The Changing Paradigm of Competition
With globalisation, trade liberalisation, technological advancement and commodification, we are now faced with a different competitive business environment. In my early training in economics and marketing, we were taught that the real way of doing business was to study the dynamics of supply and demand and then go chase after the demand with supply – once the former has been established. For example, in the case of the hospitality and hotel industry, which do you do first? Should we build hotels and related facilities when we have certain signs of tourist demand and arrivals, or do we build hotels first and wait for the influx of these tourists?
There are times when people have relied on their entrepreneurial hunch, intuition and luck to take on certain innovative and opportunistic decisions in starting or growing their business and have prospered. How have these entrepreneurs managed to do so? The old paradigm of competition was to aggressively compete for a bigger share of the same market, as well as mind share of the customers through branding in order to capture greater market share and sales, albeit in a reducing profit margin regime. However, things have changed – today one may need to swim against the current and adopt paradoxical thinking to create new demand, market and customers through what I would term as a ‘break out strategy’ (BOS).
Shatter Your Old Paradigm!
Understanding the competitive landscape and the shift in business would allow companies to re-think their strategies and change their business models to find new opportunities. Let us now challenge the following attitudes of the old paradigm, which many of us have held on to, whether in fear, ignorance or inexperience:
Old Paradigm #1:
Demand led supply.
In the early days of economic growth, consumers were limited by access to products and services. Hence, growth in business was determined through demand, i.e., demand-led, and entrepreneurs responded by starting businesses to create the supply to meet the demands for the consumption of goods and services. Under the old economic reasoning, we should only start building the facilities to cater to customers only when there is assured demand. So, the way to go was to do a market study to identify where and who the demand targets are, and develop the appropriate marketing strategy.
Old Paradigm #2:
Markets have a fixed boundary.
In the old competitive model, all markets have a certain boundary, as information and market intelligence were limited and restricted. Customers were separated, not well informed and less discerning. Furthermore, the choice for products and services was limited. Access to supply and choices were not well facilitated. For customers, it was a situation of what you see is what you can get. So, a fixed market boundary was created and there tended to be many players or suppliers in the same market boundary.
Old Paradigm #3:
Strategy follows structure and performance.
Under this mode of operation, the traditional strategic planning process was to develop strategy and strategic moves after the structure of the organisation had been determined; hence we often heard the phrase, strategy follows structure. In today’s fast changing and dynamic business environment, strategy should lead structure, systems, processes and performance.
Old Paradigm #4:
Competition is necessary.
In order to succeed, competition is a prerequisite expectation and one would try to acquire as much of the market share as possible through cost leadership, differentiation or niche target and market segmentation. The new way the business game is now played is to move away from the intense competition and look for your own breakout strategy (BOS).
Old Paradigm #5:
Zero Sum Game
Under this competitive regime, the name of the game is to try to annihilate or kill the competitor by increasing market share and wrestling customer patronage from each other in the same type of business. Every means to achieve this end will be taken to out-compete each other. In this competitive scenario, it was a zero-sum game – I win you lose, or you win I lose.
Old Paradigm #6:
Value-Cost Trade-off
Under this regime, the value-cost trade off was warily recognised, since the assumption was that the more value you provided your customers through more giveaways or enhanced services, the more you had to incur additional costs, and this would result in the reduction of profit margins and return on investment.
Old Paradigm #7:
Cost-Plus Pricing
The old approach to pricing was based on cost plus margin to determine the selling price. Under this approach in a demand-led environment, the price pain is passed onto the customers. Customers can either ‘take it or leave it’. However, in the new paradigm of business, it is now all about strategic price less cost, which is the desired margin to expect.
Old Paradigm #8:
Compete and exploit incessantly.
Under the old competitive paradigm, one has to compete and exploit incessantly to find more market traction. As described in Chan Kim and Renée Mauborgne’s best-selling book Blue Ocean Strategy, everybody is competing in the ‘red ocean’ – the known market space rather than creating an unknown market space, untainted by competition known as the ‘blue ocean’.
