My studies of successful and unsuccessful companies in hypercompetitive environments reveal seven key elements of a dynamic approach to strategy that encompass the three factors for effective delivery of a series of market disruptions: vision, capabilities, and tactics. The New 7-S framework is based on a strategy of finding and building temporary advantages through market disruption rather than sustaining advantage and perpetuating an equilibrium. It is designed to sustain the momentum through a series of initiatives rather than structure the firm to achieve internal fit or fit with today’s external environment, as if today’s external conditions will persist for a long period of time.
The New 7-S’s are
- superior stakeholder satisfaction
- strategic soothsaying
- positioning for speed
- positioning for surprise
- shifting the rules of the game
- signaling strategic intent
- simultaneous and sequential strategic thrusts
Because of the nature of the hypercompetitive environment, the New 7-S’s are not presented as a series of generic strategies or a recipe for success. Instead these are key approaches that can be used to carry the firm in many different directions. They are focused on disrupting the status quo through a series of temporary advantages rather than maintaining equilibrium by sustaining advantages. The exact strategic actions formulated under this system will depend on many variables within the industry and the firm. Many types of strategic initiatives can be carried out using the New 7-S’s, and there are many variations.
As shown in Figure 7-1, the New 7-S’s address all three factors for effective delivery of a series of market disruptions, providing increased emphasis on the first two levels (vision and capabilities) and more creative approaches to the last level (tactics) than many firms currently use. As discussed below, the New 7-S’s contribute to each of these three factors for effective competitive strategy.
1. Vision for Disruption: The First Two S’s
Successful firms learn how to disrupt the status quo and move up the esca- lation ladders, restart the cycles, or jump to a previously dormant arena of competition. To do so, they must be able to identify potential disruptions.
Key to their choice of a disruption is the realization that not all disruptions are good. The disruptions that work are those that involve the first S—the creation of a temporary ability to serve the customer better than competitors can. Numerous new methods have been adopted in recent times, which will be itemized later, in Part III.
To create this type of disruption, successful firms prioritize customers as the most important stakeholder. This implies that employees and investors are prioritized less highly. Thus, to create successful disruptions, the firm must find a way to satisfy employees and investors even though their interests have been subordinated to customers. Methods for achieving the correct prioritization without dissatisfying the subordinated stakeholders are also discussed in Chapter 8.
Disruptions that satisfy current customer needs are not enough. Constantly improving customer satisfaction is now so standard that firms that once led the pack on customer satisfaction now find themselves without any lead at all. Thus, the key to achieving real advantage from customer satisfaction is to
- identify customer needs that even the customer cannot articulate for him/herself
- find new, previously unserved customers to serve
- create customer needs that never existed before
- predict changes in customer needs before they happen
To do this, firms are now engaging in the second S, strategic soothsaying. This allows firms to see and create future needs that they can serve better than any competitor does, even if only temporarily. The ability to see and create these future needs depends upon the firm’s ability to predict future trends, to control the development of key technologies and other knowhow that will shape the future, and to create self-fulfilling prophecies. Methods for doing these are discussed in chapter 8.
The first two S’s of the New 7-S’s provide a vision for how to disrupt the status quo and create new advantages. The first S, superior stakeholder satisfaction, addresses the key source of advantage: being able to satisfy customers better than competitors. By understanding the needs of customers and the employee and investor relations required to meet those needs, the company can better serve existing needs and identify new needs. The second S, strategic soothsaying, is concerned with understanding the future evolution of markets and technology that will proactively create new opportunities to serve existing or new customers. This also contributes to the firm’s vision of where the next advantage will be discovered and where the company should focus its disruption.
2. Capabilities for Disruption: The Next Two S’s
To act on this vision, companies need two key capabilities: speed and surprise. These are the third and fourth S’s, respectively. As in fencing, speed and surprise are key factors in gaining an advantage before competitors can and in delaying competitor reactions to the new advantage.
If two companies recognize the opportunity to create a new advantage at the same time, the company that can create the advantage faster will win. Because success depends on the creation of series of temporary advantages, a company’s ability to move quickly from one advantage to the next is crucial. Speed allows companies to maneuver to disrupt the status quo, erode the advantage of competitors, and create new advantages before competitors are able to preempt these moves.
If a competitor is unaware of the opportunity to create a new advantage, surprise can maintain that lack of awareness. While this is not a source of sustainable advantage (once the competitor recognizes the advantage, it can usually move quickly to duplicate it), surprise allows the company to create the advantage and to extend the period in which the advantage is unique. Surprise also allows companies to act to undermine competitor advantages before the competitors can take defensive actions.
Capabilities for speed and surprise are therefore key elements for successfully disrupting the status quo and creating temporary advantages. These capabilities are flexible in that they can be deployed across a wide range of specific actions.
3. Tactics for Disruption: The Last Three S’s
The final three S’s—shifting the rules of the game, signaling, and simultaneous and sequential strategic thrusts—are concerned with the tactics used in delivering a company’s disruptions, especially tactics that influence the flow of future dynamic strategic interactions. These three S’s follow the vision developed by the first two S’s and use the potential for speed and surprise from the third and fourth S’s.
In contrast to static approaches to strategy, these final three S’s are concerned with a dynamic process of actions and interactions. Most planning is concerned with the company’s next move to gain advantage. It usually analyzes potential competitive responses but doesn’t shape those responses to its advantage.
The view presented here is a set of tactics designed to disrupt the status quo and create temporary advantage. Tactics such as actions that shift the rules of competition create a sudden and discontinuous move in the industry, reshaping the competitive playing field and confusing the opponent. Signaling delays or dampens the competitor’s actions to create advantage, throws the competitor off balance, or creates surprise. Competitive thrusts in this environment are rapid—either a sequence of moves or a set of simultaneous actions—to upset the equilibrium of the industry, disrupt the status quo, and open opportunities for new advantage. As an example of a set of simultaneous thrusts, a company might feint a move in one direction and then move forcefully in another direction, creating surprise and temporary advantage from the misdirection of the opponent. One can think of sequential thrusts as being akin to the sequence of plays used in a football game. One team may run the ball several times until the defense is conditioned to expect a run play. Then the offense switches to the long bomb at a time that should call for a run. The sequence of actions create surprise and temporary advantage, since once the play is used, the defense will watch out for the long bomb in future plays.
These three tactics reflect the increasing speed and intensity of hypercompetition. Although these actions sometime push companies into the gray areas of antitrust because the behaviors could be construed as exclusionary or anticompetitive actions, companies are increasingly seeing them as necessary for competitive survival. The tactics used by companies are becoming increasingly aggressive and quick. To survive and flourish in a world in which advantages are rapidly eroded requires a different approach to tactics. If, as proposed here, these tactics are necessary for survival, this raises significant questions about current U.S. views of antitrust and competition. Some of these questions will be examined in the conclusion to the book.
Figure 7-2 illustrates how the New 7-S’s work together to develop a vision, capabilities, and tactics for disruption. As discussed below, the goal of the New 7-S’s is to create disruption by identifying new advantages, moving to seize the initiative through tactics, and sustaining the momentum by creating a series of temporary advantages.
In hypercompetition it is not enough to build a static set of competencies. Good resources are not enough. They must be used effectively. Military strategist Carl von Clausewitz noted that military leaders often make the mistake of focusing only on building forces. As a commentator on Clausewitz noted, “Early writers have concerned themselves almost exclusively with the enormous problems of raising, arming, equipping, moving and maintaining armed forces in the field—an approach which Clausewitz dismissed as being as relevant to fighting as the skills of the swordmaker to the art of fencing. None of this, he insisted, was significant for the actual conduct of war, and the inability of all previous writers to formulate an adequate theory had been due to their failure to distinguish between the maintenance of armed forces and their use.1111
This is precisely why successful firms pay attention to tactics as well as capabilities and vision in an environment of traditional competition and to competencies in an environment of hypercompetition. In slower and less aggressive competitive environments, companies could concentrate primarily on making great swords. In hypercompetition, they have been forced to concentrate much more on the skills of fencing. It is these dynamic skills that are the most significant competencies of the firm.
DISRUPTION AND THE NEW 7-S’s
Recent emphasis in the strategy literature has focused on building core competencies, knowledge, and other unique intangible assets to great advantage. The “sword-making” aspect of building unique intangible assets is only part of corporate strategy, just as it is only part of military strategy. Assets, whether tangible or intangible, are not sufficient in and of themselves to succeed in an environment of hypercompetitive rivals constantly trying to outmaneuver one another. To say that Honda succeeded because of its competence in building small engines is only part of understanding its success. Many other companies had similar competencies and capabilities but did not make the same progress as Honda because they did not use them to build a series of advantages. Yamaha, for example, had small engine skills but did not become a major player in the auto market. The key to success for Honda was how it was able to deploy those competencies to seize the initiative in each of the four arenas. Success came from its ability to parlay its knowledge into new products, moving from success in motorcycles to an advantage in the auto market and using its success there to gain an advantage in the lawn mower market. Success was due to its ability to outmaneuver competitors in each of the four arenas of competition, using unexpected actions that shifted its focus from market to market skillfully. That shift upset the status quo in the U.S. auto market and the equilibrium of the players in all of its markets.
These were not random shifts. They resulted from Honda’s ability to use its competencies to better satisfy customers. This is the skill of “fencing”— to use the company’s competencies to better serve customers. This is the source of advantage and of new advantages. Thus, a company’s success depends equally upon its swords and its fencing skills, and the New 7-S’s are intended to guide firms towards making the right swords, learning how to fence, and pointing them in the right direction.
Source: D’aveni Richard A. (1994), Hypercompetition, Free Press.