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I was recently introduced to Michael Porter through a book called Understanding Michael Porter: The Essential Guide to Competition and Strategy by Joan Magretta. While Porter is no doubt a seminal thinker in economics, I’d like to raise his thoughts on competition aimed at debunking commonly held notions of the term.
I believe this will be beneficial to both newcomers to his ideas and business strategists alike who could perhaps use a contrary idea to think about competition in a more fruitful (profitable) manner.
The book points out a commonly held misconception about competition – that you have to be the best. The problem is that many business strategies are designed with this notion at the core. However this is a misconception of what competition actually is, and how it works.
This raises mistakes I’ve seen in some startups, and I think it’s important to bring it up now, before the African boom really hits in the next 10-15 years.
Competition to be the best
Be the best. That’s a mind-set they teach, not just in business, but in life oftentimes too. I know I had teachers share this age-old wisdom with me. The way people, and specifically managers, think about competition is with this idea of being the best as the end-goal. “If you’re not going to be the best, why even compete?” Some might say.
What’s interesting here is that this way of thinking is subtly reinforced through the language and metaphors we give to competition in business. As Magretta raises in her book, competition is often thought of as akin to warfare or sports. You have to beat down your rivals and emerge the victor. This kind of thinking is all wrong.
Competition is not about being the single “best” at all, and yet that’s what many companies strive to be. If you were to dissect it, what is “the best” really? My “best” hamburger may very well not be your “best” hamburger, so why are company strategies based around this paradigm?
How you think about competition is going to define how you will compete, and yes, Porter’s definitions do allow space to compete, yet it’s not about being the best, it is about being unique.
The number one aspect about what Porter calls competition to be the best is that it does not sum up business in any capacity. Unlike in warfare and sports, business can have many winners, who can all coexist and thrive (be profitable). Competition is about meeting customer needs, of which there are many, and so many can compete to do just that.
Magretta sums it up beautifully, “The competition to be the best mind-set is a bad mental habit. It is a typically tacit way of thinking, not an explicit model.”
So the first thing is to abolish this notion of “the best,” there is simply no such thing. Startups need to realise that if it sets out with the goal to be the best, it is seeking an impossible target, and one that might even be to the detriment of the company, or even the industry in which it wishes to compete.
Think about it this way – if all competitors in an industry compete with the single goal of being the best, then everyone is on a collision course. It leads to what Porter calls “zero-sum” competition where no one can win. Offerings will converge and one company’s gain will be a loss for another. The last thing an industry wants to do is leave customers with only price as the basis for their choices.
I would argue that this is evident in the mobile phone market. Top-tier smartphones – the newest iPhones, Samsung S-whatevers, HTC, Sony Xperia’s – are all pretty much the same in their hardware. The differences are negligible. They all converged on the same kinds of offerings, this camera with that processor, so how do they compete? Well the Xperia Z is now waterproof, so every upcoming phone on the market has to match that to keep up, it’s great in theory, but it ups manufacturing costs and lowers profits.
The last thing an industry needs is to have all its profitability diminished, and leave companies to buy each other up to reduce the number of competitors in the market.
You might say that at least it’s good for customers. But it isn’t. There may be lower prices, but it is matched with fewer choices. When an industry converges, offerings cater to the average – but this destroys value.
Another thing to keep in mind is that when companies all have the same goal (to be the best), holding a competitive advantage is temporary. If there is no profitability (in a certain business or industry), then it makes it harder to improve value for customers, or keep your competitors at bay.
The biggest problem in all of this, for Porter, is that this “zero-sum” competition has come to dominate management thinking.
So what’s the solution?
Competition to be unique
Strategic competition, for Porter, is about choosing to be different to your competitors. It’s not about being the best, it’s about competing to be unique. Let’s say that again: don’t be the best, be unique.
It’s all about value really. Your uniqueness, what Magretta calls your “cluster of differences,” in the value you create, and how you create it. This is what gives competitive advantage.
More importantly though, it’s a different way to think about the nature of competition – one where there are many winners, many “bests”.
Magretta describes competition to be unique better than I ever could:
Here, companies pursue distinctive ways of competing aimed at serving different sets of needs and customers. The focus, in other words, is on creating superior value for the chosen customers, not on imitating and matching rivals. Here, because customers have real choices, price is only one competitive variable.
It results in what Porter calls a “positive-sum competition” – where multiple rivals can compete, and all profit. An industry can thrive because there is real value created by distinct competitors who offer choice to meet varying customers needs. A great example of this to me is Nokia right now. Nokia is differentiating itself from other mobile phones by focusing on its camera, catering to photo enthusiasts, and a certain lifestyle – needs that other mobile phones do not serve.
Magretta sums it up, “competing to be the best feeds on imitation. Competition to be unique thrives on innovation”.
So Africa’s tech scene, and especially entrepreneurs entering growing markets like mobile in Africa, need to take cognisance of this. If you are setting out to “be the best” you might just have it all wrong. It might be worth taking a step back and thinking about what is the unique value your company can offer to a market or industry, because there’s not just one way to win, and that’s the true beauty of business.