When Gillette introduced its Mach3 razor in 1998, with an investment of more than $1 billion in development and advertising, it was attempting to redefine the rules of competition. The move forces competitors to play catch-up against a powerful new en-hancement of the value proposition. It means Gillette continues to dictate the rules in an industry in which it has created the world’s number one shaving system.1 It also suggests that Gillette’s intention is to disrupt the market periodically, implying that Gillette will eventually replace the Mach3 standard with another breakthrough product. Through a series of major new product launches, driven by technology and branding innovations, Gillette has sustained leadership in defining the shaving game. In the 1970s, however, Bic’s disposable razors threatened to shift the dominant value proposition to low-cost convenience. Bic grew a small niche into a mass, worldwide market, cannibalizing Gillette’s cartridge approach by continually lowering the cost and increasing the value of its razors to attract customers from cartridges and stimulate new demand. The new rules were so foreign to Gillette that one executive commented, “We’d get samples and I would try them and wonder why anybody would compromise their shave to save a little money.”2 But consumers were willing to make this compromise. For Bic, the move transformed the game to one that it knew how to play well, with its low-cost plastic manufacturing and efficient distribution for pens, lighters, and other products. At the same time, the shift threatened to transform Gillette’s heavy R&D investments from an advantage to a burden. At first, Gillette was forced to play by Bic’s rules. Although Bic beat Gillette in the European market, Gillette quickly pushed a disposable in the United States before Bic could launch its own razor there. Gillette’s Good News razor captured 60 percent of the market by 1982. But margins were thin, and the company’s sagging profits forced it to fight off four takeover attempts in the mid-1980s. Instead of complying with Bic’s rules, Gillette redefined the rules. With the introduction of the Sensor in 1989, Gillette shifted the rules of winning to brand image and shaving quality. Here, the muscular R&D that had slowed its profits in disposables became an asset. Bic could not compete in this environment.
1. “Gillette Unveils Mach3 Shaving System,” Dow Jones Newswire, 14 April 1998.
2. L. Ingrassia, “Gillette Holds Its Edge by Endlessly Searching for a Better Shave,” Wall Street Journal, 10 December 1992, p. A-1.
3. M.E. Porter, Competitive Strategy (New York: Free Press, 1980).
4. L.G. Thomas III, “The Two Faces of Competition,” Organization Science, volume 7, May–June 1996, pp. 221–242.
6. R. D’Aveni, Hypercompetition: Managing the Dynamics of Strategic Maneuvering (New York: Free Press, 1994).
7. “Glass with Attitude,” The Economist, 20 December 1997, p. 114.
8. A. Maykuth, “Diamond Cartel Is Besieged,” Philadelphia Inquirer, 14 October 1996, p. A-1.
9. Although many early researchers developed our understanding of the importance of competencies, these concepts were most clearly refined, articulated, and popularized by C.K. Prahalad and Gary Hamel. See:
C.K. Prahalad and G. Hamel, “The Core Competence of the Corporation,” Harvard Business Review, volume 68, May–June 1990, pp. 79–91.
10. S. Brull, “The Wave of New Gizmos Coming Soon from Japan,” Business Week, 25 November 1996, pp. 62–68.
11. M. Tushman and E. Romanelli, “Organizational Evolution: A Metamorphosis Model of Convergence and Reorientation,” Research in Organizational Behavior, volume 7, 1985, pp. 171–222.
12. P. Anderson and M. Tushman, “Technological Discontinuities and Dominant Designs: A Cyclical Model of Technological Change,” Administrative Science Quarterly, volume 35, December 1990, pp. 604–633.
14. Tushman and Romanelli (1985).
15. D’Aveni (1994).
16. Disequilibrium environments should not be confused with “perfect competition,” an equilibrium environment in which all advantages — and abnormal profits — are lost to the competition. Perfect competition is a stable equilibrium condition because it is a theoretical state involving a battle between two relatively equally matched competitors playing the same game. In disequilibirium, hypercompetitive strategies are used to change the rules of competition frequently. In this case, destabilizing the rules of competition can actually lead to greater and greater, not reduced, competitive rivalry. The rivalry escalates because the rules change. In both hypercompetition and perfect competition, the fight can be bloody and brutal, but in perfect competition, it is also pointless because neither player benefits. In hypercompetition, in contrast, it is not just muscle power that determines which company has supremacy, but also the ability of the players to invent and impose the rules of competition on the market. So one company can surprise the other, over and over, until the rival is completely reactive or worn out, much the way that guerrilla warriors wear down larger, slower opponents.
17. S.L. Brown and K.M. Eisenhardt, Competing on the Edge (Boston: Harvard Business School Press, 1998).
18. T.L. Paulson, “Quotes Worth Pondering,” Change Central, 1997.
19. T. Craig, “The Japanese Beer Wars: Initiating and Responding to Hypercompetition in New Product Development,” Organization Science, volume 7, May–June 1996, pp. 302–321.
20. Porter (1980);
Prahalad and Hamel (1990);
G. Hamel, “Strategy as Revolution,” Harvard Business Review, volume 74, July–August 1996, pp. 69–82; and
A.J. Slywotsky, Value Migration (Boston: Harvard Business School Press, 1996).