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<p>Coping with Hypercompetition: Utilizing the New 7S's Framework [and Executive Commentary] Author(s): Richard A. D'Aveni, Jonathan M. Canger, Joseph J. Doyle Source: The Academy of Management Executive (1993), Vol. 9, No. 3 (Aug., 1995), pp. 45-60 Published by: Academy of Management Stable URL: Accessed: 03/12/2009 08:05Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact</p> <p>Academy of Management is collaborating with JSTOR to digitize, preserve and extend access to The Academy of Management Executive (1993).</p> <p></p> <p>C Academy of Management Executive, 1995 Vol. 9 No. 3</p> <p>hypercompetiti with Coping new the Utilizing framework' 7S'sRichard A. D'Aveni Executive Overview This business is intensely, vigorously, bitterly, savagely competitive. -Robert Crandall, CEO, American Airlines are almost non-existent in the field of -Warren Buffett</p> <p>Major sustainable competitive advantages financial services.</p> <p>I don't believe in friendly competition. I want to put them out of business. -Mitchell Leibovitz, CEO of auto parts retailer Pep Boys Declare business war. This is the enemy. -Statement over a photo of Northern Telecom CEO Paul Stern on posters at an AT&amp;Tplant in Denver'</p> <p>In the old days in science, the universe was fairly simple. Nearly every science museum had a huge, old model of the solar system in which all the movements of the planets were controlled with clockwork gears. Then we realized that reality was much more complex. All motion was relative. Business has also entered an age of new realities. It is essential to understand and take advantage of the dynamic motion and flux of our global markets and technological breakthroughs. Moreover, a fundamental shift in thinking is necessary for coping with these changes. While companies have struggled to try to sustain their advantages, in fact, no organization can build a competitive advantage that is sustainable. Every advantage erodes. So in this hypercompetitive environment, companies must actively work to disrupt their own advantages and the advantages of competitors. To cope with this new reality, managers must employ a new 7S's framework3 that can be used to analyze industries and competitors and to identify one's own strengths and weaknesses in meeting the challenges of hypercompetition.</p> <p>We have seen giants of American industry, such as General Motors and IBM, shaken to their cores. Their competitive advantages, once considered unassailable, have been ripped and torn in the fierce winds of competition. Technological wonders appear overnight. Aggressive global competitors arrive on the scene. Organizations are restructured. Markets appear and fade. The weathered rule books and generic strategies once used to plot our strategies no longer work as well in this environment. The traditional sources of advantages no longer provide long-term security. Both GM and IBM still have economies of scale, massive advertising budgets, the best distribution systems in their industries, cutting-edge R&amp;D, deep pockets, and many other features that give them power over buyers and suppliers and that raise barriers to entry that seem impregnable. But these are not enough 45</p> <p>Academy of Management Executive</p> <p>any more. Leadership in price and quality is also not enough to assure success. Being first is not always the same as being best. Entry barriers are trampled down or circumvented. Goliaths are brought down by clever Davids with slingshots. Welcome to the world of hypercompetition. Hypercompetition Hypercompetition results from the dynamics of strategic maneuvering among global and innovative combatants. It is a condition of rapidly escalating competition based on price-quality positioning, competition to create new know-how and establish first-mover advantage, competition to protect or invade established product or geographic markets, and competition based on deep pockets and the creation of even deeper pocketed alliances. In hypercompetition the frequency, boldness, and aggressiveness of dynamic movement by the players accelerates to create a condition of constant disequilibrium and change. Market stability is threatened by short product life cycles, short product design cycles, new technologies, frequent entry by unexpected outsiders, repositioning by incumbents, and radical redefinitions of market boundaries as diverse industries merge. In other words, environments escalate toward higher and higher levels of uncertainty, dynamism, heterogenity of the players, and hostility.</p> <p>There is evidence that competition is heating up across the board ...</p> <p>It is not just fast-moving, high-tech industries, such as computers, or industries shaken by deregulation, such as the airlines, that are facing this aggressive competition. There is evidence that competition is heating up across the board, even in what once seemed the most sedate industries. From software to soft drinks, from microchips to com chips, from packaged goods to package delivery services, there are few industries that have escaped hypercompetition. As Jack Welch, CEO of General Electric, commented, "It'sgoing to be brutal. When I said a while back that the 1980s were going to be a white-knuckle decade and the 1990s would be even tougher, I may have understated how hard it's going to get."4 There are few industries and companies that have escaped this shift in competitiveness. Even such seemingly comatose industries as hot sauces or such commodity strongholds as U.S. grain production have been jolted awake by the icy waters of hypercompetition. Movement Toward, but Failure to Reach, Perfect Competition American corporations have traditionally sought established markets wherein sustainable profits were attainable. They have done so by looking for low or moderate levels of competition (see Exhibit 1). Low and moderate-intensity competition occurs if a company has a monopoly (or quasi monopoly protected by entry barriers) or if competitors implicitly or explicitly collude, allowing each other to "sustain" an advantage in one or more industries or market segments. Collusion or cooperation, while it can be useful in limiting aggressiveness, is limited because there is incentive to cheat on the collusive agreement and gain advantage. Entry and mobility barriers are destroyed by firms seeking the profit potential of industries or segments with low or moderate levels of competition. Gentlemanly agreements to stay out of each other's turf fall apart as firms learn how to break the barriers inexpensively. As competition shifts toward higher intensity, companies begin to develop new advantages rapidly and attempt to destroy competitors' advantages. This leads to a further escalation of competition into hypercompetition, at which stage companies actively work to string together a series of temporary moves that undermine competitors in an</p> <p>46</p> <p>D'Aveni</p> <p>(1) &gt; .4</p> <p>--4</p> <p>930 Ul 4-</p> <p>93</p> <p>ti (1)</p> <p>0</p> <p>O</p> <p>.m0 O 4.. 0 &gt; 0</p> <p>0</p> <p>tj O a &gt; 4-- .0 (LI ti 0 930</p> <p>'O ti 93 4) 0 0 0 4) wu -4 "4 0 4) 4-...4 0 0</p> <p>2</p> <p>rk.</p> <p>O ti 04 0</p> <p>0 004</p> <p>0 ti</p> <p>0</p> <p>-V</p> <p>E</p> <p>4</p> <p>0</p> <p>to o Ei W(4 u (1) 04) 0 M 0</p> <p>Ei</p> <p>ti</p> <p>..4.4</p> <p>E0</p> <p>z0</p> <p>.,q 4-4</p> <p>0</p> <p>O. z</p> <p>Ul 4)</p> <p>&gt;</p> <p>o</p> <p>0</p> <p>O tj &gt; tj</p> <p>4</p> <p>to :S</p> <p>CF)ts</p> <p>C14</p> <p>O 4) 930</p> <p>(a</p> <p>latft</p> <p>r. &gt; 0 r -04) tj &gt;</p> <p>A</p> <p>&gt;I E ti O 0 .</p> <p>ti)</p> <p>0</p> <p>0</p> <p>O (1) (1) tj 0 04-4</p> <p>4)O</p> <p>O tj 0 0 4)U) ti 0 0</p> <p>ti &gt;0 10 0 W</p> <p>0 1-40 --4 0 4-0</p> <p>4)04 0</p> <p>930</p> <p>4.. .0 .</p> <p>ti</p> <p>.4</p> <p>4) &gt; 4) 10 W 0. c- E! )..40 4`4</p> <p>0.0</p> <p>6...4</p> <p>ti</p> <p>4</p> <p>1-4</p> <p>4) IL) 0 O 4) ti 4.. 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Just one hypercompetitive player (often from abroad) is enough to trigger this cycle. At each point firms press forward to gain new advantages or tear down those of their rivals. This movement, however, takes the industry to faster and more intense levels of competition. The most interesting aspect of this movement is that, as firms maneuver and outmaneuver each other, they are constantly pushing toward perfect competition, where no one has an advantage. However, while firms push toward perfect competition, they must attempt to avoid it because abnormal profits are not at all possible in perfectly competitive markets. In hypercompetitive markets it is possible to make temporary profits. Thus, even though perfect competition is treated as the "equilibrium"state in static economic models, it is neither a desired nor a sustainable state from the perspective of corporations seeking profits. They would prefer low and moderate levels of competition but often settle for hypercompetitive markets because the presence of a small number of aggressive foreign corporations won't cooperate enough to allow the old, more genteel levels of competition that existed in the past. The New 7S's Paraphrasing George Bernard Shaw, while reasonable people adapt to the world, the unreasonable ones persist in trying to adapt the world to themselves. Thus, all progress depends upon the unreasonable person. In hypercompetition the reasonable strategies that focus on sustaining advantages do not lead to progress. It is not enough to merely adapt to the environment. Companies make progress in hypercompetition by the unreasonable approach of actively disrupting advantages of others to adapt the world to themselves. These strategies are embodied in the New 7S's. My studies of successful and unsuccessful companies in hypercompetitive environments reveal seven key elements of a dynamic approach to strategy. Unlike the old 7S framework, originally developed by McKinsey and Company, the new framework is based on a strategy of finding and building temporary advantages through market disruption rather than sustaining advantage and perpetuating an equilibrium. It is designed to sustain the momentum through a series of initiatives rather than structure the firm to achieve internal fit or fit with today's external environment, as if today's external conditions will persist for a long period of time. The New 7S's are: * * * * * * * superior stakeholder satisfaction strategic soothsaying positioning for speed positioning for surprise shifting the rules of the game signaling strategic intent simultaneous and sequential strategic thrusts</p> <p>Because of the nature of the hypercompetitive environment, the New 7S's are not presented as a series of generic strategies or a recipe for success. Instead, these are key approaches that can be used to carry the firm in many different directions. They are focused on disrupting the status quo through a series of temporary advantages rather than maintaining equilibrium by sustaining48</p> <p>D'Aveni</p> <p>advantages. The exact strategic actions formulated under this system will depend on many variables within the industry and the firm. Many types of strategic initiatives can be carried out using the New 7S's, and there are many variations. As shown in Exhibit 2, the New 7S's encompass three factors for effective delivery of a series of market disruptions: vision, capabilities, and tactics. What is being called for is an increased emphasis on the first two levels (vision and capabilities) and more creative approaches to the last level (tactics) than many firms currently use.</p> <p>/ VSION FOR DISRUPTION / / Identifying and creating for\ ~~~opportunities temporary advantage\ through understariding* Stakeholder Satisfaction</p> <p>\ \</p> <p>* Strategic Soothsaying</p> <p>directed at identifying new ways to serve existing customers better or new customers that no one else serves now.</p> <p>ke Mar Disruption</p> <p>/ \ /CAPABILITY FOR DISRUPTION</p> <p>/</p> <p>TAC~~~~~~~~TICS FOR DISRUPTIONSeizing the initiative to gain by\ adatg by Shifting the Rules * Signaling Simultaneous and Sequential*</p> <p>/</p> <p>Sutinn Sustaining th momentum by the moetmb developing flexible capacities * Surprsed*</p> <p>\</p> <p>/advantage</p> <p>\</p> <p>for</p> <p>Surprise</p> <p>*</p> <p>Strategic Thrusts that can be applied across many actions to build a series of temporary advantages. with actions that shape, mold, or influence the direction or nature of the competitors' responses.</p> <p>Exhibit 2. Disruption and the New 7S's</p> <p>49</p> <p>Academy of Management Executive</p> <p>Vision for Disruption: The First Two S's Successful firms learn how to disrupt the status quo. A key to their choice of a disruption is the realization that not all disruptions are good. The disruptions that work are those that involve the first S-the creation of a temporary ability to serve the customer better than competitors can. To create this type of disruption, successful firms prioritize customers as the most important stakeholder. This implies that employees and investors are prioritized less highly. Thus, to create successful disruptions, the firm must find a way to satisfy employees and investors even though their interests have been subordinated to customers. Before the Pentium chip, Intel rarely asked customers what they wanted, but now they have instituted a process of concurrent engineering to get customers (and internal man...</p>