McKinsey Classic by Roberto Buaron, ~1980
click for exhibit: Strategic Gameboard
Traditionally, companies compete in their markets either by enhancing the value of a product or by lowering its price. But there is another, often overlooked, mode of competition: prevailing over your rivals. Here, instead of accepting the market-defined rules of the game and competing obediently within them, the strategic competitor seeks to influence the rules themselves, creating a new game in which its own particular strengths become prerequisites for success. I call such approaches “new-game strategies.”
An example helps make the point. Between 1975 and 1977, Savin Business Machines Corporation increased sales to over $200 million, from $63 million, in the $2.6-billion-a-year US office-copier market, which until then was dominated by Xerox. Savin’s strategy: attack the low- and medium-speed submarket by using a new liquid-toner technology and novel approaches to manufacturing, distribution, and service.
Savin appealed to companies in the more time- and cost-sensitive market segment by offering them the opportunity to buy several cheaper machines for key office locations rather than leasing a costly, higher-quality Xerox machine and installing it in a central office—the existing paradigm. In the chosen market segment, Savin changed just about every step of the competitive game. Where Xerox machines used custom-made components, the Savin product took low-cost standardized ones. And because Savin’s machines were priced for sale rather than leasing, the company sidestepped the need to finance a large leasing operation. Then, rather than building up a direct-sales force to rival Xerox’s, Savin recruited independent office products dealers, enabling the company to take competitors by surprise.
To visualize strategy in a way that allows for such radical realignments of the competitive landscape, you can use the “strategic gameboard” —a matrix that shows “where to compete” on one axis and “how to compete” on the other.
“Where” ranges from a single market niche,
at one end of the spectrum, to the entire market, at the other.
“How” ranges from playing by the traditional rules to rewriting them completely. It is this latter variable that determines whether the strategy involves a same-game or a new-game approach.
The most common strategies fall in the relatively safe upper-left-hand corner: same-game/across-the-board competition. A company that follows such a strategy must accept the leader’s definition of the market, copy the leader’s functional approach to the business, and emulate the leader’s strengths. Rarely does such an emulator take the lead itself.
A second class of company is shrewder. In this category come the same-game/selective players. They accept the conventional definitions of products and markets but seek to gain an advantage by choosing market niches that play to their strengths. The more innovative among these companies “resegment” the market, tailoring their product designs or marketing approaches to a segment never before viewed as a coherent group. Take a particular consumer durables market that has traditionally been segmented by price. A producer might resegment it on the basis of consumer attitudes and lifestyles, perhaps targeting consumers who are more interested in saving energy or time than money.
For a challenger, the same-game/selective approach is often less daunting than confronting the market leader head-on. However, because the challenger has made no basic changes in technology, manufacturing, or distribution, others can go after the newly discovered segment as well. In a sense, then, the same game/selective player relies on the forbearance of its competitors —and this often lasts only as long as they regard the new market segment as too small to be worthwhile.
American Motors Corporation (AMC) learned this lesson in 1959. In just two years, AMC had increased its sales to 6 percent of the American automobile market, from 2 percent, by focusing on the small-car segment and persuading US car buyers to “think small.” As soon as the company’s success caught the notice of General Motors, Ford, and Chrysler, the Big Three introduced compacts of their own, and by 1965 AMC was back down to 3 percent of US sales and operating at a loss.
Occupying the riskier, right-hand side of the matrix are the new-game strategies. They are less common than the same-game approaches but carry correspondingly greater rewards. Like same-game strategies, new games can focus on select niches or on an entire market, as reflected by the vertical axis of the matrix.
Stanley Works embarked on a selective new-game strategy when it noticed that many of its professional hand tools were being purchased by do-it-yourself homeowners. The company developed a cheaper line and a mass marketing approach, tapping into large, unexploited market segments. Stanley’s risk was limited: if the consumer line failed, the company could still fall back on its professional clientele. This is a common characteristic of new-game/selective strategies. The downside is limited precisely because the strategy is selective.
The riskiest of the four kinds of strategy—and the one that bestows the richest prizes on its winners—is the new-game/across-the-board approach. Following this path means nothing less than rewriting the rules of an entire industry to suit your own company’s strengths. It often means changing the way some customers purchase, configure, or use your product or service. You may find yourself helping customers meet a need that they, or even you, had never associated with your product. Hanes Corporation’s decision to sell pantyhose through grocery and discount chains is a good example of a new game/across-the-board approach, as is Procter & Gamble’s pioneering venture into disposable diapers. When the new-game/across-the-board approach works, it can leave competitors stranded, like a river port town left high and dry by a change in the watercourse.
None of the varieties of strategy on our matrix is right or wrong for every circumstance, so the timing of the choices can be as important as the decisions themselves. For instance, even if you ultimately plan to play a new game/across-the-board strategy, you may want to start more cautiously with a new-game/selective strategy, expanding to the entire market only after successfully redefining a certain niche. That is what Texas Instruments did in the mid-1970s. First it created a new segment—simple, four-function, handheld consumer calculators. Encouraged by success there, it then attacked the higher-end scientific and educational segments of the calculator market.
Similarly, a company with high market share may want to pursue a safe same-game/across-the-board strategy for a while, launching a new game only when market conditions shift. Thus, even market leaders must constantly scrutinize their industries to determine when to shift strategies.
New-game strategies are not for every occasion. They are hard to pull off, and successful examples are rare. But executives must always be alert to new-game opportunities, because when the conditions are right the rewards can be especially high.