Hyper-competition

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Hyper competition ( English Hyper Competition ) is by Richard A. D'Aveni a market situation in which intense competition on the basis of created fast competitive advantage prevails, which can be just as quickly lost again. Such conditions are typically found in fragmented markets .

The causes of such competition are mainly due to the constantly changing market barriers , the increasing number of competitors on the market, the shortening of product life cycles and product innovations by providers who are already established on the market .

Such markets represent a major strategic challenge, as competitive advantages weaken quickly and are not sustainable. As a result, frequent strategy changes are required. The “golden strategy”, which secures a competitive advantage in the long term, does not exist and cannot exist. The competition is developing into "hyper-competition", a competition that is "above the usual level" in which the business environment unfolds extremely dynamically.

Emergence

Economists have been discussing the importance of the market structure, which is influenced by the driving economic situation of an economy, since the 1990s. Above all, the significance of innovations to changes in the static market equilibrium towards dynamic competition is increasingly coming to the fore. Dynamic competition and the pursuit of innovation and imitation was already known by Joseph Schumpeter as the process of “ creative destruction ”.

The American management researcher and professor of strategy Richard A. D'Aveni, who in 2007, 2009 and 2011 by The Times , CNN , Forbes , The Times of India and Harvard Business Review in the Thinkers50 list, a ranking of the 50 most influential current Management Thinker of the World, expanded with this concept the "creative destruction" according to Schumpeter.

The hallmark of hyper-competition

D'Aveni described some of the characteristics of hyper-competition:

  • Expiration time of competitive advantages
In hyper-competition, the time during which one enjoys the competitive advantage in the market can end abruptly. As a result, companies have to constantly question their existing competitive advantages and possibly forego them in order to gain advantages over other market participants. This means that the existing products can be replaced by new products. 
The effectiveness of the market barriers only lasts as long as the competition perceives them to be effective or as a hurdle. It is often possible that existing market barriers can be overcome if the competitors are primarily targeting these. 
  • Surprising action in competition
In hyper-competition, companies have to act extraordinary and resourceful. This means that a company's next action cannot be foreseen by its competitors. If you think too simply, the next action is easy to anticipate. That is why companies should always act surprisingly. However, the unpredictability should not lead companies to "act too crazy". 
  • Decreasing importance of long-term planning
In hyper-competition, conventional, long-term planning, which requires long-term competitive advantages, is no longer given. If you look at a longer period of time, this form of planning does not provide any security. 
If one only concentrates on the weaknesses of the competitors in the market, this can be flawed, as the competition could convert their weaknesses into strengths. Because of this, diagnoses from SWOT analysis can give a semblance to market participants leading to erroneous decisions in hyper-competition. 
  • Permanent search for opportunities and opportunities
Market participants must constantly look out for new options, possibilities and opportunities in order to be able to assert themselves against other market participants. Nevertheless, it is becoming more and more complex to better face the competition.

Differences between traditional competition and hyper-competition

The hyper competition shows a change compared to the traditional competition.

Traditional competition ... Hyper competition ...
focus ... focuses on the behavior of current and potential competitors. ... focuses on customer behavior, the product usage environment and other successful companies
Market rules ... plays according to the usual rules of market activity. ... is looking for innovative, unconventional rules and new opportunities.
innovation ... achieves innovation through product renewal or product improvement. ... achieves innovation by renewing the business model and value creation.
strategy ... wants to achieve long-term competitive advantages. ... wants to achieve temporary advantages over the competition.
openness ... is open to the entire control of the value chain . ... opens up networking with the best component suppliers in a value chain.
resources ... uses capital and size as a priority. ... primarily uses know-how , innovation, networking.
Strategy topics ... primarily pays attention to opportunities, risks, strengths, weaknesses, effectiveness, market shares. ... primarily pays attention to aggressiveness, innovations, positioning, attention, branding, design and agility.
Representation based on Ralph Scheuss

Competitive fields

In hyper-competition, companies should consider four areas of competition so that there are opportunities for them to develop profitable businesses. Furthermore, there are various escalation levels in these four fields, which lead to the competition becoming more dynamic and intensifying. The competition intensifies on each arena and then moves on one arena. This is where the debate resumes. Companies focus primarily on the competitive arena of price and quality until all possible strategies have been thought out in this arena. Then they go to the next scene. The competition venues are run through in the following order:

1. Price-quality competition

Customers are not out to find the cheapest offer, they are looking for an ideal solution at the lowest possible price. Accordingly, competition for the goodwill of consumers takes place in this competitive field. An "advantage" results from a better subjective benefit and a clearly visible increase in value for the consumer. 

2. Know-how competition

Once all options for action in the cost and quality competition have been tried, the market participants go to the know-how competition. Here, innovations are used to constantly outperform the competition. 

3. Foreclosure competition

In this arena, companies that are already established on the market set up market barriers in order to make entry difficult for new competitors or to prevent them entirely.

4. Resource-based competition

In the final round of competitive escalation, financially stronger companies use their resources to force smaller, unwanted competitors out of the market. The smaller companies can file antitrust lawsuits to protect themselves from such attacks.

Key elements

According to D'Aveni, if a business model is in hyper-competition, radical strategic measures must be pursued. Successful strategies have to create surprise effects and confuse market participants. The dynamic strategy approach consists of seven key elements and is the prerequisite for successfully shaking the market equilibrium:

1. The superior satisfaction of the needs of customers and other stakeholders

The needs of the consumers have to be looked after better than the competition. In order to be able to achieve this, the reaction to customer needs must be very quick and detailed. A very close relationship with the customer has to be established.

2. Strategic fortune telling

Market participants have the task of anticipating what customers want, because customers are not always able to say what they want next. Strategic fortune telling doesn't just involve predicting the trends for the future, however. Companies also have to control these trends themselves through technological developments and foresee the behavior of competitors.

3. Positioning in the market as a fast competitor

In order to gain an advantage in hyper-competition, companies have to shape the decisions and actions of their strategic considerations very quickly and actively.

4. Use of surprise effects

The main focus of the concept is on the surprise effects. Through these effects, companies can succeed in confusing their competitors, increasing their awareness and thus creating a head start.

5. Change of the usual rules of the game

The usual rules of the game must be called into question. This gives companies room to maneuver and think about new concepts. If you question your habits, advantages can arise from profitable innovations.

6. Signaling of strategic intentions

“Signal” here means the announcement of the new strategic intentions. Market participants in hyper-competition use these signals strategically in order to demonstrate the desired market situation early enough and to make it clear to potential competitors that they will protect their market from attacks. Hyper-competitors announce their aggressive behavior towards competitors in order to unsettle them and prevent market entries.

7. Simultaneous and sequential strategic advances

By means of simultaneous and sequential strategic advances, hyper-competitors try to paralyze, irritate, confuse or even trick their competitors into making mistakes.

Market participants who deal with the system concept learn how to compete, namely by further increasing the competition. Market participants destroy the competitive advantages of their competitors with new ideas and thus make them feel insecure. Aggressive behavior and fighting spirit must be incorporated into the company. The aim of the concept is not to achieve the desired position on the market and to hold it there, but to push the competitors out of the competition. Companies that do not compete in this competition cannot win.

Examples

The smartphone industry is a prime example of hyper-competition. Here the barriers to market entry drop considerably. The reason for this are patents , which are becoming less and less important as lawsuits between competitors are often unsuccessful. The product life cycle is short and imitation is increasing. Competitors must constantly be on the lookout for new innovations and question their current competitive advantages.

The smartphone manufacturer Blackberry entered the market in 1999 and particularly impressed business people with its high security standards. Until 2009, Blackberry had developed several successful smartphones, continuously increased its market share and positioned itself as the second most successful company in the smartphone industry after Nokia . In the following years the innovations were lacking and the successful manufacturer had to expect a loss of between 950 and 995 million dollars in 2013. Numerous jobs had to be cut and the share price fell 17 percent.

Another example from this branch is known from the market participant Nokia from Finland. Nokia invested all its resources in legacy mobile telecommunications and pursued a long-term planning strategy to defend its position as the market leader. Nokia realized too late that smartphones had created a whole new market and lost market share as a result.

These examples are intended to illustrate that even for large market players who are used to success, such as Nokia or Blackberry, competitive advantages from the past are no guarantee of future profits.

criticism

It was criticized that, according to D'Aveni, no long-term competitive advantages could be achieved in hyper-competition, but only the option between an escalating, aggressive and destructive corporate strategy and that of a company leaving the market. Reference is often made here to the (corporate) ethical consequences of such behavior.

It is also criticized that the concept of hyper-competition neglects the possibility of “working together” as a sensible, strategic action for companies.

See also

Individual evidence

  1. ^ Robert M. Grant: Contemporary Strategy Analysis - Concepts, Techniques, Applications . 3. Edition. Blackwell Publishers, Malden 1998, ISBN 978-0-631-20780-1 , pp. 72, 257 ff .
  2. ↑ Oliver Siegler: The dynamic organization . 1st edition. Deutscher Universitäts Verlag, Wiesbaden 1999, ISBN 978-3-8244-0449-0 , pp. 17-19 .
  3. ↑ a b c Ralph Scheuss: Handbook of strategies . 2nd Edition. Campus Verlag, Frankfurt / New York 2016, ISBN 978-3-593-39632-3 , pp. 342 .
  4. ↑ a b Susanne Weber: Fernuniversität Hagen Wirtschaftsphilosophie I, 2000/2001 Social philosophy of economic action, innovation and “creative destruction” (JASchumpeter). (PDF) pp. 5–9 , accessed on June 21, 2017 .
  5. ^ Richard A. D'Aveni - The Tuck School's Iconic Professor. Tuck School of Business at Dartmouth, accessed May 18, 2017 .
  6. ^ Richard A. D'Aveni: Hyper competition . 1st edition. Campus Verlag, Frankfurt / New York 1995, ISBN 3-593-35225-7 , pp. 17 .
  7. ^ A b Roland Eckert: The challenge of hyper-competition in competitive arenas . 1st edition. Springer Gabler, Wiesbaden 2016, ISBN 978-3-658-11263-9 , pp. 2, 25 .
  8. ^ Richard A. D'Aveni: Hyper competition . 1st edition. Campus Verlag, Frankfurt / New York 1995, ISBN 3-593-35225-7 , pp. 63-215 .
  9. ↑ a b Stuber: The smartphone industry - innovation as a success factor. (PDF) 2013, pp. 1, 17 , accessed on June 25, 2017 .
  10. ↑ Klemens Gaida: Founding 2.0 Successful business incubation with new Internet tools . 1st edition. Gabler Verlag, Wiesbaden 2011, ISBN 978-3-8349-3061-3 , p. 61-62 .
  11. ^ Roland Eckert: Business Innovation Management . 1st edition. Springer Gabler, Wiesbaden 2017, ISBN 978-3-658-13455-6 , pp. 4 .