Unlike economists, entrepreneurs hate the free market. Every strategist knows to be “long-term greedy” – and every company, to the extent that it is strategically sound, wants to become a monopoly. If greed is good, then competition is bad; competitors are rivals to be fought and enemies to be feared. And if competition is bad, then domination and control are desirable and good.
Over the last week, Professor Howard Yu’s LEAP class directly addressed such competitive fears and desires. Can companies make it harder for competitors to steal or otherwise copy their products and services? It is a recurring challenge, as we found in case studies such as Steinway’s failure to compete globally with Yamaha, as well as the historical role of industrial espionage in American textiles (and comparable modern examples.)
One answer to this problem of substitutability is mathematical. Per Metcalfe’s law, the effect (and thus, in principle, the value) of a network is proportional to the square of the number of connected users. Thus, the owner or manager of any large network – particularly if digital and easily scalable – has a unique “edge” in any marketplace. Our class debated the virtues of “platform strategy” – considering, for example, the ways in which platform companies leveraged their platforms and networks to adapt to competitors or to changing market conditions such as the 2020 coronavirus pandemic.
Another intriguing way of sustaining strategic advantages is to crowd-source knowledge, data, and even labor. We examined how a military research organization used persuasion and distributed “open” innovation to build new weapons of war for a fraction of the normal cost. Similarly, a mobile phone manufacturer iterated on its operating system via user input and voluntary labor. The promise of status or prestige through having one’s work “chosen” is a powerful motivational tool.
As our Strategy Professor Misiek Piskorski taught us, a good strategy is necessarily difficult to copy. To increase willingness to pay – or lower costs, or both – a company must make trade-offs. But, as we were reminded in LEAP, the dream of any company is to not need to make any trade-off; “dual advantage” strategies of sufficient complexity can allow companies to develop and defend their “insubstitutability.”
Strategy is hard, but it need not be solitary. Allies can help. Also over the last week, Professor James Henderson has shown us the many ways in which corporations and teams can cultivate “Ecosystems” of partners.
Winning and keeping allies is nontrivial; resource allocation, conflict management and even cross-cultural ethnography take central roles, as we discovered in case-study-rooted simulated negotiations. These negotiations dealt with diverse scenarios, ranging from structured products digital banking platform development to corporate venture capital investments to product systems integration to cross-industry alliances in new geographies. We learned that relationships themselves are investments, and trust is an asset that can lower transaction costs and strengthen strategic partnerships.
In marketing strategy, “differentiated customer knowledge enables differentiated value propositions”; similarly, partnerships must be adaptable in structure and function, tracking the strengths, weaknesses, and needs of the partners.
In keeping with the IMD holistic spirit, we have developed integrative and adaptable strategies that encompass corporate fear of copycats, desire for market dominance, and need to collaborate and establish partner ecosystems. We look forward to building upon these principles over the next week in more sophisticated simulations, leadership exercises, and marketing studies.