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Hypercompetition drives business into the 21st century.

BC: How does your theory of "hypercompetition" differ from other business strategies like game theory or military strategy?

RD: "I think the more interesting comparison is against the standard way of making strategy in the country, which is using the five forces model. In that model, what they're taught is to build entry barriers to keep competitors out of markets; to build barriers to substitutes to keep them out of markets; to get monopoly power over buyers and power over suppliers; and then to segment the market so companies don't compete too vigorously, that way the profits of the industry stay high. The reason hypercompetition is important is there are various trends that make the old strategy impossible to do. That strategy was a great one in a stable world but it's not so great a strategy in a highly changing world."

BC: Why is the old model not effective in a changing economy?

RD: "Entry barriers are not as strong as they used to be; we're watching lots of industries merge. For example, the financial services industry. You used to be able to tell a commercial bank from an investment bank from an insurance company and now all the firms do all of those. Another case of entry barriers falling: It used to be that consumer electronics and entertainment were separate businesses, but now they've been merged together. The result is that entry barriers are falling. Technology is changing so fast that substitutes are coming in all the time, you can't keep it out of your business. It means that you can't keep a lot of players out of your business, so you can't have an industry where you reduce the level of competition inside the industry. Basically, industries have escalating competition and so the old rule was to de-escalate competition; the new rule is that the player should excel at escalating competition. It's exactly the opposite of what the Harvard Business School teaches. To do what the old model teaches is like shovelling sand against the tide because all of the fundamental forces driving hypercompetition are major trends we can't stop."

BC: Some of these ideas would be considered radical. What kind of feedback have you received from business and academic leaders?

RD: "What's controversial about my book is that it says that the old model of strategy, which is the dominant model taught to all MBAs, is obsolete. The feedback goes in multiple directions. Some people say absolutely, this is the case. I get that from a lot of business people. The academic economist types and the old-liners, think I'm insane. There are many business people who think that the old model does not apply. The old model says that the way we compete is by not competing and we all end up better off because we don't hurt each other. If you were a runner and your coach said, 'let's not practice today because we don't want to raise the speed of the race,' you'd think he was insane. What happens in the long run is that those who don't practice and compete harder end up losing."

BC: Do you have any advice for people who may be squeamish about this level of competition?

RD: "Yes - retire. They don't have any choice. Right now we're competing with the Taiwanese, Japanese, and the Koreans. But soon it will be Indonesia, India, and Mexico, and then it will be Brazil and someone else because each is in a struggle to feed its people."

BC: You've said that "chivalry is dead" when it comes to hypercompetition. Can you elaborate on that idea?

RD: "When you look around the world and see what's happening, we're now competing with companies who use slogans like 'crush, kill, destroy, annihilate.' Look at the ads on TV, where competitors directly attack each other, like AT&T versus MCI long distance. They use phrases which were almost criminal offenses at one time because they were so unchivalrous."

BC: What happened to cooperation?

RD: "When you look at what's behind cooperation in business you find that they're cooperating to escalate competition. It's a great irony. Suppose we were to look at the alliance built up during World War II. You had the Allied and the Axis powers. Did cooperation among those countries de-escalate or escalate the war? It escalated it to worldwide proportions. So the cooperation was about finding partners in order to line up against other alliances. So it's escalating what used to be firm against firm battles to alliance versus alliance battles. There's cooperation within the alliances but across alliances it's now a much fiercer battle as a result of much deeper pockets and the number of people involved. In the old days you cooperated to avoid competition. Now, you cooperate to escalate it."

BC: What makes an industry ripe for hypercompetition? Are certain industries more prone to hypercompetition?

RD: "It seems many, many more are going into it now. What triggers it is one of these four conditions: entry barriers fall, consumer expectations rise, technologies shift, or deep pocket competitors show up. Any of these things can trigger it, it just takes one aggressor."

BC: You write that, "Goliaths are brought down by clever Davids with slingshots." Can you give an example of this?

RD: "The PC business, IBM and Apple are seriously affected by clone PC manufacturers and also by Dell Computer, which was started in a garage. What was clever about Dell, was that they did mail order and would design computers to do whatever the buyer wanted. This was a substantial change in the PC market. With IBM, you had to buy whatever configuration they made. Another example is Southwest Airlines, the most profitable airline. Other airlines went to a hub and spoke system. But Southwest did it the old-fashioned way, they go direct from city to city, so they shave off a little piece of business between cities that normally would have to go to a hub but didn't want to. So they've been clever by going in the opposite direction of the tide."

BC: You've said that most successful companies change the rules. Does this pose a problem for creating a stable corporate culture and how does that affect employee morale?

RD: "Employees who expect stability are going to become things of the past and if they want that then you have to get rid of them. You have to have people who are willing to change and the vast majority of the American population is not trained that way. They are resistant to change, which places them at an extreme disadvantage."

BC: But isn't it true that people have traditionally expected a company to take care of them?

RD: "We haven't had that for 20 years and people have to get used to it. If they're not willing to get used to it, then they're not the kind of employee that a firm in hypercompetition is seeking. What you want is an employee who is willing to continually upgrade him or herself and move from job to job either within or outside the company."

BC: This poses interesting problems for maintaining loyalty to an employer.

RD: "The loyalty is shorter term. Although if a company does well, they can maintain employment for long periods. Recently, Rubber Maid has done pretty well at not laying off people."

BC: What do you see as the implications of this "kill or be killed" business philosophy for our society at large?

RD: "Most people take it as a threat. But let's face it, in the history of the United States, this is what we've done for years. Thomas Edison killed off the gas lamp. Henry Ford killed off the horse and buggy. IBM killed off most other mainframe computer producers in the 1960s. This process of destruction of the old and creation of the new is something most of us call progress. That's the kind of world we live in. The difference now is that this is happening frequently as opposed to once a decade. Now, people are watching [technological changes] happening monthly."

BC: How do companies go about sustaining a high level of customer service with such rapid changes in technology?

RD: "In hypercompetition there are some big winners and big losers. That's the scary part, if you're not good at it, you're wiped out. In the past, everybody could be mediocre and stay in the game. Now, only the excellent survive. As a result, the consumers are better off and companies are stronger for the global marketplace."

Richard D 'Aveni is a keynote speaker at this year's NACM Credit Congress, May 31-June 3 in Orlando, FL. His book, Hypercompetition: Managing the Dynamics of Strategic Maneuvering is available from NACM's Publications Department.

Kevin C. Naff is communications associate/editor, NACM.
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Author:Naff, Kevin
Publication:Business Credit
Article Type:Interview
Date:Apr 1, 1995
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