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Playing Hardball: Why Strategy Still Matters
By George Stalk, Senior Vice President, The Boston Consulting Group
For a time, particularly during the e-commerce boom, it seemed that strategy didn't matter anymore. The brilliant promise of Web-based business temporarily blinded many managers, academics, and investors to the fundamentals of strategy. Strategy has always been about allocating resources to stimulate customer demand and create competitive advantage. The greater the advantage, the faster a company can grow, the more profitable it can be, and the greater value it can create. But in the first rush of e-commerce a lot of investment dollars and management talent went into ventures that did not have competitive advantage from the get-go - - like Boo, BBQ.com, Lifejacketstore.com -- and were doomed.
The bust of e-commerce reminded everyone, all too painfully, that strategy always matters ? and now more than ever. Competitive intensity is at an all time high as a result of globalization, technology, fragmented consumer groups, and shifting power along the supply/demand chain. Gaining a competitive advantage is harder than ever.
But strategy is being pushed off the management agenda again, not by e-commerce, but by 'managerially correct" demands. Even when managers want to focus on creating and reinforcing competitive advantage, they are increasingly distracted by a plethora of 'soft" issues. They have to deal with intense attention to their corporate governance, recriminations for outsourcing and off shoring, demands to motivate employees in times of increased uncertainty, and unceasing pressure to produce quick results or face replacement.
It is time to put strategy back on the agenda. That's why we wrote Hardball.
The Five Principles of Hardball
Today there are two extremes in business competition. Companies can play softball, relying on weak tactics that look like strategies, but do little more than keep the company in the game for the short term. Or, they can play hardball, employing tough strategies designed to rout, not simply beat, competitors. Which of today's companies are playing hardball? What strategies are they using to win? And what will it take for firms to adopt and execute these strategies successfully?
Hardball players live by five principles:
Hardball players focus relentlessly on competitive advantage. Competitive advantage is something I have that you don't. Too bad for you. But too bad for me, too. When I have the advantage, you are forced to accept defeat or find a way around my advantage to build your own. So, hardball competitors are never satisfied with today's competitive advantage-they want tomorrow's.
Hardball competitors strive to convert competitive advantage into decisive advantage. Competitive advantage, as essential as it is, can be fleeting. That's why hardball players seek to put themselves out of reach of their competitors by building their competitive advantage into decisive, or unassailable, advantage. Decisive advantage is systemically reinforcing. The better you get at it, the harder it is for competitors to compete against it or take it away. And the more likely it is that your competitors will 'pick up their marbles" and leave that particular playing field.
Hardball players employ the indirect attack. When a company makes a direct attack, it does exactly what its opponent expects and is prepared for. The attacker hopes that superior resources and persistence will carry the day. An indirect attack means surprising a competitor with your actions and applying resources where the opponent is least able to parry them.
Hardball players exploit their employees" will to win. To achieve competitive advantage, people must be action-oriented, and always impatient with the status quo. The will to win can be fostered; softball players can be transformed into hardball players. But as your competitive advantage grows, it gets harder to exploit your employees" will to win.
Hardball players draw a bright line at the edge of the caution zone. To play hardball means being aware of when you are entering the "caution zone"-that area, so rich in possibility, that lies between the place where society clearly says you can play the game of business and the place where society clearly says you can't.
Generally, hardball strategies do not require entry into the caution zone. Company leaders are responsible for drawing a bright line that defines the boundary, and for letting everybody know when they're getting close to it.
In rare instances, however, a hardball player will deliberately enter the caution zone. When they do, they must take extra care. Every move must be evaluated in the light of the following questions:
If the answer to any of the questions is "yes," it means the company has ventured too far into the caution zone. The leader must immediately take corrective action.
- Will the proposed action break any laws?
- Will the proposed action be bad for the customer?
- Will competitors be directly hurt by an action?
- Will an action hit a nerve with a special interest group in a way that might damage the company?
- Will the action harm the industry or society?
Six Classic Hardball Strategies
Any strategy that provides a decisive competitive advantage is a hardball strategy. In our book, we describe six classic hardball strategies that have proved, over the decades, to be particularly effective in generating competitive advantage.
Unleash massive and overwhelming force. Although hardball players prefer the indirect attack, they sometimes surprise and overcome their competitors with a full frontal assault. Massive and overwhelming force must be deployed like the blow of a hammer-accurate, direct, and swift. It must not be used until the company is ready to put all its energy behind it. The company must also be certain that the competitive advantage it believes it has is actually available for action.
When a company chooses the direct attack strategy, it may be necessary to completely overhaul its business in order to unleash the force. The process can feel like the turnaround of a successful company, a paradoxical situation that is uncomfortable for entrenched leaders. Only those with vision and courage should engage in this bold, and often very public, hardball strategy. And companies must be careful not to put their competitors out of business and into bankruptcy protection, from which they may emerge stronger than ever.
When the president of Frito-Lay, Roger Enrico, had enough of Eagle Snack's incursion into its customers for salty snacks he, first, slimmed and focused the organization to reduce costs and concentrate investments. He then launched an all out attack on Eagle's stronghold, the supermarkets: increasing promotions and advertising, upping in-store service and where necessary reducing prices. He wrote a check larger than Eagle could afford to match. Eagle crumpled under the assault and withdrew.
Exploit anomalies. Sometimes a growth opportunity lies hidden in a phenomenon that, at first glance, seems irrelevant to the business or contradictory to current practice. But anomalies-such as idiosyncratic customer preferences, unexpected employee behaviors, or odd insights from another industry-can show the way to competitive advantage, even decisive advantage.
When Rose Marie Bravo took over Burberry, the English manufacturer of raincoats that was dead in the water, she noticed that Burberry's sales in Spain were inexplicitly strong. Her interest was piqued because, as she reflected, " It doesn't rain in Spain?" She learned that the country manager had extended the Burberry brand into many other categories. She took this insight to the US, Asia and throughout Europe. Burberry's sales have more than tripled and its EBITDA has increased seven fold.
Softball players want to ignore anomalies or to suppress them because they don't conform to standard practice. Hardball executives, however, relish anomalies. They know there may be opportunity hidden in them and they look for ways to exploit anomalies.
Threaten your competitor's profit sanctuaries. Profit sanctuaries are the parts of a business where a company makes the most money and steadily accumulates wealth. In certain circumstances, the hardball player can influence a competitor's behavior and gain competitive advantage by attacking a competitor's profit sanctuaries.
This strategy is risky. It can take you deep into the caution zone, so each use must be considered on its own legal merits. Also, your competitor is likely to retaliate by attacking your profit sanctuaries. And he may have greater financial resources than you thought, or a "sugar daddy" waiting in the wings to save his hide.
Toyota has overrun its opponents" sanctuaries. The profit sanctuaries of GM, Ford and Chrysler are light trucks and SUVs where they earn between $10 and $15 thousand dollars per vehicle. Toyota now offers equivalent vehicles and has enough cash to give them away if they want to. Instead it is plowing its earnings back into hybrid vehicles and capacity expansions. Toyota effectively controls the strategies of the Big 3 by occupying their profit sanctuaries.