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Strategic Management - Environmental Analysis and Diagnosis

Hyper Competition - Competitive Analysis

   Posted On :  26.06.2018 03:02 am

Most industries today are facing an ever-increasing level of environmental uncertainty.

Hyper Competition
 
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.

New 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. 
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