A few weeks ago, Amazon CEO Jeff Bezos gave a talk at one of his children’s elementary school. The talk, titled “dream big” was live-tweeted by Zillow CEO, Spencer Rascoff, whose kids also attend the same school. One of Rascoff’s tweets that particularly caught my eye was where Bezos describes what it takes to be successful at Amazon:
As it is nearly the time of the year when strategies are reviewed, refined and sharpened for the following year, your plan undoubtedly has a view on what your competitors are doing. But are we too obsessed with catching up with or “killing” our competitors that we’re missing the opportunity to leap them entirely?
The first mistake organizations make is that they measure themselves against the competition instead of really understanding what their customers actually need and where real opportunities are. Such thinking only gets us to a point of parity and as we know, parity may win the battle, but it almost never wins the war.
How many times have you heard companies say they are the ‘best in the industry’ or an industry leader? We usually see our competitors through the lens of industry analysis. In traditional management, we look at data about other firms like ours to uncover opportunities for competitive advantage and craft the right strategy the organization. But is being too focused on how we are doing against our competition make us lose sight of our customers’ needs? It certainly does and it slows us down or prevents us from ‘exploring and pioneering’ (which is what we need to be doing more of). While this might make perfect sense, too often we see companies and leaders falling into the trap of “being the best” or “beating the competition”. Harvard Business School Professor Michael Porter sets the record straight in the following quote: “Strategy starts with a notion that the fundamental question is not how to be the best, it’s actually how to deliver something unique. To the customers you’re choosing to serve. Not because what you’re doing is ‘the best’ but because what you’re doing is delivering distinctive value.”
The second notion to dispel is that industries are still relevant in terms of analyzing our competitive landscapes. Odds are that a disruptor in your industry may not be anywhere on your radar screen today. Netflix, a technology company has been successful in disrupting Video Stores and Cable Television by exploiting the inconveniences of renting videos and selecting content of interest on an ‘on-demand’ and customized platform. Amazon, which is now the top player in Cloud computing developed its supercomputing capacity running it’s online stores and subsequently began offering access to other businesses. Google learned to excel at pattern recognition through its search business before it applied that capability to many other industries including transportation, travel and commerce.
Rita Gunther McGrath describes the new ways of competition as competing in “arenas” rather than industries. McGrath explains, “Arenas are characterized by particular connections between customers and solutions, not by the conventional descriptions of offerings that are near substitutes for one another.”
This shift of focus from industry to arena is critically important because, in a rapidly changing world customer needs continually evolve in response to a steady stream of technological innovations. Thus, any competitive advantage gained is temporary at best. Whatever you want to call it, industries no longer serve as viable strategic units. Competition—and opportunity for that matter—can come from anywhere.
Back to Bezos’ point. As you begin your planning for next year, just ask yourself if you might be missing the forest for the trees. We have to be prepared to invest time and money to explore and pioneer new and viable business models, regardless of what our competitors may or may not be doing. We have to shape cultures that will embrace change and allow these new ideas to come to market, and most of all, we have to empathize with your customers. Everything else falls into place afterwards.