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.