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					  David against Goliath: How small
companies could fight against bigger
            competitors




                Professor Costas Markides
                 London Business School
                           February 2007
            The Evidence is Clear …

•   Most companies that try to enter a new market fail within a
    year. About 85% of them fail in 4 years.
    [This result applies for even the best and most powerful
    companies (e.g. IBM entering the copier market or Coca
    Cola entering the wine market)]
            The Evidence is Clear …

•   Most companies that try to enter a new market fail within a year.
    About 85% of them fail in 4 years.
    [This result applies for even the best and most powerful
    companies (e.g. IBM entering the copier market or Coca Cola
    entering the wine market)]

•   Most companies that try to move into a new country
    produce very mediocre results and often abandon their
    moves.
    [This result applies for even the best and most powerful
    companies (e.g. Procter & Gamble entering Japan or Dell
    entering Europe)]
            The Evidence is Clear …
•   Most companies that try to enter a new market fail within a year.
    About 85% of them fail in 4 years.
    [This result applies for even the best and most powerful
    companies (e.g. IBM entering the copier market or Coca Cola
    entering the wine market)]

•   Most companies that try to move into a new country produce
    very mediocre results and often abandon their moves.
    [This result applies for even the best and most powerful
    companies (e.g. Procter & Gamble entering Japan or Dell
    Entering Europe)]

•   The majority of small companies that attack bigger
    competitors fail within one year. (It has been estimated that
    the probability that the largest firm in an industry will
    survive as the largest is 96% … an almost certainty!).
          Why Such a Bad Record?

• Most companies look at their own strengths and
  competencies (that usually made them successful
  at home) and assume that these strengths will
  help them in the new markets or against bigger
  competitors.


• What they forget or underestimate is that the
  competitors that they attack also have advantages
         First-Mover Advantages

(1)   Learning
(2)   Economies of Scale
(3)   Control of Scarce Assets (e.g. supermarket
      shelf or airport gates)
(4)   Switching costs
(5)   Resources to fight back
(6)   Reputation
(7)   Existing assets (such as distribution or brands)
(8)   Political connections
          Yet, we have exceptions to these
                  dire statistics …

• easyJet                     • USA Today

• The Body Shop               • Swatch

• IKEA                        • Komatsu

• Rosenbluth Travel           • Federal Express

• Edward Jones                • Starbucks

• Canon                       • CNN

• E-trade                     • First Direct

• Wal Mart                    • Direct Line
All these companies succeeded
by breaking the rules of the game
in their business - by doing
something fundamentally different
from what the established players
do
       My First Key Point:

• NEVER attack a bigger competitor head-
  on.
• The strategy that seems to improve the
  probability of success is the strategy of
  doing something different from the big
  boys—therefore attack them by trying to
  break the rules of the game in the
  market.
What Does This Mean Exactly?
There are three main areas where you
  could attempt to attack a bigger
  competitor by “avoiding” them:
(a) Go after a different customer to
   the customers that they focus on;
(b) Offer a different Value Proposition
   to the customers
(c) Use a different value chain of
   activities.
          For Example


Which company is the biggest car-rental
company in the world?
                         Hertz/Avis              Enterprise
Value-chain activities

Location                 Airports                Downtown
Push Marketing by        Travel Agents           Mechanics and
                                                 Insurance
                                                 Companies
Delivery:                Airport Parking Lots    Home Pick-up
Car Drop-off:            Airport                 Home
Organisation:            Centralized             Decentralized

Customer Segmentation:   Business and Pleasure   Replacement and
                         Travellers              Discretionary

Age of cars in fleet:    Mainly New              High Average age

Price:                   On average, high        Low
ENTERPRISE is obviously “breaking the rules”
(i.e. doing something fundamentally different in this
industry). But what is the source of this difference?
Why did it come up with all these “different” activities
to pursue & why do they all make sense?
ANSWER:   Compared to the traditional car-rental
          companies, they have a different
          customer in mind.
          They have strategically innovated
          because they discovered a new WHO
          (customer segment)
Enterprise Rent-A-Car




                        replacement

  travellers
                        discretionary
       Other Examples


1) Barbie
2) Edward Jones
3) Lan & Spar Bank
4) CNN
5) Honda
6) Bright Horizons
7) Progressive Insurance
  How Else to Avoid Head-On Competition?

(1)   As the previous examples show, you can avoid
      head-on competition by targeting a different
      customer from your bigger rivals.

(2)   But how else could you avoid them?
Consider the market leader in
mountain bicycles in California.
National Panasonic!

How do they do it?
National Panasonic has radically changed
the value proposition to the customer.

                     Benefits to the Customer
Value Proposition:
                              Price
What is your value proposition to the customer?


Remember:       Every product (or service) has many
                attributes and characteristics. The
                established firms tend to emphasize the
                feature that suits them, such as the
                performance of the product.
                Pick another feature to emphasize!
                For Example

(1) Swatch
(2) Starbucks
(3) LVMH
(4) Nespresso
(5) Body Shop
(6) Apple
  How Else to Avoid Head-On Competition?

(1)   So far, I have argued that you can avoid head-
      on competition by targeting a different
      customer or offering a different value
      proposition.

(2)   The third way of avoiding head-on competition
      is by employing a different value-chain of
      activities.
        … How Do you Deliver Value to the Customer?


*   What distribution method do you use? (e.g. First Direct)
*   What inventory method do you use? (e.g. Toyota)
*   What manufacturing method do you use? (e.g. Smart car/Levi’s)
*   What delivery method do you use? (e.g. IKEA)
*   What marketing method do you use? (e.g. Visa)
How Do You Play the Game?


Dell Computers
Toyota
Taco Bell restaurants
Cemex
Wal-Mart
K-Mart (in the 1960s)
General Motors (in the 1940s)
Apollo Synthetic Diamonds
easyCinema
            Therefore

Think creatively about the Who-What-How
questions and come up with a unique
positioning for you.
Unfortunately, companies and individuals find it
             difficult to be creative


    Most companies tend to imitate each other

    We are all “blinded” by our own strong
    beliefs and assumptions (otherwise known
    as sacred cows or mental models).
Can you think of a word?

         __ ANY
Can you think of a word?
         MANY
Can you think of a word?
          MANY
         __ENY
Being Creative is more difficult than you Think!



    Let me tell you, the solution is not to “think
    outside the box”

    And it’s not to “challenge and question our
    assumptions”
         Antony and Cleopatra

Antony and Cleopatra are lying dead on the floor in an Egyptian
villa. Nearby is a broken bowl. There are no marks on the
bodies and they were not poisoned. No person was in the villa
when they died. How did they die?
    Any Other Strategies that Work?
(1) Attacking by doing something different
    from the big boys (i.e. by breaking the rules
    of the game) is only one way to succeed
    against bigger competitors.
(2) Other Strategies that help are:
•   Buy time: Build your competences first
•   Use Allies
•   Use the D-Day Analogy
A clever strategy is not Enough!

Coming up with a clever little strategy
is obviously important. But it’s not
the only thing that you need to think
about.
Let me throw a few more things at you
to think about.
       From Strategy To Organisation


Even the best of strategies will fail unless they
are supported by the day-to-day behaviours of
all of our employees.

The question then is: “What determines how our
employees behave?”
It is NOT only Knowledge that Determines our
           Employees’ Behaviours!

     The Priest Experiment


     Didn’t the priests “know” what the right
     thing to do is?
     If so, why didn’t they do it?
            IN GENERAL
1) Just because you know something doesn’t
   mean that you will do it!

2) What determines how employees behave
   in a company is not knowledge but a host
   of other factors.
What Drives Behaviours in
     Organisations?

  Sumantra Ghoshal

  Downtown Calcutta
        Versus
Downtown Fontainebleau
     The Moral of the Story

The underlying environment of your
organisation creates the behaviours that
we/you see in your organisation.
 The Right Underlying Environment for your
               Organisation
                Culture and
                  Values




                    How we
Structures         Behave in        Measurement
   and               our                and
Processes          company           Incentives



                   People,
              (skills, attitudes,
                  mindsets
The Importance of Incentives


What gets measured gets done
  The Importance of Values


   Imagine being behind enemy
lines. Would you shoot innocent
       children & women?
The Importance of Structures &
         Processes


   The priest experiment
The Importance of People

   (a) Attitudes
           Attitude

        “They” will do it
               OR
         “We” will do it
               OR
I thought somebody else will do it
                                            Social Loafing
                            5
                                                                       = shouting
Sound pressure per person


                                                                     X = clapping
                            4




                            3
                                X



                            2
                                    X

                                                X
                            1                                   X
                                                                         X



                                1       2   3       4      5    6    7   8     9

                                                        Group Size
      Examples of Social Loafing

(1) The murder of Kitty Genovese, New York
    City, 1964


(2) The death of Marco Moretti in an Italian
    tunnel and the “adventures” of his 6-year
    old daughter, Vanessa


(3) Experiments by Latané & Dabbs (1975) in
    elevators
    The Importance of People


a) Attitudes
b) Mindsets
              SUMMARY

What have I really said so far:

(1) The Underlying Environment of your
    organisation drives the behaviours that
    you see in your organisation.
(2) The underlying Environment is made up
    of four inter-related components:
    incentives, culture, structure and
    people.
   Why is this Important for Strategy?

Remember:   Strategy is nothing more than the
            difficult choices that you have
            made.
But:        It is the behaviors of our
            employees that give life to
            Strategy.
      Why is this Important for Strategy


                    Creates the     The day-to-day
 The Underlying                      behaviours of
                     behaviours
 Environment of                    your people can
                     you see in
your organization                  either support or
                        that
                    organization   undermine your
                                       strategy
Strategy and Organisation is not
           Enough!

Coming up with a clever little strategy
is obviously important. Equally
important is the need to put in place
the appropriate “Organisational
Environment” to support this strategy.
But there’s more that needs to be
done!
       From Organisation To People


Even the best of strategies will fail unless
employees are emotionally committed to them.

To win their emotional commitment, we need to
not only communicate our strategy but sell it to
them
What are the physical symptoms when you
have actually been successful in winning
your people’s emotional commitment?


       •   Energy
       •   Passion
       •   Fun
       •   Pride
       •   Working together as a strong team
HOW TO WIN EMOTIONAL COMMITMENT

             I KNOW


         I UNDERSTAND


        YES, I THINK I CAN


              I WILL
       From Organisation To People


What Else could we do with our people to
enhance our competitiveness?
    Just an Observation

You can find energetic people even in the
heat and humidity of downtown Calcutta in
July; and you can find zombies even in the
refreshing environment of the forest of
Fontainebleau in the Spring!
      Attitudes to Look Out For


 Social Loafing: Somebody else will
  do it (remember the priest
  experiment?)
       Attitudes to Look Out For


 Social Loafing.
 Conformity: we don’t like to stick
  our necks out!
                     Conformity




Line A            Line 1               Line 2   Line 3

         Line A is equal in length to Line 1
         Line A is equal in length to Line 2
         Line A is equal in length to Line 3
                 Results
(1) On one-third of the trials, the subject conformed
    to the incorrect majority view
(2) When the size of the group was only 2 people,
    the subject never changed his/her position
(3) When the size of the group was 3, the subject
    conformed to the majority view, 13% of the time
(4) When the size of the group was 4, the subject
    conformed on 33% of the trials
(5) The addition of one more dissenter, reduced
    conformity to one fourth of what it was before.
       Attitudes to Look Out For


 Social Loafing.
 Conformity: We don’t like to Stick
  our Necks out!
 Too busy doing our own jobs to
  consider doing something else.
      Can You Spot the Gorilla?


• Source: www.viscog.com
• Richard Wiseman: Did You Spot the
Gorilla? London: Arrow Books, 2004,
page 6.
       Attitudes to Look Out For


 Social Loafing: Somebody else will
  do it.
 Conformity: We don’t like to stick
  our necks out!
 Too Busy doing our own job.
 Strong beliefs and entrenched ways
  of thinking—we think we already
  know.
           A Simple Exercise



Count from 1 until 100. How many numbers with
a 9 can you find? (30 seconds).
The Effect of Strong Beliefs on Us?

They make us efficient

They make us “passive thinkers”
A Few Additional Examples of “automatic”
               behaviour

  Writing a cheque in January with last year’s
  date
  Driving past your house on the way back from
  work
  The firing of guns by the British artillery during
  World War I.
The Effect of Strong Beliefs on Us?

They make us efficient

They make us “passive thinkers”

They make us reject information that does
not fit with what we already believe in.
      Attitudes to Look Out For


 Social Loafing.
 Conformity.
 Too busy.
 Entrenched Ways.
 Fear = what if I mess up.
      Attitudes to Look Out For


 Social Loafing.
 Conformity.
 Too busy.
 Entrenched Ways.
 Fear = what if I mess up.
 Cognitive and Judgement Biases
               Cognitive and Judgement Biases

(1) We attribute good outcomes to our skill and bad outcomes to luck
    (therefore, we are less likely to learn from our mistakes simply because
    we do not see them as mistakes)

(2) Over-Optimism and Over-Confidence
    (we believe that the accuracy of our forecast increases with more
    information).
    (we find it difficult to change views or position)

(3) Confirmatory bias
    (we tend to look for information that agrees with what we believe and
    reject information that does not fit).

(4) Anchoring
    (we tend to make decisions relative to an incorrect point of reference.
    (e.g. the past)
      Attitudes to Look Out For


 Social Loafing.
 Conformity.
 Too busy.
 Entrenched Ways.
 Fear = what if I mess up.
 Cognitive and Judgement Biases
 Inertia = That’s how we do things
  around here
     The Monkey Experiment


Put 5 monkeys in a cage. Hang a banana
from the top of the cage. Put stairs
underneath it—what happens?
 And Now for my Last Word

I have told you many things about
growing your businesses and about
innovation.
Hopefully, you now “know” some new
things that you did not know when you
came here.
However ….
Will you Do Any of this?
           MESSAGE


Even though I know that you accept
many of my previous messages you
are still NOT going to anything!
  Knowing is not Enough!



Most times, we know what we have to do.

We simply do not do it.
     The Knowledge - Doing Gap

Profits
            A




                           Time


                     B
The Sources of this “Disease”


(1) Spies

(2) Priorities

(3) Downtown Calcutta vs Downtown Fontainebleau
When Do Organizations Change?

Successful organizations always talk about
changing … they never do it until a crisis hits
them.


Don’t wait for the crisis to hit you. Galvanize
your organization into active questioning by
creating a positive crisis even when you are
successful.
             Is this Enough?


Of course it is not enough! But it is a start.


And Remember: The future belongs to those
              who dare take chances!

				
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