2011 Ranking: #21
Shortlisted: 2011 Thinkers50 Strategy Award
Best known for his work on hyper-competition, Richard D’Aveni is Professor of Strategic Management at the Tuck School of Business at Dartmouth College. In the crowded world of business strategy, D’Aveni champions dynamic strategy over static analysis, strategy based on seizing temporary advantages, using rapid maneuvering rather than relying on defensive barriers.
His books include the bestseller Hyper-competition and Strategic Supremacy. His new book, Beating the Commodity Trap, will be published by Harvard in 2010.
You coined the term hyper-competition in the 90s, but basically it describes the world we’re now in.
Yes, that’s right. Except I think the world has got even crazier since 1994, it’s really hypercompetition on steroids.
What’s the difference between the way you think about strategy and the way someone like Michael Porter thinks about strategy?
It’s vastly different. What I like to talk about is actively disrupting your competitors, attempting to make their core competency obsolete so you become become the new leader. It’s not about accepting your destiny as in Porter.
And you say that differentiation is over rated?
Yes I do. Because you have to really change an industry structure to deal with the problems that we see today, especially in the case of commoditisation which is a black plague on modern corporations.
Commoditisation is the process of a diamond gradually finding its facets worn off by wind, water and handling, until it just becomes a rough stone. And it’s similar to what happens with products. Products that commoditise lose their uniqueness. So most people think the solution is to create continuous differentiation. But everybody else can do the same thing. And imitation now is so fast that you end up just running faster and faster until, like the Red Queen in Alice in Wonderland, you run so fast that you get nowhere at all.
You identified three commodity traps. What are they?
The first is deterioration typically wrought by a low end discounter. Then there’s proliferation and escalation. Escalation is the toughest one to beat, because momentum builds up. Each player raises their quality, lowers their price, and the next one has to match. It’s an arms race. But it’s an arms race to the bottom; first one to the bottom blows himself up. Because you end up giving away your product for almost nothing. So the question is can you control the momentum towards that bottom?
The current crisis has revealed another element to commoditisation which you label evaporation.
Yes, evaporation is simply that people stop buying. They buy so much less than they did before that products have to sink to low prices to sell anything at all. So evaporation isn’t really a commodity trap in the traditional sense. It’s not the market whittling down the facets of the diamond; it’s really a temporary problem and here the solutions are to recognise that you’re in a tremendous storm and to batten down the hatches; to learn how to float with the changes, so you can be very flexible as things unfold and then to be able to position yourself to land on your feet when the storm subsides.
So in these troubled times strategy is still important, still makes difference?
Even more so today. A lot of it is about pre-positioning for the future. Looking at how you can consolidate the industry, so that when you’re done the industry will be able to function without excess capacity.