Competitive Strategy3

Competition is a permanent feature of sports, business, and politics. Competitive strategy is “a comprehensive framework of analytical techniques to help a firm analyze its industry as a whole and predict the industry’s future evolution, to understand its competitors and its own position, and to translate this analysis into a competitive strategy for a particular business (Porter 1980).” Teams, corporations, and countries must envision the future they wish and pit their strengths against the weaknesses of opponents.

The mental process of a general should lead him first to put himself faithfully in the position of the enemy, and to credit that enemy with the readiness to do what he himself would most dread. In the next stage the idio-syncrasies of the hostile commander, the temper and quality of his troops, and the political background come into play… The safe course is to assume that the enemy will do his worst—i.e., what is most unwelcome. With that provided against, lesser evils can be resisted…

Competitive strategy takes the opponent’s likely reaction into account in the same way a chess player thinks to himself, “If I move my knight there, my opponent could put his bishop there, pinning it, so I should move my pawn there first to prevent the pin.” However, surprised competitors sometimes come up with a surprise counterattack. In 2004, Miller Beer came up with a humorous ad campaign to run during the football season, in which football referees and umpires interrupted parties and called fouls on hosts for serving Budweiser.

Competitive strategy requires identifying factors such as existing competitors, potential new ones, possible substitute products and bargaining power of buyers and suppliers that can affect achievement of goals. Information can come from advertisements, annual and government reports, customers, patent records, press reports, suppliers, spies, testing competing products, trade shows, and want ads for personnel with unusual skills. The result should be a profile that leads to methods such as advertising, customer service, distribution channels, economies of scale, market share, price competition, product differentiation and innovation, and warranties for dealing with each competitor (Porter 1980). Some online merchants use zip codes to determine customer distance to a brick-and-mortar competitor and adjust prices accordingly.

Competitive strategy postulates three generic means for coping with business competitors (Porter 1980). The first, cost leadership, requires a constant focus on cost reduction by such means as efficiencies of scale, aggressive negotiation with suppliers, and avoidance of marginal accounts. Walmart is an obvious example of the successful pursuit of this strategy. The second strategy, differentiation, requires identifying some quality that customers will pay extra for. Examples include dependability (FedEx, Maytag), elegance (James Purdey, Limoges), haute couture (Chanel, Givenchy), innovation (Apple, Nokia), design (Eames, Escada), quality (Rolex, Oregon Shakespeare Festival), performance (Bose, Calumet Farm), romance (Cunard, DeBeers), service (BMW, Nordstrom), status (Harvard, Rolls Royce), technology (GE, Tempurpedic), or even vulgarity (Hustler, almost any rap “musician”). The third strategy, niche marketing, assumes that generic competitors (residential real estate) are not adapted to the needs of a particular buyer (empty nesters), region (southwest), or segment (mobile homes) of the product line.

The underlying principle in competitive strategy is to identify and align your strengths against or even create weaknesses in the competitor while anticipating the opponent’s probable responses. It is identical to the war planner’s principle of massing forces at the decisive point, which requires economizing (and thus risks) at less important ones. The idea dates at least to the Hittite tactics at the Battle of Kadesh (1295 BC) which lured Pharaoh Ramses II by disinformation into dividing his forces so the Hittites could attack them piecemeal. Centuries later, Epaminondas reversed custom by placing his best men and greatest numbers on his left instead of on the customary right wing and held back his weak center and right. Frederick became “the Great” when he rediscovered this “oblique order,” and Schlieffen applied it on the grand scale against France in 1914 (Hart 1954). The German plan in 1940 looked like a repeat of the Schlieffen Plan to lure the British and French into advancing into Belgium where they were cut off by a drive on the English Channel. It succeeded, although it was a closer run thing than usually is described (May 2000).

An important recent example is Ronald Reagan’s choice of competing with the Soviet Union on economic rather than military terms, resulting in the destruction of the Soviet Union—or more accurately, providing the proverbial straw that broke that camel’s back. Ambassador Vernon Walters recounts a conversation with President Reagan, who was seeking some US advantage against the Soviet Union. Walters answered every suggestion Reagan made by pointing out that it was not the US but the Soviets who had more tanks, more submarines, more planes, and more nuclear weapons than the US. Frustrated, Reagan finally asked Walters what the US had more of than the Soviets. Walters answered, “Money.” Reagan shot back, “Then, that is what we will use.”

Reagan instructed Casey, his CIA chief, to stop the usual practice of studying Soviet strengths so that the US would know how to counter them.

· Provided financial, intelligence, and logistical support to Lech Walesa’s Solidarity in Poland and Vaclav Havel’s “Velvet Revolution” in Czechoslovakia

· Provided financial and military support to the Afghan resistance, including training of mujahedin to attack the USSR itself

· Obtained Saudi cooperation in reducing oil prices to shrink hard currency available to the Soviets, 80% of which came from oil

· Sabotaged the Soviet pipeline to Europe by diplomatic, financial, and covert means

· Reduced Soviet access to the best Western technology

· Sold the USSR technology designed to fail in some way. For example, design software was modified so that the resulting equipment used more raw materials than necessary or broke down frequently

· Implemented a psychological operation playing up Reagan’s cowboy image to fuel Soviet indecision

· Shifted the arms race from quantity (the Soviet strength) to quality (the American strength) with an aggressive high-tech buildup that the Soviets could not match (Schweizer 1994)

Reagan’s competitive strategy proved victorious in the penultimate year of his presidency. He had stretched the Soviets past the breaking point predicted in the Kennan’s Foreign Affairs article that recommended containment, deterrence, intervention, and development of the international economic system until the Soviet system collapsed of its own contradictions and weaknesses (X 1947).

Jack Matlock (2004), US Ambassador to Moscow during the Gorbachev era, and present at all the Gorbachev-Reagan negotiations, gives a nuanced picture. Both Reagan and Gorbachev saw beyond the narrow vision of their advisors and made up their own minds on critical issues. Suspicion melted gradually through direct meetings. Unlike previous Soviet leaders, Gorbachev questioned communist theory when the facts proved it wrong and put the interests of his country above those of his political party, principle above personal power.

Gorbachev understood that the fragile Soviet economy could not win an arms race with the US. Furthermore, he learned during a visit to the US that the American people were not hostile to the Soviet Union as he had been taught. He understood the need for fundamental reform in the Soviet Union, and Reagan had the wisdom to support it as best it could. Reagan and Gorbachev both possessed the necessary political stature at home to win domestic acceptance for their agreements. Shultz and Shevardnadze helped their leaders keep priorities straight and overcome opposition within their own governments.

Reagan understood that the Cold War was ideological: that arms races and geopolitical competition were not causes but symptoms. He believed that an open and informed Soviet population would see that the US did not threaten them and that they in turn need not be a threat to the US. His greatest asset was his character. He was willing to learn, and he dealt with everyone, friend or foe, equal or subordinate, honestly and without guile.

Who won? Who lost? Matlock’s answer, along with Reagan’s and Gorbachev’s, is that everyone won by the end of the Cold War. The Communist system and ideology lost, not the countries it had victimized for seventy years.

Porter and Rivkin (2012) suggest eight strategies the US must follow to re-gain its competitive edge. These include a sustainable federal budget, developing shale gas and oil, improved infrastructure, simplifying regulations, addressing trade distortions, eliminating double taxation of overseas profits, simplifying the corporate tax code, and easing immigration of the highly skilled.