupted.
Against a competitor moving in a predictable, linear direction, the hypercompetitive firm can attack from the side or harass from several different fronts until the competitor is forced to respond. Thus, the static approach to strategy, even in the hands of a more powerful competitor, is often no match for the guerrilla tactics of hypercompetitive firms.
Like experienced chess players, hypercompetitive firms play out a series of moves and countermoves in their heads before making the first move. By the time competitors have reacted to the first move, the initiator is moving on to the next. Or the competitor’s response may lead it down a blind alley or dead end while the initiator moves on to a second powerful strategic thrust. This involves a much more aggressive, fast-paced exchange of maneuvers, and it is a less chivalrous view of competition, as will be discussed in the conclusion to the book.
As mentioned above, Komatsu used a series of sequential thrusts to gradually erode Caterpillar’s hold on the market. It introduced, first, a limited product line of crawler-tractors and crawler-loaders in the United States in 1970. It used this single product to gain a foothold by pricing its equipment 30 to 40 percent below Cat. Then Komatsu slowly upgraded pieces of its line to face Cat and added them one at a time, until Caterpillar was facing a full-line of Komatsu products on its home turf. Komatsu also used simultaneous thrusts against Caterpillar, moving in several geographic markets and innovating in several different product areas at once. These actions disrupted Caterpillar’s hold on the market.
When faced with the taste and demographic shifts of the 1980s, Gallo Wineries faced off against its largest competitor (Seagrams) with a series of simultaneous moves. These included introducing wine coolers (which Seagrams responded to with its own wine cooler targeted to a different segment). It also included a major advertising campaign to help reposition its unaged, mass-produced wines into a midprice range. Finally, Gallo also entered the varietal market. So Seagrams was hit from several directions at the same time, forcing it Into a catch-up mode.
Simultaneous and sequential strategic thrusts create disruption because many companies respond only to the first thrust of a series or expect a thrust from one direction rather than multiple thrusts. This is especially true when these thrusts are used against a competitor that expects a single, consistent approach to strategy.
Even against competitors that realize that companies will use simultaneous and sequential strategic thrusts, these tactics create disruption. Only the initiating company knows the exact series of thrusts it has planned or how it plans to use simultaneous thrusts. When the company makes its first move in the series of sequential thrusts, its competitor has no way of knowing what the next thrust will be and where the series of thrusts will lead. It can only guess, and this is what creates uncertainty and disruption.
Source: D’aveni Richard A. (1994), Hypercompetition, Free Press.