Presentation on theme: "Strategy and Management of Change Hypercompetition and the impact of the internet on strategy Ian Knox and Julian Lowe School of Business."— Presentation transcript:
Strategy and Management of Change Hypercompetition and the impact of the internet on strategy Ian Knox and Julian Lowe School of Business
Focus questions What is extreme or hypercompetition? Is strategy under conditions of extreme or hypercompetition different? How does the internet influence value creation? Can the internet deliver sustainable competitive advantage? What is the impact of the internet in different industries? Has it created new Business Models? What are the latest emerging trends How can we manage it?
What is hypercompetition? Term developed by Richard D’aveni (Hypercompetion) and extended by Eisenhardt and Brown (Competing on the Edge) Situation in which competitive advantage is not sustainable without regular reinvention, new entry, and exit Shift from slow to fast cycle markets Commoditization – all products having similar price – quality characteristics Process of creative destruction – innovation continually breaking established firm’s hold on markets Low industry returns
Hypercompetition and conventional models of strategy Stable industry structure Firm as bundle of competences Industry viewed as dynamic oligopoly Industry in rapid, unpredictable change Defensible position Sustainable advantage Temporary advantage Continuous flow of advantages Industry structureUnique firm competences Right movesAbility to change Pick an industry, pick a strategic position, fit the organisation Create a vision, build and exploit competences to realise vision Make the ‘right’ competitive and collaborative moves Gain the ‘edges’, time pace, shape semicoherent strategic direction ProfitsLong-term dominance Short-term winContinual reinvention Five Forces Core Game Hypercompetion Competences Theory Assumptions Goal Performance Driver Strategy Success Source: S.L. Brown & K.M Eisenhardt (1998) ‘Competing on the Edge’ Boston: Harvard Business School Press p8
Move Back to Hypercompetition Figure 1-13 The cycle of price-quality competition moving up an escalation ladder Need to Move to a New Arena of Competition Return to Price Wars Commodity-like Market Where Price & Quality & Product Offerings Cease to Be an Advantage Attempt to Redefine Quality Move toward Ultimate Value Niching & Outflanking Full-Line Producers Price-Quality Manoeuvres Price War “Bottom of the Ladder”
Sources of hyper-competition Disruptive technologies Global competition Internet Better sources of information and ‘savvy’ customers E-readiness May 5th 2005 From The Economist print edition Denmark is still the best place in the world to do e-business, reports the Economist Intelligence Unit, a sister firm of The Economist. It has ranked the “e-readiness” of the world's 65 largest economies to find the countries most amenable to internet-based business. The factors considered include broadband and mobile-phone penetration, as well as government regulation. America rose from sixth to second place in the ranking since last year. Britain fell from second to fifth place. India, despite being an IT superpower, is ranked only 49th.
Disruptive technologies New technologies with different price : performance ratios New attributes Effective in markets where dominant firms have focused on existing technologies and served markets and try to grow by improving the technology around old customer base Examples: Sailing ships/Disk drives/Angioplasty and heart surgery
Globalisation Increasingly homogeneous markets Competition from anywhere Anonymity of source of products and services New entrants at low cost Rapid diffusion of innovation ……
Internet enabled business Wherever there are transactions or information flows, there is scope for internet enabled commerce The internet is still in a developing state. At present it is just beginning to restructure transactions and business models – see next slide The impact of the internet has been more in some areas than others – typically because of their information content You can understand the impact of the internet partly by using the 5 forces – how does it change competitive relationships Using the value chain – where can it reconfigure or create new value Understanding the nature of the network externalities – that is the effect of adding more users – with the internet this increases the value of the whole system Creating new sources of value – social network sites
Stages of technology change Change in industry: Substitution Scale Structural change And a stage approach Introduction – no standards, many competitors, product innovation Growth – diffusion of ideas, development of a standard, reduction of competition Maturity – dominant design, move to process innovation
Economic and social impact time substitution Scale-uprestructure Start- up/novelty Impact of internet on social and economic business models ??
Internet enabled business – reduces the trade-off between richness (of relationships with customers) and reach (how many customers you can reach without internet with internet in early years ? Reach – how large or broad your market is (connectivity) Richness - customisation, knowing your customer(band width) ….and relationships? with internet with good connectivity
Internet created value value novelty EfficiencyLock - in complementarities Transaction structures, content Search costs, information, speed, scale Trust, switching costs, network externalities Between products and services, on line and off line
Conventional drivers of Value Innovation (schumpeter) Reconfigure the value chain Improve use of resources/create new competences Change the nature and scope of networks Change transaction costs ….
A view from a guru The dot com crash showed that there is no value in internet companies unless they already have the fundamentals of competitive advantage in place Porter suggests it changes nothing but merely leverages existing strengths But not all agree
Porter and Anti-Porter Complements existing advantages Impact on industry structure Conventional cost curves Embeds switching Competition at firm level - Redefines strategy and more customer focused - Changes and creates new industries - Network externalities - Speeds up switching - Competition at network level
Bricks or Clicks? A fundamental question is should existing firms compete in the electronic and physical world at the same time or should they run these businesses separately?
Methods of access of information Size and dispersion of market Segmented Sequential Precise Interactive totalpartial Broad Narrow concentrated Narrow fragmented Traditional value nets Innovative value nets On-line sales Home printing e-book CD Rom On-line consultation CD Rom Print on demand On-line sales Customised print on demand e-book On-line services On-line consultation CD Rom Book + www Book + floppy Home printing Print on demand On-line sales +++ Home printing e-book On-line consultation Book + www Book + floppy Some Examples: Book Retailing
The Strategic Challenge of E-commerce Connectivity Intra-org Inter-org The value chain Incumbents v new entrants New forms of competition Bricks / Clicks Protection and capture Complementary with other forces Globalisation Technology Communications New industry boundaries … … But why did.coms fail?
Issues for Individual Firms How and where in the current value chain is information a component of value? Where are the current trade offs being made between connectivity and customisation? How will eCommerce change these? Which critical activities – especially informational activities can be spun off? Could the underlying businesses be made more efficient if the informational activities were stripped away? What new activities – especially facilitating agent roles – might be required? How are risks distributed in the chain break up? What happens to value capture? What happens to control? Which strategic assets become liabilities? What are the new capabilities required in the emerging businesses?
New Opportunities Release Trapped Value Efficient markets Efficient value systems Case of access Disrupt incumbent power New ! Value Customised offerings Radically extended reach Building a community and brand value New functionality
Recent developments Increased speed of broadband and wireless means the internet is increasing in impact – Korea – 100mb/s download Symmetric download and up load Development of Web 2.0 Rapid growth of Social network sites TV advertising, traditional newsmedia are all in decline
EMERGING-MARKET INDICATORS E-readiness May 5th 2005 From The Economist print edition Denmark is still the best place in the world to do e-business, reports the Economist Intelligence Unit, a sister firm of The Economist. It has ranked the “e-readiness” of the world's 65 largest economies to find the countries most amenable to internet-based business. The factors considered include broadband and mobile-phone penetration, as well as government regulation. America rose from sixth to second place in the ranking since last year. Britain fell from second to fifth place. India, despite being an IT superpower, is ranked only 49th. EMERGING-MARKET INDICATORS E-readiness May 5th 2005 From The Economist print edition Denmark is still the best place in the world to do e-business, reports the Economist Intelligence Unit, a sister firm of The Economist. It has ranked the “e-readiness” of the world's 65 largest economies to find the countries most amenable to internet-based business. The factors considered include broadband and mobile-phone penetration, as well as government regulation. America rose from sixth to second place in the ranking since last year. Britain fell from second to fifth place. India, despite being an IT superpower, is ranked only 49th.
Technology and the internet What is the impact of the internet on your organisation? Will the internet change the nature of competition? Will it generate new sources of value? Operational or strategic changes? Will it create or change industry boundaries?
Hypercompetion - Building Blocks Source: S.L. Brown & K.M Eisenhardt (1998) ‘Competing on the Edge’ Boston: Harvard Business School Press p.23 Setting the pace Time pacing Transition Rhythm Winning tomorrow today Experimentation Options Learning Gaining advantages of the past Regeneration Natural selection Genetic algorithms Modularity Playing the improvisational Edge Improvisation Real-time communication Semi-structures Capturing cross-business synergies Co-adaptation Focus Nexus of strategy and tactics Unique roles
The 10 Rules for Competing on the Edge If you want to play in the new strategy game, you’ve got to know the rules. Here are Shona Brown and Kathleen Eisenhardt’s guidelines for managers who want to abandon their old-strategy mindset for today’s “on the edge” strategy… where the name of the game is change: Source: http://www.hbsp.harvard.edu/products/press/books/competing/rules.html
Strategy Rule 1: Advantage Is Temporary On-the-edge managers understand that competitive advantage is fleeting. So, they focus on continuously generating new sources of advantage and never lose sight of the fact that today’s winning strategy will probably not work tomorrow. In their minds, change is an opportunity—not a threat. Source: http://www.hbsp.harvard.edu/products/press/books/competing/rules.html
Strategy Rule 2: Strategy is Diverse, Emergent, and Complicated Strategy is a diverse collection of moves that are loosely linked together in a semi-coherent direction. Managers who compete on the edge let strategy emerge by making a variety of moves, seeing what happens, and following through on those that work. They end up playing a broader and more surprising set of strategic options than others. Source: http://www.hbsp.harvard.edu/products/press/books/competing/rules.html
Strategy Rule 3: Reinvention is the Goal On-the-edge managers scan for opportunities to reinvent the business and then let profits follow. Creating value takes higher priority than improving efficiency when it’s accepted that profit juggernauts are rare finds and continual reinvention is the smarter path to long-term profitability. Source: http://www.hbsp.harvard.edu/products/press/books/competing/rules.html
Organization Rule 4: Live in the Present The most important time frame is today. The key to effectively managing today is to maximize the minimum organizational structure. Firms that compete on the edge use just enough structure to prevent things from flying apart, keep businesses poised for change and managers aware of opportunities, but allow enough room for innovation, personalization, and experimentation. Source: http://www.hbsp.harvard.edu/products/press/books/competing/rules.html
Organization Rule 5: Stretch Out the Past On-the-edge managers realize that the past is often the greatest competitive advantage when chasing new opportunities. Wise use of the past saves time, saves money, and mitigates risk. Most significant, the past lets managers jump-start new opportunities and focus on the truly new. Past experience also shows up in exploiting derivative products more effectively and extending out product and service platforms. These managers stretch out the past but don’t get stuck in it. Source: http://www.hbsp.harvard.edu/products/press/books/competing/rules.html
Organization Rule 6: Reach Into the Future On-the-edge managers compete across a longer time horizon than most. Driven by the paranoia that the market is constantly and unpredictably shifting, they frequently probe the future. They launch more experimental products and services, create more strategic alliances in nascent markets and technologies, and employ more futurists than other firms. But they strike a balance between the future and the present so as not to reach for future gains at the expense of present rewards. Source: http://www.hbsp.harvard.edu/products/press/books/competing/rules.html
Organization Rule 7: “Time Pacing” On-the-edge strategy uses time (as distinct from speed) as a critical strategic weapon. On-the-edge companies set a metronome-like pace around the number of new products launched per year, the refreshment of brands, or the building of manufacturing capacity. Companies that set the pace of change in their industry hold a potent advantage; they understand the power of rhythm to get their businesses into a winning groove and keep them there. Source: http://www.hbsp.harvard.edu/products/press/books/competing/rules.html
Leadership Rule 8: Grow the Strategy Managers who compete on the edge grow their businesses like prairies, rather than assemble them like toasters. They don’t compile the pieces of strategy at once. They coax them by pruning back on overstructuring, while setting priorities, major responsibilities, and key operating measures where they don’t already exist. The strategy is grown, starting with the current businesses, then incorporating some of the past, and then linking to future opportunities. Then it’s time paced. Never start with the future when growing a strategy—begin with the basics of today’s businesses. Source: http://www.hbsp.harvard.edu/products/press/books/competing/rules.html
Leadership Rule 9: Drive Strategy From the Business Level Managers in on-the-edge companies realize that in high- velocity markets, strategy cannot be driven top-down. There’s too much change that comes too quickly and unpredictably to wait for strategy to trickle through hierarchy. Success comes from skilled, fast, and agile moves at the business level. Source: http://www.hbsp.harvard.edu/products/press/books/competing/rules.html
Leadership Rule 10: Repatch Businesses to Markets and Articulate the Whole It’s tough to find a once-for-all match of businesses with markets in a rapidly changing world—any that exist are fleeting. Continuously realigning businesses with emerging opportunities and articulating that emergent strategy are the principal responsibilities for on-the-edge senior managers. Pattern recognition, articulation of those patterns, and flexible thinking across time frames are the skills at the heart of the senior manager’s job in an on-the-edge company. Source: http://www.hbsp.harvard.edu/products/press/books/competing/rules.html
Verdict? Cycles are getting faster in some sectors. (eg cameras) Hypercompetition as defined by move to same price-quality ratios exist in many non-technology markets Evidence across industries is mixed Where it is evident, very difficult strategies and strategic processes are required. The internet is now creating fundamental change