The Transient Competitive Landscape- Competing with the UCOs

Marketers need to bring out the telescopes and search for UCOs (Unforeseen Competitors) far beyond their current horizons. Why Unforeseen? Because companies are not likely to know what or who they are searching for. In today’s VUCA world, competition is not solid ground which you can map, study and attack, but it is instead a world of shifting sands where advantages are transient and the opponent unknown. The basis of marketing strategy has always been about defining and understanding your target customers. Today increasingly the basis of survival strategy is also about finding your target competitors. Or at least locating the source of potential competition. But of course this is easier said than done.

In a world where shorter product life cycles and transient competitive advantage are becoming the norm, competitive strategy is no longer a regular game of chess with long standing opponents. It is more like relay chess where you start off with one competitor and a well thought out strategy but suddenly after a few rounds the competitor changes and so do the rules of the game.

Traditionally companies focused on honing their competitive advantage over the long term and using it to satisfy customers better than competition. Today long term competitive advantage could be looked at as an oxymoron in some cases, because in order to have a sustained competitive advantage you may need to keep changing your competitive advantage. Your initial advantage could be bettered by someone else in a short span of time or worse become redundant. Besides being nimble enough to anticipate and counter competitive moves, companies need to be somewhat paranoid and watchful to spot future completion which could turn the whole game around. When they fail to recognize the threat by players outside their own industries/ecosystems, they carve the path for their demise.  A good illustration of this is given by the hard drive manufacturers. While they focused on making better storage products, cloud storage companies like DropBox came and conquered the file storage and sharing business.

  Another oft cited example is Kodak, which for years had an edge in chemical and film technology which it leveraged to dominate the camera and film market but when film itself became redundant being the best in film did not help Kodak survive. That competitive advantage held strong only against film competitors and traditional camera manufacturers. Instead of focusing on the consumer need for capturing storing and sharing images, Kodak focused only on strengthening their original competitive advantage even though the advantage itself was losing relevance. The death blow came from the digital and online players who Kodak had technically not considered their competition.

Today the distinction between industries is even more complex and blurred. So if we look at the smartphone manufacturers, who do you think should perceive them as competition? Certainly all mobile handset manufacturers but also makers of watches, cameras, computers, music players, TV and some more. The mobile handset companies are closely watching each other, the digital camera companies are already too late, and the rest need to add/modify their competitive advantage if they wish to stay in the game.

The concept of defining your market basis customer needs and not on the basis of your product/service is not new. Marketing Myopia propounded by Levitt as far back as the 60’s first brought to the fore this lesson. He highlighted that for companies to ensure continued evolution, they must look for growth opportunities and not growth industries. The basis for strategy has to be customers’ needs and desires and not the presumed longevity of their products.bOther frameworks like Vulnerability analysis also urged companies to identify the key underpinnings of their business and plan for disruptive forces which could alter or shake these underpinnings. More recently Blue ocean strategy focused on redefining industries and recreating the value curves.

Building further on these concepts, Rita Mc Garth brought the spotlight on transient competitive advantage highlighting that in a world where a competitive advantage often evaporates in less than a year, companies can’t afford to spend time crafting a single long-term strategy. To stay ahead, they need to constantly start new strategic initiatives, building and exploiting many transient competitive advantages at once.

If we look at the automobile industry today, competitive threats are emerging from online aggregators like Uber and Ola. They also face competition from alternate vehicles, public transport and car pooling. Recognizing that its focus should be enhancing mobility and convenience for customers rather than selling cars, Volkswagen launched a new digital business division (MOIA) in December 2016, to take on services such as Uber, by catering for customers who prefer to pay for use rather than own a vehicle. It plans to offer on-demand shuttle services in 2017. Earlier in 2016, VW had invested in ride-hailing business Gett. And VW is not the only one to go beyond selling cars. Daimler and BMW had already initiated their own car sharing operations. In a recent article in Fortune.com, VW Chief Executive Matthias Mueller was quoted as saying that even though not everyone will still own a car in future, MOIA can help make everyone a customer of VW in some way or another. Recently there were also talks about a possible VW collaboration with Uber.

So Uber which is not part of the automobile industry and till very recently was not even a dot on the competitive landscape for VW, has now in a short span of time emerged as a key competitor and possibly also a collaborator. Technology firms like Google and Apple are also now an intrinsic part of the competitor/collaborative landscape for automobile companies.

Banks today face competition not only from other financial institutions but also from retailers offering easy payment and financing options, digital wallets/payment apps, and mobile service providers. Airtel Payments Bank launched on the back of the Airtel telecom network in India, plans to develop a pan-India banking network and digital payments ecosystem. Though Payments Banks by definition will have a limited scope of activities, they would still be a challenge for the traditional banks. Given Airtel’s reach, it can serve customers with significantly lower costs, which traditional banks may not be able to compete with.

So banks are doing what Rita Mc Garth has advised, developing multiple transient competitive advantages. State Bank of India (SBI) is taking on mobile wallet player Paytm with their own payment app. Kotak Mahindra bank Ltd. went with the philosophy of ‘when you can’t beat them, join them’, by tying up with Bharti Airtel Ltd. in an 80:20 joint venture to form the Airtel Payments Bank, turning a potential competitor into a collaborator and ramping up their own competitive advantage in the process.

As pointed out by Dawson, Hirt and Scanlan (McKinsey Quarterly, March 2016), companies can no longer survive by relying on existing barriers to entry like infrastructure requirements or regulatory protection. User demand can bring about changes in the regulatory framework, competitors can share expensive infrastructure, or simply sidestep the need by developing alternate means of producing and delivering value to consumers.

To compete successfully in a world of transient competitive advantage firms have to be willing to let go of the advantages which led them to success and discover newer sources of differentiation and value addition to the customer. Clinging onto past strengths when they are no longer relevant will lead to fighting a losing battle. It would be akin to fighting with swords against machine guns. The strategies which led the Mughals to success in conquering large part of India failed against the European invaders. With new competition come new rules and quicker the firms are to adapt and evolve and shed their old skins, the higher would be their chances of success.

A company like Nokia which clung onto its strategy in the mobile handset business for too long, caved in completely and moved from being market leader to a has-been, in virtually no time at all. However, they did eventually change strategy and jettisoned the telecom handset business where they had lost competitive advantage, and focused instead on the telecom network service business. In 2012 Nokia bought back half of Nokia Siemens Networks and subsequently also purchased its competitor Alcatel-Lucent, to become one of the world’s largest telecom network service providers. IBM has over the years transformed from a leader in the computer hardware space to completely focus on software and on demand services. Xerox once synonymous with photocopying has developed into an information management and communications company.

As cited earlier, on demand storage service providers like Dropbox had displaced the hard drive storage companies. The new industry grew rapidly and today it has an estimated 100+ players. However as per Gartner’s Magic Quadrant report (2016), 70% of EFSS (enterprise file synchronization and sharing) vendors will cease to exist by 2018, and the 30% that survive would do so in a new avatar providing providing support to digital workplaces or modernizing corporate data infrastructures.

When the strength of the competitive advantage reduces as competitors catch up, the firm needs to jump ahead by innovating, redesigning or reconfiguring its competitive advantage. In case the competitive advantage becomes redundant then the firm needs to jettison it and move onto focus on alternate sources of value which may or may not be from the same industry.

Successful disruptive entrepreneurs have often opined that just as they spelled the end of some traditional products/services with their innovations, they also expect to be hit in the future by unknown or unforeseen potential competitors. How then do we spot potential competition and redraw our competitive advantage?

Competition can only step in if there are value gaps for the customer. So the best source of spotting potential competition is the customer. You may be vulnerable to competitors from outside your industry/ eco-system when gaps exist in how the consumer buys, consumes and experiences your product/service, or the context/technology /consumer preferences evolve, leading to such gaps. Minor cracks in the customer landscape are sometimes all the signal the marketers are likely to get. It depends on the marketer whether these cracks are papered over, or whether a new foundation is developed to solve the root problem. Cracks could be a result of varying factors like information asymmetry, lack of customized options, cost or time issues due to intermediaries, integration with related products and services, flexibility in usage, etc. If the marketers are in tune with the customer’s pulse, they will be able to anticipate potential gaps and take steps to rejig the value delivery to the customer.

To conclude, marketers definitely need to get out the telescopes and periodically scan the far skies for UCOs (unforeseen competitors) but most importantly they need to keep a magnifying glass on the customer and zero in on any cracks before the UCOs can use them as an entry point.