On
any given day, AT&T might find Motorola as a competitor,
customer or a supplier.
Hyper-competition,
co-opetition, strategic disruption and 'amazon'ed are some
of the terms that are dominating business headlines today.
Companies are fighting tooth and nail to preserve their
markets while the competition is
relentless.
New
players are causing havoc among the traditional players with
their revolutionary and radical strategies, which often
render their predecessors obsolete. The parameters and
frameworks that worked till yesterday do not hold water
anymore.
For
instance, in the pre-amazon.com days, retailers did not
consider the net as a threat. Today, no retailing strategy
is complete without taking Internet into
consideration.
In the
emerging scenarios, it is logical to conclude that it is
essential to redefine the strategic imperative and align it
with the changing business environment. The following
scenario emphasises the importance of such an exercise. A
regional bank faces competition from foreign and private
players. To remain competitive, it must not only exceed
current service expectations but also uncover latent and
unarticulated needs. It has to turn into a one-stop shop for
financial services. In retrospect, the strategy and policies
never gave the organisation a long-term perspective. How
does it go about such an exercise?
Traditional strategic framework is basically centred
around the firm and its strengths, along with the influence
of various industry participants on it. At the core, all
traditional frameworks are formed with certain assumptions
in place:
-
Strategic landscape or the Industrial
structure
-
Advantage and value
-
Uncertainty levels
I.
Strategic landscape or the Industrial
structure
Intel, a fiercely competitive company,
manufactures microprocessors to power personal computers.
Collaboration with other players like Microsoft, HP, Compaq
and other manufacturers of PCs and videogames is vital for
its success. It supports advances across the entire
communications media and PC sector. Wintel, the alliance
between Microsoft and Intel to create a common platform for
PCs, has the PC industry by the
hammerlock.
This is not an isolated case. Players in most
industries are forging complex partnerships and alliances to
succeed in an increasingly cluttered marketplace.
Traditionally, strategic planning rationalises the
industrial structure, which assumes that all competitive
activity is conducted at arm’s-length. This does not hold
ground anymore, competitors are using every weapon in the
arsenal and what’s more it comes from unpredictable
quarters. The competition is not between companies but
between the efficiencies of different
partnerships/alliances.
Today, the industrial structures are more complicated
and convoluted resulting in companies blindly applying the
traditional framework facing the risk of
failure.
II.
Advantage and Value
Amazon.com
has shaken up the retailing industry. What seemed like an
industry, which needed heavy capital investment because of
the real estate, physical infrastructure and merchandising
suddenly had an alternative dimension, the
Web!
Entry barriers
are falling all over the world in almost all industries.
Competition has a new advocate, the Internet. Traditional
companies thwarted potential companies by erecting high
entry barriers and other obstacles. Globalisation of trade
and the Internet have changed the scenario. Now companies
cannot hide behind the protectionist barriers of
governments. Structural advantage (which accrued due to the
industry structure) is not the only source of competitive
advantage; in fact revolutionary business models of new
entrants are rendering the traditional sources of
competitive advantage obsolete.
Companies that possess a knowledge base that is
difficult to duplicate and/or consistently out-perform their
competitors will succeed. Knowledge that is either patented
or cannot be duplicated has emerged as a potent source of
competitive advantage.
III.
Uncertainty levels
Pharmaceutical companies in some countries,
until recently, enjoyed protectionist patronage from
governments. Then came WTO with GATT and GATS. Post-GATT,
these pharmaceutical companies are in a frenzy to develop
their core competencies. Why? Come 2005, the pharmaceutical
sector will witness open competition, which means companies
are not sure about where competition is going to come from.
The migration from the ‘product’ patent regime to the
‘process’ patent regime will see a lot of companies biting
the dust. Compared to few years back, the industry
participants face higher levels of ambiguity and
uncertainty.
The marketplace was far more certain when Barnes and
Noble opened shop, but Amazon.com has changed that to an
extent. The business environment has evolved, throwing up
both opportunities and challenges. However, most industries
still can’t paint a clear picture of the future. Today,
industries only differ in the level of uncertainty, which
follows four stages:
-
Evolutionary: In
industries where the evolution is a gradual and
predictable process, the uncertainty is limited and the
future can be predicted with reasonable degree of
confidence. (e.g. Automobile)
-
Emerging
scenarios: In industries where the future is dependent
on a policy decision or other such regulations, companies
have a set of scenarios, usually divergent, before them.
The uncertainty is limited to the applicability of each
scenario. (e.g. Telecommunications)
-
Continuum:
In industries where entry barriers are low and product
innovation and obsolescence is high, uncertainty is hidden
in a continuum, where any scenario can take shape. (e.g.
Software)
-
True
Ambiguity: In emerging economies, companies that have
operated in closed conditions suddenly find themselves all
at sea, when markets are opened to foreign participation
and therefore exist in a state of complete uncertainty.
This is also the case with many traditional industries
which have been ‘amazoned’ by innovations on/due to the
net.
The emerging
business environment, across industries, has evolved into a
‘more-complex-than-ever’ phase where the past may offer
little guidance. Companies need to look beyond traditional
frameworks for strategy formulation. The foundation of these
frameworks is not on certain
ground.
