Early Warning of New Rivals

Firms have always had difficulty spotting new competitors, and business history is full of stories about incumbent market leaders being displaced by a smart new entrant. If anything, the task seems even harder today. Unrelentingly rapid changes in technology, shifts in consumer tastes, and the rise of global markets are blurring traditional industry boundaries. Many firms are now competing with companies that, five years ago, were thought to be operating in entirely different industries. Consider, for example, retail banking. Ten years ago in the United Kingdom, this sector was dominated by four major clearing banks, which faced relatively minor competitive threats from a number of smaller, regionally based retail banks. They are now no longer the top players in the sector and do not set the lead in prices, service standards, or new products. New entrants into the sector include several former building societies, or mortgage-based financial institutions, that have converted themselves into banks, as well as several supermarkets. Retail banking now focuses on selling financial services, something that many older bank managers simply cannot understand. Retailers, such as Marks & Spencer, clearly do, offering a range of financial services to customers. Ten years ago, what banker would have worried about competing with a supermarket or a leading retailer of women’s garments? Much the same scenario is occurring in telecommunications. New digital technologies have led to competition among several formerly distinct sectors, including telephony, computing, and entertainment. In the past, the major (usually national) telecommunications companies, or telcos, competed with each other in a heavily regulated marketplace. Now they compete with diverse firms, often through unlikely alliances. Northern Telecom, for example, is working with several electricity companies in the United Kingdom to provide broadband communications capacity over electricity lines. In the meantime, British Telecommunications (BT) has teamed up with a satellite television company, BskyB, to develop digital TV in the United Kingdom. Among other things, the alliance of BT and BskyB will compete with cable TV companies that also offer voice telephony services in the United Kingdom. The combinations and permutations in this sector seem to bring endless surprises. These examples and stories about displaced incumbent market leaders carry two noteworthy lessons, which are simple and straightforward. First, successful market entry occurs as a result of a basic product or process innovation coupled with sound business planning.

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References

1. For a more general discussion, see: P. Geroski, Market Dynamics and Entry (Oxford, England: Basil Blackwell, 1991).

2. This example is taken from:

A. Slywotzky, Value Migration (Boston: Harvard Business School Press, 1996), chapter 5.

3. A complementor is a firm whose sales rise when your sales rise, meaning that the two sets of goods or services are consumed as a package. The term was introduced by:

A. Brandenburger and B. Nalebuff, Co-opetition (New York: Doubleday, 1996), chapter 2.

Competitors, by contrast, are firms whose sales rise only at the expense of your own.

4. For the story of this battle, see:

P. Ghemawat, Games Businesses Play (Cambridge, Massachusetts: MIT Press, 1997), chapter 7.

5. For the Microsoft example and others, see: A. Slywotzky and D. Morrison, The Profit Zone (New York: Wiley, 1997), chapter 13; for personal computers, see (among many others): R. Langlois, “External Economies and Economic Progress: The Microcomputer Industry,” Business History Review, volume 66, Spring 1992, pp. 1–50.

6. See R. Thomas, New Product Success Stories (Chichester, England: Wiley, 1995), chapter 2; or Slywotzky (1996), chapter 8.

7. For a useful discussion of how to exploit technological trajectories, see:

J. Tidd, J. Bessant, and K. Pavitt, Managing Innovation (Chichester, England: Wiley, 1997), chapter 5.

One technological trajectory commanding much attention is digital technology, which is blurring boundaries between telecommunications, computing, and entertainment. Another is in biotechnology and genetic engineering, which is beginning to affect firms operating in sectors such as pharmaceuticals, agricultural fertilizers, chemicals, and food processing. Firms in these sectors are facing competitive challenges from new rivals that have followed the developing science base into their markets.

8. See G. Brock, The U.S. Computer Industry: A Study of Market Power (Cambridge, Massachusetts: Ballinger, 1975).

9. For this and other examples, see:

G. Hamel, “Killer Strategies,” Fortune, 23 June 1997, pp. 22–34; and

W. Kim and R. Mauborgne, “Value Innovation: The Strategic Logic of High Growth,” Harvard Business Review, volume 75, January–February 1997, pp. 102–112.

10. See P. Geroski, “Thinking Creatively about Your Market,” Business Strategy Review, volume 9, Summer 1998, pp. 1–10; or

C. Markides, “Strategic Innovation,” Sloan Management Review, volume 38, Spring 1997, pp. 9–23.

Markides suggests using a “strategic positioning map” to help identify the who, what, and how associated with exploiting any particular new market opportunity.

In a similar vein, Slywotzky calls this constructing a “business design.” See:

Slywotzky (1996).

For a discussion of the importance of market monitoring as part of competitive assessment, see also:

G. Day, “Continuous Learning about Markets,” California Management Review, volume 36, Summer 1994, pp. 9–32.

11. Much the same story can be told in many other sectors. For a general discussion of the problem and a particularly interesting case study of the hard disk drive sector, see:

C. Christensen, The Innovator’s Dilemma (Boston: Harvard Business School Press, 1997).

12. There is a growing management literature on this subject; for a recent discussion of some of the practical problems, see:

C. Markides, “Strategic Innovation in Established Companies,” Sloan Management Review, volume 39, Spring 1998, pp. 31–42.

13. This example and some of the trade-offs involved are discussed in:

M. Porter, “What Is Strategy?” Harvard Business Review, volume 74, November–December 1996, pp. 61–78. See also:

C. Markides, Crafting Strategy (Boston: Harvard Business School Press, forthcoming).

14. For further details about these examples, see:

P. Geroski and T. Vlassopoulos, “The Rise and Fall of a Market Leader: Frozen Foods in the U.K.,” Strategic Management Journal, volume 12, September 1991, pp. 467–477; and

M. Cusumano, Y. Mylonadis, and R. Rosenbloom, “Strategic Maneuvering and Mass Market Dynamics: The Triumph of VHS over Betamax,” Business History Review, volume 66, Spring 1992, pp. 41–58.

15. There is a huge literature on the virtues of moving first or second. For an easy introduction to many of the issues, see:

M. Lieberman and D. Montgomery, “First Mover Advantages,” Strategic Management Journal, volume 9, Summer 1988, pp. 41–58.

16. More generally, it is possible to try to create any number of entry barriers. Traditional discussions identify barriers on the basis of opening up cost advantages, differentiation advantages, and scale-related advantages. See, for example:

Geroski (1991), chapter 5.

17. An interesting feature of the spirited bidding for RJR Nabisco by its internal management group and KRK in the late 1980s was the competition to line up the right collection of “movers” to assist their bid and banks (or other investors) to finance it. Among other things, this made it difficult for the third, late entrant to mount a credible bid. See:

B. Burrough and J. Helyar, Barbarians at the Gate: The Fall of RJR Nabisco (New York: HarperCollins, 1991).

18. See Brock (1975).

Acknowledgments

I am obliged to Costas Markides, Len Waverman, Aya Chacar, and two referees for helpful comments on an earlier draft.