The Era of ‘stealth’ competition

The knowledge economy and society is the perfect environment for a new competitive advantage strategy and theory. Michael Porter’s 1980s doctrine is not sufficient anymore. These new competitors came from outside your rivalry landscape. They emerge by surprise based in knowledge and innovation, not competing based in the traditional generic strategies of product or service you learn from Porter’s Competitive Strategy – differentiation, cost-based leadership and focus.

You have to understand why and how they migrate from one sector to another (yours) to emulate them or to deal with this new threat. You have to map your competitive position based on knowledge and innovation, not on traditional product/market position. Organizations that may not appear to be your competitors – because they make different things or sell to different markets – may in fact be your knowledge competitors because they share the same knowledge as rivals or innovation competitors because they innovate and learn in a similar manner, despite you do not know.

PROFILE

Michael H. Zack is Executive Faculty Director, Online Graduate Programs and Associate Professor of Information, Operations and Analysis, at College of Business Administration, Northeastern University, Boston. He got a DBA in Management Information Systems, from Harvard University and a MBA in Finance, Business Policy, and MIS, from Northwestern University-Kellogg. He has a BS in Management Engineering, from Worcester Polytechnic Institute. He co-authored an article at MIT Sloan Management Review about the stealth competition: «Integrating Innovation Style and Knowledge into Strategy» (SMR, Fall 2008, vol.50, no.1, pp 53-58). He is under contract with Financial Times to write a book on knowledge strategy to be completed during 2009.

INTERVIEW

Like the American stealth aircrafts (the Nighthawk or the Raptor), the stealth competitors use its completely different product or service positioning to make it harder to be detected by the traditional market radars of incumbent companies. They surge from the unknown to compete based in its knowledge base, learning capabilities and innovation expertise from an industrial or service experience in completely different markets. The incumbents are «shot» by surprise – sometimes they even do not know the existence of these new comers… until they appear in the incumbents’ market with killer innovations.

The new competitors brought rivalry from outside the box. That’s why they are very dangerous and successful most of the time. That’s why Professor Michael Zack proposes defining competitive positions “based on what organizations know, not on what they make”. We have to define a strategy and work based on knowledge positions. Also we need to understand that managing knowledge is not a mere operational issue – it is a strategic one.

Q: What’s wrong with the traditional definition about corporate strategy from Michael Porter?

MZ: There is nothing “wrong” with Porter’s approach to strategy, and his work has had perhaps the most significant impact on how we think about strategy. His framework does have some limitations however. The economics on which Porter’s work is based was developed at a time when physical, tangible resources and goods dominated. Today, information and knowledge are the key resources and goods being produced in most economies. Porter’s work is based on the notion of competitive positions, defined by the goods or services an organization produces and the markets it serves. However, to produce a product or serve a market, an organization has to know some things, and know them better than competitors. Products are just the tip of the iceberg when it comes to positioning. They are the visible, tangible realization of an organization’s product/market position. But, like an iceberg, most of what is important lies below the surface, out of the sight and too frequently out of mind. Knowledge is the thing that enables an organization to produce those products.

Q: And what’s your proposal?

MZ: I have proposed defining competitive positions based on what organizations know, not on what they make. I call these knowledge positions. Similarly, Porter raises the issue of barriers to entry – that is, how can industries keep new organizations out so existing organizations can protect their markets. Traditionally barriers have been based on tangible factors such as economies of scale. I propose that we can also define barriers to entry based on what an organization needs to know to participate in an industry. Porter raises the issue of first-mover advantage -the first organization to control a physical resource (e.g., a high-traffic location for a retail store) gains an advantage. I propose that there can also be a first-learner advantage – the first organization to learn something useful gains an advantage. So while Porter’s work is not wrong, there are ways to redefine the concepts for the knowledge economy, and this is what my work focuses on.

Q: Knowledge and its correlated potential is today more important than the rest for a unique competitive position?

MZ: For a resource to be “strategic” first it has to be unique – if everyone has it, it provides no advantage. Next, it has to have value that can be exploited and captured in the market. If not, then it provides no economic advantage. And finally it has to be defensible. If it can be acquired, copied or substituted for by competitors then it provides no advantage. Most resources don’t fully pass this test. Most organizations have similar buildings, use the same electricity, can purchase the same machinery, hire from the same labor pools. What is really unique and hard to copy is what they know about how to configure and use those resources to create unique and profitable products that customers want to buy. All drug companies can purchase the same chemicals, but that does not mean they each know how to combine them to come up with the most effective drugs. The same holds for cement companies or consulting firms. What an organization knows and can learn ultimately will distinguish it from its competitors.

Q: Smart diversification based in knowledge unique characteristics may be the best chance for companies in the present turmoil?

MZ: In today’s difficult economy, I would expect that companies that know the most about their markets – that is, what do customers truly need in this down economy, and on what are they willing to spend their limited budgets – to perform the best. Also, companies that know how to get the most out of their financially limited organization will have a better chance of survival. Toyota and Honda will continue to sell cars in America, while General Motors is on the brink of bankruptcy. Some companies know what the market wants and how to provide good value; others are struggling in this regard. Your organization should ask, how much do we know about helping ourselves and our customers to become more efficient, effective, creative, and flexible, to help survive the economic downturn and position for growth when things improve?

Michael Zack: «All of these cases represent competitors that were unusual or not on the traditional industry’s “radar screen.” They may not have been making the same product or providing the same service initially, and were therefore not as visible as traditional competitors. But they knew enough to enter the industry and in many cases begin to dominate.»

Q: The worst threat may come from “stealth” competitors?

MZ: Stealth competitors are those companies who make different things or sell to different markets than your organization – and therefore do not appear to be competitors – but know the same things as your organization and therefore could enter your markets if they wanted. My favorite example is when the food industry started to produce medically-oriented foods such as cholesterol lowering “butter.” It turns out that food processors and pharmaceutical firms have a significant overlap in what they know. Yet pharmaceutical firms would not have considered food processors to be competitors. As another example, take digital photography. Many traditional analog film and camera companies did not consider consumer electronics firms like Sony or HP to be competitors, yet the electronics firms knew as much about imaging (using digital technologies) as the traditional companies did.

Q: How the incumbents in that sector reacted to that alien invasion?

MZ: Canon, having a presence in digital technologies already, was ready to make the transition. Nikon’s expertise in optics, plus its experience developing television cameras and digital scanners enabled it to make the transition as well. In contrast, Polaroid went out of business and Kodak has been struggling to catch up.

Q: Can you give other examples?

MZ: For instance in Heath care – Hospitals unexpectedly find themselves in competition with “retail clinics” (Wal-Mart, Target, CVS Pharmacies, etc.). These clinics are competing based on their superior knowledge of delivering services at the retail level, as well as a wealth of knowledge about the patients, in the case of pharmacies. Hospitals are also competing with resort-style health spas based on the spas’ knowledge of alternative health care programs as well as superior knowledge about the hospitality industry.

Q: In the financial world, in great turmoil today, have you examples of that kind of stealth competition?

MZ: As banks and investment companies outsource more and more of their operations, it might not be surprising to see a major outsourcing company begin to take deposits and compete based on their superior knowledge of bank operations. Also knowledge of electronic commerce, managing digital content, and building web-based technologies is providing a powerful means for stealth competition. Savvy web entrepreneurs have created consumer-to-consumer

lending organizations where one person can lend directly to another, competing with traditional financial institutions. Others have set up web sites where people can invest in the career of another person, for example by funding their education, for a share of that person’s future earnings, again competing with the lending arm of traditional financial institutions.

Michael Zack: «A stealth move by Apple would not be out of the question.»

Q: We can apply the same reasoning for the media and entertainment sectors…

MZ: Many web entrepreneurs compete with traditional media companies based on superior knowledge of managing and distributing digital content. Broadcast networks will be under pressure by stealth competitors or narrow cast content directly to an individual’s laptop computer. Web-based music distributors are challenging traditional music labels. All of these cases represent competitors that were unusual or not on the traditional industry’s “radar screen.” They may not have been making the same product or providing the same service initially, and were therefore not as visible as traditional competitors. But they knew enough to enter the industry and in many cases begin to dominate.

Q: Is Apple a stealth competitor?

MZ: I don’t see Apple as a stealth competitor at this point. They may have been when they first introduced the iPod. Clearly this caught the music industry by surprise. But today all eyes are on Apple all the time. Although they may know some things about product design and customer needs that are not apparent to competitors outside their traditional markets. So a stealth move by Apple would not be out of the question.


Books from Michael Porter: Competitive Strategy: Techniques for Analyzing Industries and Competitors (1980) and Competitive Advantage. Creating and sustaining superior performance (1985).

2 Responses to “The Era of ‘stealth’ competition”

  1. […] Os competidores ‘furtivos’ são uma das novidades da concorrência que alteraram as regras do jogo a que estávamos habituados desde que o guru da estratégia Michael Porter nos anos 1980 traçou as linhas de como qualquer empresa se pode posicionar com vantagem num dado mercado. “Concorrentes furtivos são aquelas empresas que fabricam coisas diferentes ou vendem para mercados bem distintos do que os seus – e que, por isso, não surgem aos seus olhos como concorrentes – mas que têm conhecimentos similares aos seus e, portanto, poderão entrar no seu mercado se quiserem”, diz-nos Michael Zack, professor no College of Business Administration da Universidade de Northeastern, em Boston, e que é um especialista em estratégia baseada no conhecimento. A entrevista em inglês pode ser lida aqui. […]

  2. Why visitors still use to read newss papers when in this technological globe the whole thing
    is presented on net?

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