Hypercompetition by Richard D’Aveni

by Paul Simister on September 26, 2011

Hypercompetition : Managing the Dynamics Of Strategic Maneuvering by Richard D’Aveni is a book I’ve wanted to read for many years and finally, earlier this year I did.

Although it dates back to 1994 I’m very impressed about its ideas on strategy dynamics.

Hypercompetition Review

The view of business strategy presented in Hypercompetition by Richard D’Aveni is both scary and exciting.

The essence of strategy is building competitive advantage but in a world of hypercompetition, no competitive advantage is sustainable. Hypercompetition is “an environment in which advantages are rapidly created or eroded.”

If you’re the leader, then in a few years you could become a has-been.

If you’re a challenger facing an entrenched competitor, then there is hope that you can match and overtake your bitter rival.

While the traditional approach to strategy emphasises the creation of competitive advantage, Richard D’Aveni takes the alternative view; strategy is about the creative destruction of the opponent’s advantage.

And the presence of one hypercompetitive business in the market is enough to tip the entire industry into hypercompetition because competitors are forced to react to the threats.

Hypercompetition by Richard D'Aveni

I found this short video of Richard D’Aveni explaining the origins of the idea of hypercompetition.

In the video, he says he writes about “unsustainable advantages in an unpredictable world” and since 1994, things have got worse, we now have “hypercompetition on steriods”. It also includes a comparison between business strategy and how the Godfather tries to control the illegal drug industry. he also talks about his latest book “Beating The Commodity Trap” that I’ll be reviewing soon.

Hypercompetition Challenges Traditional Views On Strategy

Much of what Richard D’Aveni writes can be seen as a direct challenge to the ideas in two of the classic books on strategy

Competitive Strategy Michael Porter

Competitive Advantage Michael Porter

While I am a big fan of Michael Porter’s work, I believe the debate is healthy.

Some industries go through periods of radical change in a very short time-scale – think technology products which burst onto the scene with great excitement and are then replaced by a new innovation e.g. laptops to notepads like the Apple iPad.

Other industries slowly evolve. Both Coca Cola and Pepsi date back to the late 19th century but still dominate the carbonated soft drinks industry around the world.

The same theory of strategy will struggle to fit both so Hypercompetition is an important addition to the concepts.

Hypercompetition And The Four Areas Of Competition

Richard D’Aveni argues that competition escalates across four areas of competition. As developments make continued improvement in one area difficult, competition jumps across to another.

The four arenas are:

  1. Cost-quality advantages
    .
  2. Timing and know-how advantages
    .
  3. Strongholds from erecting entry barriers
    .
  4. Deep pockets

I really like this emphasis on competitive reaction since too many businesses produce strategy as if their competitors didn’t exist or are powerless to stop them, let alone with their own goals for market share and profitability.

Hypercompetition is about creating and profiting from temporary advantages in constant waves of product, process and strategic innovations.

Richard D’Aveni argues that trying to sustain an existing competitive advantage is potentially a trap because the focus should be on identifying and creating the next sets of advantages.

Hypercompetition Arena 1 – Cost and Quality

This is the traditional battleground for competitive strategy laid out in the customer value map. Advantage comes from providing more value for money and accurately predicting how competitors will react.

Firms can compete at particular points along the value curve or along the full length of it from a low price, low quality product all the way through to a high price, high quality product.

Competition forces companies to move to a position of what Richard D’Aveni calls ultimate value which is a high quality product for a low cost as actions to create differentiation and avoid a price war ultimately prove futile.

Hypercompetition Arena 2 – Timing and Know-How

If the first arena is a nod to strategic positioning, this second area is a resource based strategy view of dynamic competition and how it can be used to bring out new products which change the rules of the market.

First mover advantages exist but competitors imitate. The more they imitate, the better and faster they get, forcing the innovator to speed up its own cycle of innovation. Ultimately the cost of innovation exceeds the short term gains that can be made from innovating.

Hypercompetition Arena 3 – Strongholds

In this third arena, the reference is back to Michael Porter and his work on barriers to entry that protect industries from newcomers.

Unfortunately few barriers to entry last long when severely challenged. Competitors build up their own resources and skills and are able to get over or around barriers that have been erected

Hypercompetition Arena 4 – Deep Pockets

Sometimes muscle counts in competition. A large or concentrated force is a proven winner in military strategy, partly because of its ability to sustain losses and still mount an attack.

Smaller firms can avoid any disadvantage in this area through joint ventures and strategic alliances.

Preparing For A New, More Intense World

Richard D’Aveni presents a very different view of competition and the strategy you need to follow to succeed.

Does all this change mean you should forget about strategic planning?

Of course not.

To do so would mean your business was left behind at the first fence but it does mean you have to stay fit and focused to keep up with anyone setting the pace in your industry.

To do so, you need the New 7 S’s. This is a reference to the McKinsey 7 S framework for strategic fit.

Richard D’Aveni argues that in hypercompetition, the opposition can use the old 7-s framework against the firm because it makes the business predictable.

The New 7 S

  • Superior stakeholder satisfaction
    .
  • Strategic soothsaying
    .
  • Positioning for speed
    .
  • Positioning for surprise
    .
  • Shifting the rules of competition
    .
  • Signalling strategic intent
    .
  • Simultaneous and sequential strategic thrusts

The first two create a vision for market disruption, the third and fourth are key capabilities to use across markets and the final three are disruptive tactics in a hypercompetitive environment.

I’ve more about the new 7 S model in a separate blog.

My Overall Thoughts Of Hypercompetition by Richard D’Aveni

It’s an intellectually stimulating but challenging read which gets your brain spinning.

It’s a combination of old wine in new bottles and new wine so just as you start to feel back in your comfort zone of existing strategic knowledge, it veers off to somewhere new.

Just like other classic strategy books its examples are now dated and it would be great to see a fully revised second edition.

The world it paints is scary and it’s not crossed over into popular management reading because the message may not be what business leaders and entrepreneurs want to hear.

There isn’t an easy path to success in hypercompetition.

You have to keep racing hard to get ahead and stay ahead.

Have You Read Hypercompetition?

If you’ve read Hypercompetition, I’d like to know what you think of it so please leave me a comment.

If you haven’t read it and you find it in a book store that encourages you to sit down, I recommend the first 36 pages to you. the introduction acts as a précis for the book and lets you know what’s in store.

Paul Simister is a business strategy coach who helps business owners to differentiate their businesses and develop winning strategies. Get your free copy of the ebook The Six Steps Profit Formula.

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