Hypercompetition Source: Hypercompetitive Rivalries, by Richard D Aveni, 1994, Dartmouth

1. Hypercompetition(Source: Hypercompetitive Rivalries, byRichard D�Aveni, 1994, Dartmouth) Prof Rick Smith Management 377

2. Hypercompetition Main Ideas: Advantages are not sustainable- they can be copied, or firms can be outmaneuvered. Trying to sustain an existing advantage is simply a harvesting or stability strategy Strategic fit, generic strategy, and hierarchy of strategy are static concepts� �and they lead to decline!

3. HypercompetitionThe business landscape is characterized by: Rapid technological change More firms with deep pockets Falling entry barriers Escalating customer demands More duopolies Coke vs. Pepsi Bud vs. Miller AT&T vs. MCI Dell vs. Gateway Intel vs. AMD Charles Schwab vs. Morgan Stanley Time Warner vs. Disney Monsanto vs. DuPont

4. Hypercompetition Porter�s ideas don�t work-- as a matter of fact they are dangerous! They are static (change is inherent�) Outdated (e.g. equilibrium price, full info.) Incorrect (e.g. entry barriers don�t keep others out, they just re-channel efforts�) Each new advantage destroys the previous one!

5. Hypercompetition Examples (of Porter�s folly): Some industries are characterized by low buyer power, low entry barriers, many substitutes and hi rivalry- yet firms are very profitable (Intel, Microsoft, Circuit City, SW Airlines, Nucor). Maginot line in France in WWII was to prevent invasion-- but only channeled Germany through Belgium!

6. Hypercompetition The game is now about disruption: Hypercompetition Market Destruction/Restructuring Competitive Escalation Instability Creation (internal & external) Uncertainty Escalation

7. Hypercompetition 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

8. Hypercompetition Ideas for forming strategy: Therefore, change quickly or attempt to destroy your opponents advantage. Hypercompetition refers to the aggressive attempt to destroy advantages of others� �and to rapid escalation of competition within industries.

9. Evidence of Hypercompetition Compression of product life cycles Weakening of entry barriers Alliances among firms Business as war

10. Olympic High Jump Gold Medal Winners

11. Old Ways of Competing 1. Cost and Quality 2. Timing and Know-how 3. Creation and destruction of strongholds 4. Accumulation and neutralization of deep pockets (there is competition within and between these areas)

12. Old Ways of Competing March toward �perfect competition� Use entry barriers to create oligopolies Reduce rivalry Find stability, adapt to industry conditions Avoid frontal assaults, attack from strength Develop vision, planning processes Leverage core competencies, attack weakness Find sustainable advantages (find one generic strategy)

13. Cost and Quality Arena Price wars Quality and price positioning Be in the middle Danger of �stuck in the middle� Cover all niches Outflanking Restart cycle of competition

14. Covering all Niches GM Toyota

15. Timing and Know-How Arena Timing�first mover Know-how�technology Improve on first mover Create impediments to imitation Vertical integration

16. Strongholds Launch attack on competitor�s stronghold Entry barriers�can build or breakdown

17. Old ways don�t work Neither advantages or formal cooperation are very effective in holding competition in check-- because of escalation: - cooperation makes firms less aggressive - collusion dampens the entrepreneurial spirit - advantages can be successfully attacked

18. New Rules however, all these are vulnerable ...and new advantages disrupt the status quo competitive strategy is based on dynamic interactions each firm tries to gain a temporary advantage over others the systematic ability to gain temporary advantages adds up to sustained advantage in the long run

19. New Rules Escalate Rivalry Attack from weakness, attack strengths Disrupt status quo Flexible structures Reframe models of competition Reframe models of leadership Speed wins (speed beats size)

20. New Ways of Competing VISION FOR DISRUPTION Superior Stakeholder Satisfaction Strategic Soothsaying CAPABILITY FOR DISRUPTION Speed (position for it!) Surprise (also, position for this!) TACTICS FOR DISRUPTION Shifting the Rules of Competition Signaling Strategic Intent Simultaneous Strategic Thrusts

21. Vision for Disruption Vision Planning Identifying and creating opportunities Directed at identifying new ways to serve customers Stakeholder Satisfaction and Strategic Soothsaying

22. Stakeholder Satisfaction Discovering ways to satisfy customers allows the firm to seize initiative Empowering employees allows a company to gain motivation to carry out strategic moves Example: Intel�s meetings with employees to brainstorm about customers� needs

23. Strategic Soothsaying The process of seeking new knowledge necessary for creating opportunities that competitors will eventually enter but are not now served by any firm. Combining products, capabilities, and trends into new markets. Example: Intel�s engineers examine potential new product areas

24. Capability for Disruption Resource Planning Sustaining the momentum by developing extreme flexibility Sharing across functions to build a series of temporary advantages Speed and Surprise

25. Speed Enhances the firm�s ability to serve customers Enhances the firm�s ability to choose when it will enter a market Example: In 1992 Intel brought out thirty new variations of 486 chip and introduced the next generation (Pentium) chip.

26. Surprise Stuns competitors Allows firm to gain temporary advantage while competitors respond Forces movement into the �next� market Example: Intel announces Pentium chip (before it was ready) and Compaq cancels its plans for RISC chip.

27. Tactics for Disruption Punch/Counter-punch Planning Actions that shape and influence the nature of competitor responses Shift Rules, Signaling, Simultaneous Thrusts

28. Shifting the Rules Actions that redefine the battlefield New opportunities to satisfy customers Transforms the industry Flash memory was Intel�s alternative to standard memory market. Also, Intel licenses computer designs that take advantage of Pentium chip. �Intel Inside.�

29. Signaling Verbal announcements of strategic intent Important preludes to more important actions (such as the launch of a new product) Can stall or create uncertainty for competitors Customers �wait� Example: Intel�s message on websites.

30. Sequential Strategic Thrusts Use of a series of actions to confuse competitors Use several geographic or demographic fronts simultaneously A single strategy is easy to figure out� Using several strategies gives your competitors something to worry about. Example: Intel�s simultaneous development of both RISC and CISC technologies.

31. Concluding Ideas: Firms must destroy their competitive advantages Entry barriers only work if others respect them It is logical to be unpredictable Long-term planning does not prepare for the long-term. Attacking weakness can be a mistake Compete to win, but winning is getting more difficult

32. So what does a strategist do? Constantly create new niches Create new markets (firms are not market failures-- they simply fail to create new markets) Help the firm evolve (its easier to make your predictions come true than to predict what others will do) Create a revolution

33. And what is Hypercompetitive Advantage? It is the systematic ability to gain temporary advantages. This adds up to sustained advantage in the long-run.

34. -Update-Strategic Supremacy:How industry leaders create growth, wealth, and power through spheres of influence, by Richard D�Aveni, 2001 Competition is not about core competencies, but core markets. Not positioning within an industry but positioning within realms of power and influence (over customers and markets). Firms that become �supreme� in their core markets earn above average profits. Firms must learn to manage or resolve issues in their core markets to become superior competitors. Core markets are where the firm has established value leadership � a sphere of influence.

35. Firms must manage their �sphere of influence�