Leading Your Competitors

Competition is not limited to organizations providing the same service or selling the same products.

Your business, and every team within it, must have a source of competitive advantage--an overriding reason why customers will want to do business with you rather than a competitor. Understanding, identifying, creating, and sustaining competitive advantage is at the heart of good strategy.

Competition is not limited to organizations providing the same service or selling the same products. Much of your competition may be indirect. For example, for the strategic manager of a bowling alley, another bowling alley in town is a direct competitor. However, bowling is a form of family entertainment, so that manager also needs to consider competition from the movies and the local pizzeria. The leader of a team within an organization will be in direct competition with other teams within the organization that can provide the same service, but will face indirect competition from external companies that could also provide the is service.

ACTION POINT: Identify who your direct and indirect competitors are and develop a competitive advantage against them.

Teach Managers How to Think, Not What to Think

But instead of teaching him what to think, I taught him how to think, and he could reach his own conclusion.

An engineer in the middle of Intel read an early academic paper that we’d written on the subject of disruption. She said that after she read it, she looked down at the bottom of the microprocessor market and there was Syrex coming at Intel. Syrex had already picked off the entry-level computer business—the processors in those entry-level computers—and they were coming up. Intel was fleeing up-market.

I knew nothing about the microprocessor business, but she arranged, through a series of events, ultimately to give me a meeting with Andy Grove, the [Intel] chairman, and his executive staff. That was a once-in-a-lifetime opportunity for a no-name professor like me.

Grove is a very down-to-earth business sort of guy. He said, “Just give me ten minutes and tell me what this means for Intel, and we’ll be on to other stuff.” I said, “Andy, I can’t do it in ten minutes; I need thirty. Let me describe this mode of disruption that’s emerged from my research, and then let’s talk about what it means for Intel.” He sat back impatiently. I said, I’d like to describe how this process of disruption worked its way through a very different industry than microprocessors, and then we’ll talk about Intel. So he sat back impatiently again.

I decided to tell him the story about how in the steel industry, steel minimills had picked off rebar at the bottom of the market and then had moved up-market, and the integrated steel companies had retreated to higher and higher margin products. I picked steel because it was very different from microprocessors, so Andy wouldn’t get confused at all, but in many ways it was a perfect analogy to what I thought was going to happen in microprocessors.

When I finished telling the story about steel, Andy said, I get it. So what it means for Intel is…” And he got it. I’ve thought since, if I had been suckered into telling Andy Grove what I thought he ought to do in the microprocessor business, I would have just been crucified. There’s no way I would have the knowledge to overpower his wisdom about that business. But instead of teaching him what to think, I taught him how to think, and he could reach his own conclusion. Once he reached his own conclusion, I didn’t have to convince him.

Rarely do successful companies get crippled because a company comes into their market with a better product. Instead, competitors come in with a simple, inexpensive product that caters to the least-demanding customers, and then they move up-market.

ACTION POINT: Don’t underestimate the down market competitor.

Teach Managers How to Think, Not What to Think

This is called Disruption.



Clayton Christensen came back to academia as a forty-year-old doctoral student. He developed this model from his research that showed that what cripples successful companies is rarely that somebody comes into their own market with a better product but rather that somebody come in at the bottom of the market with an inexpensive, simple product that caters only to the needs of the least-demanding customers. And then they move up.

What we showed is that, over and over again, when a well-run company focuses on listening to its customers and investing where profit margins are most attractive, those paradigms of good management that they follow help the leaders move up market but paralyze them when somebody comes from down below. And they just can’t attack below.

Toyota attacked the American market, not by making Lexus’s, but with this crummy, little, rusty subcompact model called the Corona in the 1960’s Then they moved up market to Tercels, Corollas, Camry’s, Avalon’s, and Forerunners. And then they make Lexus’s.

Every once in a while, the leaders in the industry—GM and Ford—would look down at Toyota coming u at the and say, “We ought to go compete against those guys.”” And so they’d send down a Chevette or Pinto. But then they’d compare the profitability of a big Ford Explorer or A Cadillac Escalade, and it actually didn’t make economic sense. This is called Disruption.


ACTION POINT: Consider possible disrupters in your marketplace.