Competition

Evidently, my last post has evinced more interest than I would've expected. In fact, I find it very difficult to believe that people would actually read what I write. I wouldn't be interested in someone's opinions about a public issue unless I have a stake in it. I'd be even less interested in their opinions about a personal issue. I think I can say with certainty that there are precious few .blogspot.com page except subject-specific ones that I have visited in over a year. Anyway, to each his own. There was a time when I might've considered deleting the posts that I thought might offend another person's sensitivities, but I think now that the world has progressed to a stage where I cannot be burnt at the stake for being disloyal. Disloyalty, whether towards a person or an entity, stems from deep-seated feelings of disconnect and resignation. It is a pity that we condemn the very people who know our flaws better than us and shut them up the best we can. It is a pity because we are signaling to those people that the more shackled you feel, the more we will strive to hold you down because we don't like people who don't love us as much as we love ourselves. Human, but unfortunate. Anyhow, I'm guilty of the aforementioned disability too, so I'm none to talk.

Strategy classes are the only ones that have my undivided attention these days. I'm thankful that the teacher is not a researcher in a professor's garb, I like that he listens and thinks about the most trivial comment thrown at him by a student, I admire him for his openness of mind and the wide vista of knowledge that he draws from - and more importantly, I like that I don't have to repeat things in three different ways for him to understand me. Today he mentioned that while Porter's approach to analysing a firm's competitive advantage was outside-in, the Resource-Capability way is inside-out in that it asks you to analyse your own competencies before deciding your strategy. Does it make sense to look inside and know your own strengths and weaknesses unless you approach from at least a vague sense of where you are going to use them? This is my argument - A firm must have at least an entry point and an entry strategy (which it can arrive upon through Porter's framework) before understanding where it stands as regards the skills and resources required for that particular industry or area? Only then can it devise strategic and tactical plans to innovate, overcome resource constraints, look for new linkages with the environment so that it enhance resource leverage and upgrade capabilities, or in other words, aim for strategic stretch. Some companies would reinvent, others re-engineer - until the limits of competitiveness are reached - stagnant growth, dropping margins and nosediving market share. The challenge is to identify that entry point and look far enough into the future to know what are the possible disruptive forces that could force an exit and plan for it.

Tom Peters says -"The essence of sustainable competitive advantage is - The obvious things; The little things; and The accumulation of these little and obvious things over the years." This, I believe, is what they term path-dependence. But if the true source of advantage lies in non-codifiable, non-marketable routines, procedures, systems and organizational memory, collectively called the DNA of the organization, then firm-specific capabilities can never be replicated. To develop new capabilities and compete on the basis of competence (as against price-performance ratios), a company cannot hope to copy the capabilities that gave the first-mover its advantage. It will have to start from a distinctly different position than a a firm with history and etch its own learning curve. AMD, for instance, has been on the defensive for a while now. It gave Intel a fairly big scare last year about this time - it was leading the world’s largest microprocessor maker by the nose, undercutting them on price, beating it on performance and on efficiency. They gave us accessible 64 bit, dual core and low power options, and seemed all set to take over the fab world, but while AMD’s chips are certainly more efficient and more powerful than a year ago, the company is back to a me-too position. Just when it was beginning to show a business strategy that could take Intel's well-networked and secure position head on, AMD's cost-cutting started a price war by pushing Intel to make very aggressive deals in the market that cut into the earnings of both Intel and AMD. But more importantly, Intel woke up, and almost overnight eliminated AMD’s technology lead. Ironically, it was AMD's cutting edge technology that pushed Intel to turn down the heat on its chips, churn out multicores, boost their nanotech aspirations and get rid of its networking/telecommunications business to be able to focus its efforts entirely on the chip industry. So in spite of having a dizzying array of Athlon 64 models and a variety of features within them, Intel still has the bleeding-edge in technology (AMD at the moment has no answer to the Core 2 Extreme X6800, Intel's fastest dual-core processor).

What this means from a strategic perspective is that at some point, firms in second position will have to stop competing on the leader's obvious advantage, and evolve a completely new paradigm for buying criteria and evaluation - a tough call for AMD in a technology niche where an alliance with Microsoft gives Intel a free run of the entire home and office market. AMD loyalists know their technology to the last detail, but they are still a minority. Unless AMD can come up with a defining competitive edge such as multicore or major energy savings, its next step will without a doubt have to be returning to following Intel, cutting costs and competing on price.