Most industries today are facing an ever-increasing level of environmental uncertainty.
Most industries today are facing an ever-increasing
level of environmental uncertainty. They are becoming more complex and more
dynamic. Industries that used to be multi domestic are becoming global. New
flexible, aggressive, innovative competitors are moving into established
markets to erode rapidly the advantages of previously dominant firms.
Distribution channels vary from country to country and are being altered daily through
the use of sophisticated information systems.
Closer relationships with suppliers are being forged to reduce costs, increase
quality, and gain access to new technology. Companies learn to quickly initiate
the successful strategies of market leaders, and it becomes harder to sustain
any competitive advantage for very long. Consequently, the level of competitive
intensity is increasing in most industries. Richard D’Aveni (1994) contends
that as this type of environmental turbulence reaches more industries,
competition becomes hyper competition.
According to D’Aveni
In hyper -competition the frequency, boldness, and
aggressiveness of dynamic movement by the players accelerates to create a
condition of constant disequilibria and change. Market stability is threatened
by short product life cycles, short product design cycles, new technologies,
frequent entry by unexpected outsiders, repositioning by incumbents, and
tactical redefinitions of market boundaries as diverse industries merge. In
other words, environments escalate toward higher and higher levels of
uncertainty, dynamism, heterogeneity of the players and hostility.
In hyper-competitive industries such as computers,
competitive advantage comes from an up-to-date knowledge of environmental
trends and competitive activity coupled with a willingness to risk a current
advantage for a possible new advantage. Exhibit 7-1 describes how Microsoft is
operating in the hyper competitive industry of computer software.
Exhibit 7-1:Hyper competition-The
case of Microsoft
Microsoft is a hyper competitive firm operating in
a hyper competitive industry. It has used its dominance in operating systems
(DOS and Windows) to move into a very strong position in application programs
like word processing and spreadsheets (Word and Excel). Even though Microsoft
held 90% of the market for personal computer operating systems in 1992, it
still invested millions in developing the next generation – Windows 95 and
Windows NT. Instead of trying to protect its advantage in the profitable DOS
operating system, Microsoft actively sought to replace DOS with various
versions of Windows. Before hyper competition, most experts argued against
cannibalization of a company’s own product line because it destroys a very
profitable product instead of harvesting it like a “cash cow.” According to
this line of thought, a company would be better off defending its older
products would be introduced only if it could be proven that they would not
take sales away from current products. Microsoft was one of the first companies
to disprove this argument against cannibalization.
Bill Gates, Microsoft’s Confounder, Chairman, and
CEO, realized that if his company didn’t replace its own DOS product line with
a better product, someone else would (such as IBM with OS/2 Wrap). He knew that
success in the software industry depends not so much on company size but on
moving aggressively to the next competitive advantage before a competitor does.
“This is a hyper competitive market,” explained Gates. “Scale is not all
positive in this business. Cleverness is the position in this business.” By
2000, Microsoft still controlled over 90% of operating systems software and had
achieved a dominant position in applications software as well.
Tags : Strategic Management - Environmental Analysis and Diagnosis
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