Incumbents focus on defense business strategies, but they forget about new entrants

Drizzt:

I always had interesting conversation with a colleague of mine regarding why Apple was able to so dominate the incumbents.

His focus is always that the incumbents will need to place a large focus on innovation.

My case is always that the incumbents have their hands pretty much tied because they have a very different battle. They need to battle each other based on cost and market share. There is too much of a risk cannibalizing their own product.

Harvard Business Review have a good article on this:

For a long time, Ford, Chrysler, and GM followed the same strategy: they built big gas-guzzlers. Asian competitors attacked that model, took market share, and transformed the U.S. automobile industry.

Also for a long time, Yahoo and AOL offered email customers 4MB of storage. Google came out with Gmail and provided a free 1GB email account (250 times as much). Many switched.

In both cases, the new entrants attacked a reliable business model and disrupted a market in which the incumbents competed by cooperating, tacitly agreeing to procedures that ensured that the industry as a whole remained continuously healthy. Indeed, terms like “win-win” and “coopetition” are very common in our contemporary business lexicons. But in many cases, firms fail to separate the necessity of preserving their industries from developing individual survival strategies. They become docile and follow one another. From wireless carriers to broadcast TV, casinos to airlines, we often see an ordered communality within industries. They move in packs regarding features, services, and prices.

This carries a major risk: an entire complacent industry can be attacked from the outside. It’s not easy, but when it happens, it often reshapes an industry, with major consequences to the old players. In his classic “The Five Competitive Forces That Shape Strategy“, Michael E. Porter showed how you don’t see much innovation when “degree of rivalry” is very low in an industry. Why? Because the entrenched players are depending largely on a communal strategy. Industries where the players are not innovating are easily disrupted by new entrants.

Industries cannot drive consumers as easily as they used to. The customers have more information and exert much more influence in the market. Technology disrupts our needs a lot faster and makes it possible that trends arrive and fade quicker. This is in line with my earlier post that focusing on customer needs is a recipe for disaster; rather, firms must focus on meeting the perception of customers. As social media, technology, and globalization better inform consumers, firms must resist the urge to herd.

[Read full article @ HBR >>]

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