The Hindu Business Line : The changing game

Business planning should include taking a hard look at basic socio-economic and technological trends. It is here that companies can find their competitive edge.

MUCH has been written about how companies can gain competitive advantage by changing the rules of the game. In fact, in just this column, several dozen cases across several sectors have been used over the past two years to highlight this point. Whether it was sachets, rural distribution, `price-value' equation, or so on, the emphasis has been on how a single company can reshape the marketplace with a disruptive innovation. In many ways, this has become the Holy Grail of business heads today - that elusive disruption that can get your competitor's customers defecting to you in droves.

But markets and competition do not operate in a vacuum. Rather, they play out against the broad backdrop of independent economic and social trends. And these trends result in the rules of the game changing, sometimes almost imperceptibly, without any single company or competitor doing anything about it. In turn, this results in the rules of the game changing, almost by themselves, and not because of any specific action by any single company in that industry. And success goes to those who identify and latch on to these trends, not those who are still looking to win away their competitor's customers.

Which is why this article is called `The Changing Game', instead of `Changing the Game'.

Time to look at some specifics. In 1994, Hindustan Lever made what was then a staggering investment - Rs 11 crore in a VSAT network connecting key factories and depots. At the time, this gave it what seemed an unbeatable competitive advantage. The reasoning went something like this - to lower costs, you need supply chain efficiencies. That means information technology and networking. That means Rs 11 crore. While an affordable amount for HLL, the amount was well beyond the capability of most of its competitors. Ergo, HLL has wisely used its resources to establish a huge, sustainable, competitive advantage.

All this was true in 1994. But then came the IT and telecom revolution. None of the people who went around setting up Web sites or investing in connectivity were in the least interested in HLL, but they greatly affected its strategy anyway. By 2001, essentially the same information flow could be achieved for a fraction of the cost. In 2003, Oxemberg connected key distributors and outlets by, believe it or not, renting space on a Web site. Now, one can debate whether this network is as effective as a VSAT, and so on. But even if HLL's smaller regional competitors use this sort of cheap service to achieve just 70-80 per cent of HLL's effectiveness, the point is that HLL's relative competitive advantage has been greatly diminished.

Or take the impact of improved telecommunications and roads. Between Chennai and Villupuram, even small shopkeepers can use the phone (possible due to increased phone density and cheap due to local calls within 200 km) to place orders in Chennai and get the material delivered within 24 hours at a low cost (because the roads have improved so much). At the large companies, logistics systems, which were once touted as a huge competitive advantage, now look slow and unwieldy. Time to look for another source of competitive advantage!

What about media? At one time, there were only so many `good' ad agencies that one could go to. Media campaigns were limited to the upper crust of marketers, simply because you had to go national, and that meant a lot of money. Just having the cash for a national campaign, and access to a top quality agency such as Lintas was a huge competitive advantage in branding. But then came the cable revolution. Not that anyone in the cable business was too concerned about what would happen to the competitive advantage of the larger firms, but the result was the same - smaller media budgets became possible, the quality of the smaller ad agencies shot up, and finally, a whole host of new companies found a way to advertise. Which meant that the established players had to start looking for another competitive advantage.

And then there are demographic trends. Women are entering the workforce in ever increasing numbers. That means more mobility for them. But when did you last see a two-wheeler produced for women, or even an ad targeted at them? Our marketers are youth-obsessed - but India has a large, and growing, ageing population. The only products for these come from small, regional companies. The list goes on and on.

The competitive advantages of the future do not spring out of nowhere, but are in the process of being formed today. In most cases, the future drivers of your markets are being incubated in industries totally unrelated to yours. Yet, examining basic technological, social and economic trends and examining their potential impact forms maybe a fraction of the planning process. Perhaps this is why most organisations are always fighting the last competitive battle!

(The author is a Chennai-based management consultant. Karate-gy is the proprietary term for strategic exercises conducted by Paradigm Managemnt Knowhow.)

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