Just as you try to build and strengthen the critical path between you and your customers, your competitors are building their own critical paths…to those same customers. In fact, they want to destroy your critical path and have your customers all to themselves.
Customers come in various forms. Of course, you have existing traditional customers. If you are a bank in a medium to large city, you will have in-place competitors, often right across the street from you. If the market is growing, it will attract other traditional banks to move into your market space and try to take a piece of what they consider a growing pie.
Markets can also attract new upstart competitors. If you remember Vernon Hill’s Commerce Bank in New Jersey and Metro Bank in the UK, he created them from scratch believing that he could provide customers a better banking experience than the existing banks in those markets.
Finally, you might face new, disruptive competitors that are off the traditional radar screen. FinTech companies are trying to do for banking what Lyft and Uber did to taxis. They believe that younger customers don’t want to deal with brick-and-mortar banks. Instead, they prefer to bank electronically over their cell phones, which gets rid of FinTech’s cost for branches. Likewise, FinTech believes it can use artificial intelligence to determine customer credit worthiness and loan pricing.
Then there might be other disruptive competitors, parties that are really off the radar. For example, retailers like Walmart and Amazon process millions of financial transactions every day. They already have the back-office of a bank in place. What if both of them decided to move into the banking business, much like Intuit did when it moved into mortgage lending with Quicken Loans? Both those companies have the deep pockets and finance staffs to compete with any major bank.
We can model these competitive challenges using a basic game theory model. If you consider a business or even a particular product, you can examine it as a game with rules on how to play that game. (See figure below.) In most markets, the competitors play the same game with the same rules. But, three other possibilities exist:
Play the same game with new rules
Play a new game that operates with the same rules as the old game
Play a new game with new rules
As an example, let’s think about a real game: American football. It has a set of rules that every American football team follows, such as how many players are allowed on the field, how you score points, and what is a penalty. These rules are separate from the tactics that teams and players will use to operate within the rules. In football, whether you run on offense or pass is a tactic, not a rule.
Now you can keep the same game, but change the rules. For example, Canadian football is basically the same game as American football with some rule changes, such as the length and width of the field. American and Canadian football players have little difficulty switching back and forth because the game is basically the same. Arena Football is another variation where the game is the same, but the rules are slightly different.
In the alternative, you can keep the same rules, but change the game. Videogame Football in no way resembles the actual game of American football. It is all make believe, just digital images on a television screen. But the rules of play are the same as the actual game. It is a simulation of the real thing, but different.
Finally, you can change both the game and the rules. Fantasy Football leagues are a derivation of the original game. But like videogames, fantasy football is make-believe and has its own rules about how players get selected and how points get tallied. Another example is Australian football, which has some root resemblance to American football, Gaelic football, and Rugby. But, while watching the game, you would soon realize that it is a very different game. The shape of the field, the number of players, the scoring, the method of play, and the rules do not resemble the other games. And a final example is what most of the world thinks about when they hear the word football; that is, “futbol,” also known as soccer. It is a different game with very different rules.
Now this same framework can be applied to businesses. For example, the 5,000+ traditional bookstores in the 1990s were usually small storefronts with limited inventory. Customers generally knew the exact book or book genre they wanted, bought it, and the whole transaction did not take very long. Then, Borders and Barnes & Noble changed the rules by opening superstores of 75,000 to 100,000 square feet with massive inventory, couches, and coffee bars. Customers spent more time in the stores and purchased multiple books along with their espressos. These superstores knocked out about 40 to 50% of the traditional bookstores over a 10-year period.
As Borders and Barnes & Noble were ascending in dominance, Amazon came along and changed the rules on them, offering millions of titles in inventory, discounting prices to almost cost, and selling used books. Borders and Barnes & Noble tried to change the game by selling music CDs and movie DVDs. Turns out that those two businesses operate using the same rules as bookstores. Amazon followed suit and has made both Borders and Barnes & Noble minor players in the book business.
Now that it rules the book business, Amazon continues to look for ways to change the game. Its audio streaming book business is an attempt to create a new game with new rules for the book business.
To come full circle to our earlier banking example, new competitors, like the Commerce Bank example above, will try to gain advantage by playing the same game but using a different set of rules to catch their in-place competitors by surprise. The rule changes can range from selling at below costs to gain market share to offering a loyalty program. On occasion, disruptive competitors, like FinTech, will try to change the rules and sometimes change the game as a way to make customers see the old game as less attractive.
To add value beyond serving your customers, you can proactively spot and track your competitors, both current and new ones. Average performers can learn to play the same old game with the same old rules. The star performers are the ones who notice when the rules or the game are changing. They pay attention to what is off the company’s traditional radar screen to identify potential threats. At their very best, they themselves are devising ways to change the rules or the game on unsuspecting competitors.
I refer to these star performers as “meta-thought leaders” because they collectively possess full spectrum sight which consists of three types:
hindsight,
insight, and
foresight.
By hindsight, I do not mean that they are trapped into the old ways of doing things. No, instead they are tuned into Winston Churchill paraphrasing of the philosopher George Santayana’s famous line: “Those who fail to learn from history are doomed to repeat it.” Meta-leaders with hindsight capture the important learnings of what has worked and what hasn’t, what conditions led to what problems, what should be continued, and what practices should be discarded. Their hindsight derives useful lessons from what has happened before so that they can be leveraged moving forward as the dynamic competitive field emerges.
Insight means understanding the zeitgeist of the times. These meta-leaders can sense the shifting mood of society and the larger culture along with its effects on the business. For example, they can see when the tide is turning more conservative or more liberal long before others do. They could sense that millennials would want a different psychological employment contract than Gen X or Baby Boomers with more work-life balance or more meaningful work than their predecessors. Similarly, they noticed that the younger generation of consumers did not have the same interest in cars or houses. These meta-leaders have their finger on society’s pulse and can make sense out of it for the business.
Meta-leaders with foresight see the future as if it already existed. When the first personal computers emerged on the scene in the 1970s, they could already envision the Internet connected society we currently live in. When U.S. businesses and government were worried about the industrial might of Japan in the 1980s, they were talking about the rise of China. These meta-leaders understand how technology, politics, and economics will intersect to disrupt the current world and create a new one.
Without meta-thought leaders you miss opportunities, even when they present themselves. Consider these examples.
IBM thought that the future of the computer business was hardware, especially for large main frame computers. By letting Microsoft keep ownership of their operating software, they helped Microsoft catapult past them in revenues, profits, and market cap, while making Bill Gates one of the richest people in the world.
Blockbuster, the VCR and DVD movie rental company, passed on several opportunities to by Netflix at $50 million.
Before you snark too much at Blockbuster and its demise, keep in mind that even Amazon’s legendary Jeff Bezos and his team turned down Netflix for $15 million.
MySpace, the premier social media company of the early 2000s, decided that Facebook wanted too high of a purchase price -- $75 million – and turned the offer away.
In essence, meta-leaders apply the game model to the larger forces coursing through a market or country. They provide full spectrum sight to fully understand the organization’s competitive situation. By seeing what’s off the radar screen, they position the company to not only defend its own turf, but also to catch their competitors off-guard.
Are they right all the time? Of course not. But they understand the game, know how to play it, and stack the odds in their favor.
Critical Path Action Items
Who are your traditional, new and disruptive competitors?
What is the “game” and what are the “rules”
How are the game and rules changing?
Who are your meta-thought leaders with hindsight, insight, and foresight?
Are you a meta-thought leader? If not, how can you become one?