11: A Disruptive Mind-Set
Great ideas struggle against the continuous pull of commoditization. They create no more than a flash of success if your competitors can easily imitate them. Thus, you must innovate and execute faster than your competition, slow or impede them from imitating you, or both.
Innovate Faster
The author mentions Genomma Lab, an innovative pharmaceutical company headquartered in Mexico that has had significant success.
He is vague about the reasons for its success, except to say that the firm has "a number of amazingly creative processes to develop products" and claims "I cannot disclose them" for confidentiality reasons. He hints that the firm considers the needs of the patient, rather than the needs of doctors or distributors, and it's implied that by locating in a third-world country they escape a lot of regulatory red tape.
He also speculates that the firm, being relatively new, is not encumbered by tradition - and for that reason it was able to institutionalize more efficient processes than its competitors whose business practices have become very slow and inefficient.
Slow Down the Competition
To create a sustained advantage, you must be able to leave your competitors behind. For any new idea you have, pause for a moment and ask yourself how competitors would copy it - the harder it would be, the more sustainable the advantage will become.
Of course, you also must consider who might compete with you. Consider that TiVo imagined its competition to be other electronics manufacturers, and completely overlooked the fact that cable television providers could crush them by building DVR capabilities into their set-top receivers and give them away essentially for free (they made up the revenue because customers with DVRs "invariably" upgraded their cable package).
Doing What Your Competition Will Not Do
In the present day, corporate secrets do not last long: it is only a matter of time before they figure out exactly what you're doing. Whether they poach your employees or hire your suppliers (which is very easy given the trend to outsource parts of your operation) or merely keep an eye on the industry press, competitors often know what you're doing before you've done it.
Given that anyone can do anything you can do, you have to look for opportunities that they will be reluctant - rather than unable - to copy. This is more in the realm of psychology.
The perfectly rational firm would be willing to do anything its competitors do - but firms are not perfectly rational. Far from it. Companies, particularly large ones, are driven by primitive urges - to avoid risk and stick to the tried-and-true, and to fear anything that seems new, different, or dangerous.
As such, most competitors in a market - particularly large and established ones - will simply refuse to take the same risks as smaller and more nimble firms until there is hard evidence that a stratagem is superior.
First, they will ignore your innovations. Then, they will criticize them. It takes a long time for them to recognize your success and scramble to imitate it. And this is the true source of your advantage.
Doing What Your Competition Cannot Do
While playing on the inertia of corporate cultures is the primary source of sustainable advantage for most firms, there are rare instances in which they can do what is functionally impossible for competitors to imitate.
Consider economies of scale: Retail giant Walmart can underprice competition by its ability to negotiate lower prices by buying in massive quantities to stock thousands of giant retail supercenters. To compete with that, a start-up firm would have to establish just as large a consumer base, which cannot be done quickly or cheaply.
Consider start-up costs: One of the reasons that there have not been any significant new players in the automotive or airline industries is that there is an enormous start-up cost to establish a factory or a fleet of passenger airplanes. Establishing a large operation quickly will leave competitors struggling for quite some time and provide a barrier against small start-up firms.
Consider customer captivity: Software giant Microsoft has done this by making it difficult to switch to a Unix or Macintosh computer - the software in which users have invested significant money and the files in which they have invested significant time are not operable on other systems, so the switching costs are immense.
Consider unique resources: DeBeers holds a virtual monopoly on the world's diamond market by virtue of controlling most of the world's diamond markets as well as the exchanges on which diamonds are sold wholesale. Unless competitors discover and control a huge source of stones, they cannot possibly compete.
Consider legal constraints: One of the glitches in the legal system is the use of trademarks, patents, and copyrights that forbid competitors from imitating a successful strategy. This "glitch" is well-established and well defended, and is even expanding as it is possible to obtain legal protection not just for artifacts, but for entire business processes.
Creating Your Competition
Krippendorff mentions an unconventional way to predict the competition: to become them. One firm set up a fictitious company within itself, staffed by strategists who are "leaked" the firm's plans, and who consider how they can imitate it.
The fake competitor is a touchstone for the real firm's planning efforts: it gives them a sense of how quickly competitors could catch up to them - and by having this team on-site, it is ever present in the minds of their staff, who must consider how this competitor would respond to their plans.
Innovators who are successful often ask "How will the competition respond?" as a matter of habit.
Reasons Competitors Lag
The author reviewed 100 companies that routinely innovate to beat their competition and then contrasted them with industry laggards who are slow to evolve, and identified a number of key reasons that some firms remain decidedly behind the curve when it comes to innovation:
- Laggards are focused on today's battle and cannot predict the next one
- Laggards resist partnering on the basis that other firms don't understand established ways of doing business.
- Laggards impose their corporate culture on other firms that they acquire
- Laggards are fearful of their competition and refuse to enter into cooperative agreements or joint ventures
- Laggards are usually all-in or all-out of a competition and tend to give up rather than watching and waiting for a better opportunity
- Laggards stick to a plan that has been successful in the past, rather than looking to the present market conditions
- Laggards expect that there is only one way to do business, and victory goes to the firm that is most efficient
- Laggards define their industry and stick to it, ignoring opportunities to capture profits in related areas
- Laggards seek immediate dominance and are not patient enough to grow from small to large
- Laggards proceed slowly and cautiously, running pilot programs in test markets, which broadcasts their intent to the industry
- Laggards attempt to define their competition as firms similar to themselves and ignore threats from outside the established industry
- Laggards make huge commitments to business models, process, ideas, and technologies and then defend them even when they are not productive.
- Laggards refuse to act on an idea that is not thoroughly explored and meticulously planned
- Laggards cling to an idea once they have committed to it and refuse to adjust on the fly.
- Laggards are more attentive to the cost of a new idea than to the revenue it will generate.
Conclusion
In the long run, "everything becomes a toaster." Products become commoditized by firms that copy one another's ideas. It is inevitable that once an idea becomes a proven success, others will imitate.
Innovation, no matter how ingenuous, will never create more than a temporary advantage - though it is possible to extend the duration and use that time to your advantage, to pull so far ahead that competitors who imitate will take decades to catch up.