• Strategy
  • McKinsey & Co.

Extreme Competition

The forces of globalization, technology, and economic liberalization are combining to make life harder than ever for established companies.

Six Ways to Win

Executives who develop responses to extreme competition should bear in mind the breadth of the threats as well as the personalities of the new competitors — mostly young, fit, and flexible. The strategic patterns they are weaving are new, and their behavior is fresh and uninhibited. Mature companies in the firing line — experience and pedigree notwithstanding — must therefore learn their businesses anew to be ready for the seemingly rash moves of competitors with no regard for traditional pricing behavior.

Speed, flexibility, resilience, and energy are all attributes of youth. They will be needed to make the transition to extreme competition and must be built into the strategic and operational thinking of all vulnerable companies. The ability to cut through a world of information overload and uncertainty — in other words, foresight — will be among the most important requirements for the tasks ahead.

The list of companies that have failed in this respect may be longer than that of the successes, but executives can still take heart. Although the challenges are formidable and the pressures more intense than they were ten years ago, the freedom to act and the scope for new approaches are greater than ever. Let’s consider what companies need to do differently and why they must move quickly.

Retool Strategy and Restore Its Importance. Competitive strategy has taken a backseat at many companies during the past five years: first came e-commerce and then the downturn — neither conducive to longer — term planning. Now, however, the growing uncertainties created by converging supply-side pressures, together with the aggregation of industries and the shifting boundaries between them, demand a much more explicit and high-level strategic response.

In many companies, strategy means nothing more than a plan based largely on today’s markets, today’s product set, and today’s competitors and emphasizing the financial forecast. Such a strategy may successfully identify opportunities to capture the upside of the current business over the next few years but can rarely anticipate extreme competition, much less show how to reposition a business to face it. Effective strategy should steer companies toward where an industry is heading, not where it is today.

Corporate leaders should therefore challenge business units to move quickly and flexibly in new directions by creating a portfolio of response options rather than building incrementally on existing ones. Chief executives should intervene more regularly in conversations within business units and stretch the imagination and urgency of their leadership teams. A readiness to contemplate and execute extreme solutions must start with the CEO and the top team and then be integrated across all layers of the company.

Manage Transition Economics. The economics of the shift to extreme competition must focus on cost positions, productivity, and the relationship between prices and margins as well as how they should all change over time. The significance of transition economics derives from both the aggregation of markets and the increasing efficiency of market-clearing mechanisms; the pace and scope of industry change drive the timing.

Discuss

Your email address will not be published. Required fields are marked *