Hypercompetition: Disrupting the Market - Essay Example

Hypercompetition: Disrupting the Market Perfect competition and sustainable profits may have gone the way of the horse drawn carriage. A reduction inbarriers, new technology, and innovation has brought about fierce fighting for a select market share. It now requires a "continual, radical innovation" to maintain a competitive advantage (New rules 2002). Though the approach to competing in this climate may appear to be chaotic, it's not time to throw out your core competencies. The old standards of economic theory are not dead; they just need resuscitated with a breath of fresh air. The tried and true ways to create value are establishing and defending a position, building resources, and seizing opportunities (Sull & Escobari 2004 p.15). Creating and protecting a market position is beneficial if the competition is sparse, or the firm has a unique product that gives them supplier power. However, if a profit is being made on the product, it will attract competitors and innovators will find substitute products (Sull & Escobari 2004 p.15). It may take substantial resources through advertising and customer service to maintain a position in a fluid market (Day & Reibstein 1997 p.52). It may be easier to create a new opportunity than it is to protect an old position. However, new opportunities require resources. Amassing resources can be a definite advantage. However, the value of these resources may erode if other firms can easily acquire them (Day & Reibstein 1997 p.312). A firm needs to evaluate all its resources. Garelli (2006) states, "Competitiveness thrives increasingly on intangible assets that are difficult to value, to account for, to create, and to recover" (p.4). Firms can maximise their competitive edge by utilising their intangible assets as well as they can any other raw material. These resources may be easier to protect than a superior market position. However, in today's hypercompetitive market competitors are quick to take your intangibles such as innovations, employees, and market share. The signs of hyercompetition are everywhere. In fact, competition has evolved from dirty tricks into criminal behaviour. Global firms such as Proctor and Gamble, Oracle, and Deloitte & Touche have been caught up in scandal in their underhanded attempts to undermine the competition (Grimm 2005 p.7). Competition in the US wireless market has left an industry in paralysis and the world of global products has produced an air of uncertainty (Sull & Escobari 2004 p.17, Woolley 2003). Still, most firms have learned to compete by integrating new strategies to supplement the tried and true theories on creating value. The restructuring of the global economy has demanded that firms not only take every opportunity, but they must create opportunity as well. The goal is, as D'Aveni says, "to upset the equilibrium of the industry, disrupt the status quo, and open opportunities for a new advantage" (1995a p.53). How does a firm reshuffle the product, the market, and the consumer to turn the situation into a competitive advantage To do so it is imperative that the firm understands the nature of hypercompetition. Hypercompetition is a concentrated effort by competitors to create and sustain market instability and to establish an uncertainty of economic conditions (Mittleman 2000 p. 16). By definition it is a rapidly changing environment where there is no long-term sustainability. Firms need to plan for short-term strategies. In D'Aveni's 7S's, he points out two necessary dynamics that a firm will need in a hypercompetitive marketplace; speed and surprise. (1995a p.51). A prolonged strategy of surprise will keep the competitors off balance and the firm will benefit from gaining momentum. Speed can be a valuable asset when getting a new innovation to market. With today's short product life span, the first to enter the market stands to gain. However, with shorter development time costs are driven up, quality suffers, and profits begin to wane (Gibson 1997 p.51). Speed to market may be a short-term necessity, but may not give the firm any advantage overall. A firm would do better by finding the next unique market advantage such as Microsoft found in the 1970s (Sengupta 2002 p.670). One of the leading factors in competing in the fast pace of hypercompetition is to anticipate the market. Since the theory holds that all market actions are short-term, much of the market activity is based on the reaction to what the market 'believes' to be true. They may be moved by 'perceived market conditions'. A firm can capitalise on this by understanding and acting on what the competitors believe to be true, whether it is based in fact or not (Day & Reibstein 1997 p.143). Knowing how your competitors will react will give the firm an edge in short-term strategic planning. To take advantage of the concept of short-term perceived market conditions requires a thorough analysis of the competitors. According to D'Avesi, "You have to learn how to destroy your competitors' advantages, neutralise them or make them obsolete" (1995b). Firms spend enormous amounts of time and money researching customers, but often devote little research to their competitors (Wilson & Gilligan 2005 p.224). Yet, knowing the internal culture and decision process of the firm's rivals is crucial to anticipating the changing market. The question becomes; "What are our competitor's strategies" (Shelton 1997 p.192). Knowing the rival's strategy can open opportunities that may be as subtle as introducing a new image to the marketplace. In the 1990s, Richard Branson's fledgling Virgin Atlantic was able to enter some of British Airway's most profitable routes (Fisk 2006 p.381). BA's reaction was to change their tailfin insignia, an attempt at rebranding that resulted in a loss of customer loyalty. Branson had been able to enter the market, disrupt it, and shape the strategy of the market leader. In doing so, he took advantage of BA's poor decision making process. Exploiting value from an existing product may be another viable short-term strategy. In the auto industry, for example, American automakers were able to launch a comeback by redefining quality. While foreign rivals focused on reliability "beyond the point of diminishing return", the Big Three had presented safety as the centrepiece of consumer desirability (Trumball 1995). This redefinition led to the introduction of anti-lock brakes, air bags, and improved body construction. They had opened up a competitive window and were able to capitalise on it. We still live in a world where the market is customer driven. Consumers expect high quality and they are concerned about price (Trumball 1995). The single biggest competitive advantage is customer satisfaction and that can set the firm apart from any competition (Lakhani 2006 p.121). Yet, the position of providing a high quality product at an affordable price can be easily threatened in today's economy. Still, the old market theories are not dead. Firms still need to produce efficiently and satisfy the customer. They can, however, benefit from the turmoil in a hypercompetitive market by exploiting knowledge of the competition and anticipating their strategy. They can lead the market by innovative approaches and using market perception to their advantage. It's still the same market; but it's got a brand new look. References D'Aveni, R. (1995a). Coping with hypercompetition: Utilizing the new 7S's framework. Academy of Management Executive, 9(3), 45-57. D'Aveni, R. (1995b). Relying on old strategies You're dead. Potentials in Marketing, 28(9), 14-16. Day, G. S., & Reibstein, D. J. (Eds.). (1997). 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