AGILITY AND THE CHANGING NATURE OF COMPETITION

As cloud-based support and infrastructure services and markets become cheaper, simpler, more flexible, and scalable, the danger from new, potentially disruptive entrants increases. It accelerates and builds up, posing threats to the existence and the sustenance of entrenched models and structures of business.

Digital innovations have disrupted the power balance between consumers and businesses. Digital and social platforms have created a connected, empowered customer, diminishing firms’ control over brand perception and empowering discovery, trial, and adoption. Greater pricing transparency has led to the commoditization of goods and services. Digital integration in operations and supply chain can save time, money, or both. Senior business leaders face multiple, emerging, and rapidly changing issues.

Our article will explore the nature of these changes that have disrupted the traditional patterns of business operations.

Competition from Anywhere.

IBM conducted a study that polled the opinions of 5,000 C-suite executives from 70 countries and 21 industries for its 2015 global C-suite research. One of the fascinating conclusions is on ‘horizontal innovation’ – where it was simpler for top executives to predict rivalry earlier, there is now a lot larger danger from unseen competition until it is too late. As new digitally empowered enterprises expand in one area, rewiring the value chain through software, they may migrate horizontally into other sectors by reapplying their competence and knowledge in new ways. As sectors are combined and reshaped, industry boundaries blur. This industrial convergence surpassed increased cyber risk, the ‘anywhere’ workplace, and the sharing economy in an IBM study of top management. As we will discuss, digital is adept at rewriting the rules of competitive advantage. Still, when the potential for rapid disruption from anywhere is high and disintermediation is happening quickly, we must reimagine our response and reorient our organizations towards a higher level of organizational agility.

Horizontal innovation may come from anyone, but digital has enabled a new generation of ambitious entrepreneurs to threaten entrenched firms and whole industries. These firms use digital technology to operate globally, access top personnel, minimize communication costs, and reach larger audiences. Experts tagged the later years of the 20th century as the age of multinationals; the early 21st will be the age of micro-multinationals. In the 19th century, standardized mechanical parts like wheels and gears reflected a new era of invention. In the 20th century, internal combustion engines, electronics, and microchips will do the same. Today, we are experiencing similar tides of innovation.

The Age of the Unicorns

A significant part of online software development and innovation includes linking standardized components (such as Linux, Apache, MySQL, and Python) in innovative ways. The building blocks of creation are easily accessible, and the barriers to entry have been significantly reduced by cloud computing, data, business, communication, and content services. Innovating has sped up. The smallest company can access infrastructure, much of it from a mobile device, that was only available to the largest. Organizations can compete for the best people, work with global talent around the clock, and capitalize on global variation in knowledge, skills, and wages. International trade has always fueled innovation, and trade in knowledge and skills is now easier than ever.

According to Kevin Kelly, the founding executive editor of Wired, while it may seem like many of the most significant digital innovations have already been developed over the past 30 years, we have barely begun.

Kelly says entrepreneurs have never had more potential with standardized components and infrastructural access. He says there’s never been a better time to invent something new in the world. Never before have there been more opportunities, openings, lower barriers, higher benefit/risk ratios, better returns, and more significant upside. This is a time when people will wish they had lived. The investment and VC community use the term ‘unicorns’ to describe fast-growing startups worth more than $1 billion. Chris Dixon coined the term ‘full-stack startup’ to define a new breed of company aiming to disrupt and rewire entire markets. Real disruptors may be better called ‘full stack stay-ups rather than startups due to their ability to generate sustainable growth through rapid innovation. Dixon calls this the internet’s “deployment phase.”

Technological revolutions have two phases: installation and deployment. Each revolution begins with a financial bubble that drives the installation of new technologies unnaturally quickly. The inevitable crash is followed by a rebound and a long period of productive expansion that ‘deploys’ the technology across other industries and society. Suppose a business creates a lucrative new technology for an industry, in that case, Dixon explains, the focus becomes to produce a comprehensive, end-to-end product or service (a ‘full stack’ approach) that bypasses current companies. Fascinating IT businesses don’t offer software. Instead, they’re aiming to revamp whole industries.  Buzzfeed is a media firm like Netflix, Uber, and Tesla are movie, taxi and automobile companies, respectively. This adaptive capability lends beauty to tech-focused businesses. They can improve product experience, overcome opposition to new technology, and gain more economic rewards. The mixture is potent. With enormous ideas, lofty goals, outstanding talent, tremendous access to global markets, and lower entry hurdles than ever, disruption and horizontal innovation are possible.

Adapting to Changing Forms of Competitive Advantage

Navigating the ever-changing climate is like surfing on a rough sea of uncertainty. Many businesses haven’t adjusted their strategy. The challenges of a new world demand a new system and strategies to deliver new products with new technologies. This response would require a more adaptable approach than many firms’ rigid, inflexible ones. A “digitally native” strategy better adapted to our fast-changing, tech-enabled markets. Rita Gunther McGrath of Columbia Business School describes this as a shift in strategy from seeking to establish durable competitive advantage to utilizing a sequence of transient competitive advantages that combine to generate long-term benefits. McGrath based her claim on research on firms with market caps over $1 billion that experienced net income growth of 5% over global GDP during 2000-2009. She studied the tactical depths of ten selected firms. McGrath created a valuable framework for a more flexible organizational strategy from the study.

• Continuous reconfiguration: Transitioning from drastic restructuring programs to ‘continual evolution’ blends stability in fundamentals like corporate strategy with dynamism in operations, structures, and execution. Fluid talent distribution, not strictly defined jobs, enables this.
• Healthy disengagement: rather than defending an advantage to the sad end, it might be better to take a deliberate, regular, formal approach to move away from an area of waning advantage while taking note of lessons learned and feeding the lessons back into the firm.
• Resource allocation that supports agility: essential resources are managed centrally and not held hostage by local business units, resources are organized around opportunity rather than opportunities being squeezed into existing structures, access to assets and leveraging external capability are critical, not owning or building everything yourself.
• Innovation proficiency: The business should practice shifting from episodic to continuous and systematic innovation, safeguarded by distinct governance and budgeting from business as usual, dedicated resourcing, and balanced resource investment across core, growth, and new projects. Encourage exploration and failure-driven learning.
• Leadership: The business should support ongoing engagements with larger constituencies participating in the strategy. The company should focus its talent on capturing opportunities. The mindset should aim to embrace the fast and approximately correct rather than delay in achieving perfection.

SUMMARY

The nature of competition is changing. Today, businesses can expect competition from anywhere. Where competition used to be a fairly predictable force emerging through industry players, today horizontal forms of competition disrupt whole industries, sectors and markets due to the influence of digital technology. Digital technology acts as a leveler in industries, removing barriers, to reshape how value is being created and delivered in it’s markets. Surviving these technological revolutions requires understanding of their nature and evolving a comprehensive strategy that is better adapted to fast-changing, tech-enabled markets.