Welcome to Hypercompetition—Competitive Advantage at its FastestPublished: October 06, 2004 in Knowledge@Emory
Are competitors nipping at your heels, ready to eat your lunch and you along with it? Do start-up companies offer products or services better, faster, cheaper than yours? Have rivals found ways to neutralize your competitive advantages? If so, welcome to the brave, new business world of hypercompetition, where the competitive advantages you enjoy today may vanish with breathtaking speed and frequency.
In a paper titled The Rise of Hypercompetition in the U.S. Manufacturing Sector, 1950-2002, researchers L.G.Thomas and Richard D’Aveni say the phenomenon of hypercompetition is rapidly spreading across the U.S. and the globe. Thomas presented their nuanced findings at the recent Atlanta Competitive Advantage Conference at Emory University’s Goizueta Business School. This academic research conference was co-sponsored by Georgia State University and Georgia Institute of Technology, with corporate sponsorship from BrightHouse, and featured panel discussions and presentations of 42 research studies conducted by professors from 34 different business schools and universities, including Stanford, Columbia, INSEAD, Dartmouth, and New York University. These studies focus on how resources (physical, social, or intellectual), investment in capabilities, inter-firm collaboration, organization structure, flexibility, geography, market visibility, and reputation can help a company in establishing competitive advantage.
L.G.Thomas is a professor of organization and management at Emory University’s Goizueta School of Business; Richard D’Aveni, is a professor of strategic management at the Tuft School of Business at Dartmouth University. D’Aveni’s terrain-mapping book, “Hypercompetition” (2001), is, according to Fortune magazine, "A modern-day analogue to The Art of War, the ancient Chinese classic that is the Bible of many corporate strategists."
According to Thomas and D’Aveni, hypercompetition as “an environment characterized by intense and rapid competitive moves, in which competitors must move quickly to build new advantages and [simultaneously] erode the advantages of their rivals.” Some analysts say hypercompetition is “high velocity competition.” because of the speed of technological change. Hypercompetition varies among industries.
The authors find that the hypercompetition juggernaut is driven by numerous forces, including extensive globalization, more appealing substitute products, more educated and fragmented consumer tastes, deregulation, and the invention of new business models. These contribute to falling entry barriers, the rapid destruction of established competitive advantages, the dethronement of industry leaders, and the undermining of long-established national oligopolies.
In addition, hypercompetition is frequently set in motion by innovations that develop outside an industry – by suppliers or consumers, by government regulations or by the entry of foreign competitors.
Hypercompetition is reshaping the way firms do business because in a hypercompetitive context, competitive advantages tend to be so short-lived, according to the co-authors. Thomas says, “Achieving and sustaining a competitive advantage may mean that the best strategies for winning will be short-term and constantly revised.”
Thomas’s and D’Aveni’s recent analysis further supports the concept of using “un-sustainable competitive advantages to re-invent a firm's corporate strategy incrementally.” To paraphrase, their work sees a decreasing sustainability of competitive advantage, and is a call for better strategies for winning with a series of unsustained advantages.
They say forget about trying to create sustainable competitive advantages – because in a hypercompetitive context, sustainable advantages are both too costly and soon ineffective. Therefore, the co-authors say, for firms attempting to meet the challenges of hypercompetition, instead of working on sustainable advantages, the best strategy for winning is to develop an endless series of strategically unsustainable advantages. In short, firms should be ready to replace their unsustainable advantages, as soon as they become ineffective, with newer unsustainable advantages, and on and on. Hit-and-run, guerilla-like tactics, such as staying one step ahead of rivals and going around them, may be far better than head-on confrontations with rivals.
“It is striking how the temporary component of competitive advantage has been ignored,” said Thomas, “probably due to a focus by the strategy field on sustainable advantage.” To succeed in the throes of hypercompetition, firms must perform strategic actions with Olympic speed and focus.
Although most studies claim that hypercompetition is a relatively new phenomenon that emerged the late 1980s to early 1990s, Thomas and D’Aveni claim that it began to appear, at least in the manufacturing sector, in the 1960s. Their research of literature on the overall manufacturing sectors from 1950-2002 reveals that the proportion of industries that demonstrate hypercompetition is increasing steadily. Mathematically speaking, Thomas says, “The increase has been monotonic, that is, consistently increasing and not oscillating.”
The co-authors back-up their hypothesis with more than 50 years of Compustat accounting data from every publicly listed manufacturing firm in the U.S. economy. They were more easily able to find, measure and document hypercompetition in the most globalized parts of the U.S. economy. The increase number of industries that experience the high volatility of hypercompetition has grown from “almost zero in the 1950s to 25-percent by the 1970s and 75-percent by the 1990s.”
Whether other business sectors will be subjected to the same competitive excess as the manufacturing sector remains to be seen, according to Thomas and D’Aveni. They see this question as a huge area for additional research. Clearly, globalization in the service sector is a strong indicator that it too may be undergoing a shift similar to the manufacturing sector’s shift to hypercompetition.
Whatever a firm’s business sector, or the intensity of its competition, some strategies continue to endure. To stay in the game profitably, firms must ceaselessly circumvent the obstacles placed in their way, as well as invent ingenious new tactics to confound their rivals. In the fast-track world of hypercompetition, speedy implementation counts for extra points, as do accuracy and flexibility. And, as in simpler times, it pays to take advantage of short-lived opportunities.
“Although there are still a few non-monopoly firms that have unique, valuable, inimitable resources leading to sustainable competitive advantages, it appears that the bigger issue is how firms can prosper by using a series of short-term advantages. Either that, or escalate rivalry to create growth and shareholder value through constant creative destruction, rather than to seek the holy grail of sustainable competitive advantage and profits earned without intense rivalry.” Thomas and D’Aveni reiterate, “What companies need is endless series of unsustainable competitive advantages.”