Financial Daily from THE HINDU group of publications
Monday, Feb 02, 2004
`Hyper competition is about leveraging weaknesses' Prof Richard D'Aveni, Amos Tuck Business School, Dartmouth College, US
Far ahead of the Internet revolution, it was pointed out by one radical management expert that sustainable advantage in business is no longer possible. Prof Richard D'Aveni of the Amos Tuck Business School at Dartmouth College, US, warns that firms will prosper in the long run only if they surprise competitors and create a series of "unsustainable advantages," a brief period of superiority that destroys the current advantage and provides unique value to customers. Hyper competitive firms, according to him, disrupt and confuse competitors and, thereby, force them to play continuous "catch-up."
Talking to Business Line recently on his groundbreaking books, Hyper Competition and Strategic Supremacy, Prof D'Aveni unveils theories and other macro aspects of current management practices and also on specific strategies for Indian businesses. He opines that in the post-Internet bubble age, successful companies will continuously replace their own short-lived advantages with new ones. The golden rule, according to him, is "Do unto yourself before others do unto you."
Excerpts of the interview:
What led to the book Hyper Competition?
My first book, Hyper Competition, written in 1994, was all about taking advantage of people who had models of strategy that were based on an oligopolic theory. A few years later, I wrote Strategic Supremacy which dwelt on how the big companies beat the hyper competitors.
Was it an entirely new concept?
It was, and when I first published it people thought I was nuts. But my theories have been borne out by what happened in many industries later.
And the word spread around. Originally, hyper competition came into play when the old oligopolies in the US were destroyed by the entry of the Japanese majors. And then as we reacted and learnt how to become more aggressive as a competitor through better quality and lower costs, and new business models came about.
But the big US companies did well on their own...
Till 1980 it was true. But the Japanese came in as serious competitors and wiped out our steel industry, half of our automobile industry and our consumer electronics industry almost totally.
We had to adjust quickly, and being a service-based economy helped as it was higher value added. We held on in that market. You see, quite a few people vilify the Japanese for having caused disruption in US industry, but my view is that they made us better. And we should thank them for this. They forced us to get off our backsides, causing the shake-up we needed badly.
Some are worried about American workers, whether too much business process outsourcing took place to India, or somewhere else, and there was concern of a backlash on the US economy. But my own view is, do not worry about us. You will only make us better, we will find something new, and we will become more competitive, even as we outsource more.
You think it will cause a beneficial fallout?
What will happen is that people will spend less on the products they buy, and with what they save they will go to more restaurants and do other things which may create more jobs at home.
It is ironic that most things in life are not what they appear to be on the surface. We had social dislocation because the manufacturing jobs were moving to Asia but at the end of the day, it moved us into a service-based economy, which guaranteed higher profits and higher growth.
You are saying that the basic concept that you do what you are best at always does not work?
That is correct. The mantra of many companies in the US has been to leverage core competencies. The problem is that many companies that followed this fell prey to hyper competitors. A good example of this is Motorola.
This company built 25,000 engineers in the radio frequency analog base and leveraged their competence into wireless telephony, pagers, military applications and hundreds of other things. And then Nokia came in and created a new standard with their state-of-art digital phones, and Motorola lost its leadership position. So leveraging core competencies is one way of moving companies down, and it does not pay in the long run.
What is the basic plank of hyper competition?
The basic argument of hyper competition is that nothing is sustainable. The essence of competition is creation, sustaining and destruction of advantages over time. It goes on in a cycle. One needs to re-invent ones competencies. Leveraging your weakness becomes more important as this becomes your next strength which lasts for a limited period of time. And as far as scales of business go, this holds true for all layers of competition, small or big.
IBM lost out to smaller players because it could not keep up with Compaq's lower costs, and then later with Dell's even lower costs.
How do you view the Indian situation?
I am in the process of working on some research projects based in India, one of which is "Hyper Competition in the Indian context," and what lessons India can take from the rest of the world.
Some of my other books are Hyper Competitive Rivalry, which was all about how companies are dealing with competition, and Managing in Times of Disorder.
What about Strategic Supremacy?
This was about how the large companies use their global power to create and stabilise things because hyper competition is about disorder and chaos. Of course, the world is not completely chaotic.
There is some order and structure to it. Hence, on the flip side, you cannot have chaos without order and so the question was what is the mechanism by which large companies establish global industry structures that keep the system boiling over till no body makes any money and no one has any way to survive.
What about the Indian situation?
Of what little I know of the Indian situation right now, there are kind of two segments of the economy. The big groups which have focussed on certain industries to create oligopolies are not well situated for dealing with hyper competition because they play the game gently and do not go for the jugular.
They did what they did through political means, not through the means of the marketplace by giving the customer a much better deal the way a hyper competitor would do, and their business models did not change much over time. And so they no longer have the instinct and managerial capability to emerge as hyper competitors.
But the localised smaller players, even in micro business segments such as restaurants and so on run businesses which are driven by the disposable incomes of the members of society. Their performance will depend on the purchasing power or disposable incomes of people. If a lot of people start small businesses like that, they can become hyper competitors.
What about the mid-market players?
The middle-market players actually face the real problems. They survive because the big players are not really killing each other. But when the big players are forced to struggle and begin competing with the foreign competitors, they sometimes become more aggressive, aim at much better quality and compete differently; their easiest targets being those in the mid markets rather than taking on the Chinese or the Japanese entrants.
They buy up the little ones, force them out of business and capture their markets. And so there is a shakeout in the middle part of that market and then the top end of the market usually ends up with one or two survivors, or at best three, the national champions holding of the foreigners and fighting it out for a market share with them. The middle group almost completely disappears.
Can India compete with China? What is your prescription for India which once had a good manufacturing base, but is now becoming successful in the service sector?
I do not think India can compete with China. You have to manoeuvre them. You have to first outsource to them or to somebody with even lower costs. Keep control over the brand name, the distribution system, and the services inside of the Indian marketplace, rather than spend money building manufacturing plants.
But you have to develop global markets. Export more of what you have and build brand awareness at other locations for some of the products, if they are world class ones. Build industries that are capital intensive rather than labour intensive, and then you manufacture. Subsequently, you do not need to outsource, you just need to improve the industries' capital intensity at home and get the economies of scale as high as possible. This depends largely on growing the local market.
You need to drive down your prices, and improve quality so that you are world class and get the global market share as quickly as possible even if you have to be the outsourcer for others at a loss.
Why have US companies not invested more in India?
The US companies have failed to do business in India because the Indians still treat us as the new East India Company. That mindset has to go away.
American investment in India right now is a wait-and-see investment, which minimises our exposure to the eccentricities of the market place.
I would try to make the environment a lot less hostile so that you can get a big portion of the outsourcing market jobs on the processing side, and use that as a base to develop a global presence.
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