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October 4 , 2004
'Hypercompetition': Competitive advantage at its fastest

 

BY joe torre

Welcome to the brave, new business world—one of “hypercompetition,” where the competitive advantages firms enjoy today may vanish with breathtaking speed and frequency.

In a paper titled “The Rise of Hypercompetition in the U.S. Manufacturing Sector, 1950–2002,” researchers L.G. Thomas and Richard D’Aveni say the phenomenon is rapidly spreading across the United States and the globe. Thomas, professor of organization and management in the Goizueta Business School, presented their findings at the recent Atlanta Competitive Advantage Conference held at Goizueta.

According to Thomas and D’Aveni (professor of strategic management at Dartmouth College’s Tuck School of Business), hypercompetition is “an environment characterized by intense and rapid competitive moves, in which competitors must move quickly to build new advantages and [simultaneously] erode the advantages of their rivals.” Some analysts say hypercompetition is “high-velocity competition” because of the speed of technological change.

“Although there are still a few non-monopoly firms that have unique, valuable, inimitable resources leading to sustainable competitive advantages, it appears that the bigger issue is how firms can prosper by using a series of short-term advantages,” the authors wrote. “Either that, or escalate rivalry to create growth and shareholder value through constant creative destruction, rather than to seek the ‘holy grail’ of sustainable competitive advantage and profits earned without intense rivalry.”

The authors found that the hypercompetition juggernaut is driven by numerous forces, including extensive globalization, more appealing substitute products, more educated and fragmented consumer tastes, deregulation, and the invention of new business models. These contribute to falling entry barriers, rapid destruction of established competitive advantages, dethronement of industry leaders, and undermining of long-established national oligopolies.

In addition, hypercompetition frequently is set in motion by innovations that develop outside an industry by suppliers or consumers, government regulations or the entry of foreign competitors. The phenomenon is reshaping the way firms do business because competitive advantages tend to be so short-lived in a hypercompetitive context, they wrote.

“Achieving and sustaining a competitive advantage,” Thomas said, “may mean that the best strategies for winning will be short-term and constantly revised.”

The pair’s recent analysis further supports the concept of using “un-sustainable competitive advantages to reinvent a firm’s corporate strategy incrementally.” In other words, forget about trying to create sustainable competitive advantages; in a hypercompetitive world, sustainable advantages are both too costly and soon ineffective.

Therefore, the co-authors say, the best strategy for winning is to develop an endless series of strategically unsustainable advantages—and to be ready to replace those advantages as soon as they become ineffective with newer unsustainable advantages, and on and on. Hit-and-run, guerilla-like tactics, such as staying one step ahead of rivals and going around them, may be far better than head-on confrontations.

“It is striking how the temporary component of competitive advantage has been ignored,” Thomas said, “probably due to a focus by the strategy field on sustainable advantage.” To succeed in the throes of hypercompetition, firms must perform strategic actions with Olympian speed and focus.

Although most studies claim hypercompetition is a relatively new phenomenon, emerging in the late 1980s to early ’90s, Thomas and D’Aveni claim it began to appear in the manufacturing sector in the 1960s. Their research on overall manufacturing from 1950–2002 revealed the proportion of industries that demonstrate hypercompetition is increasing steadily.

The co-authors back up this hypothesis with more than 50 years of accounting data from every publicly listed manufacturing firm in the U.S. economy. In the most globalized parts of the U.S. economy, they found, the number of industries experiencing the high volatility of hypercompetition has grown from “almost zero in the 1950s to 25 percent by the 1970s and 75 percent by the 1990s.”

Whether other business sectors will witness the same competitive excess remains to be seen, they said, creating a huge area for additional research. Clearly, globalization in the service sector is a strong indicator that it too may be undergoing a similar shift.

This article first appeared in Knowledge@Emory (www.knowledge.emory.edu) and is reprinted with permission.

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