Wednesday, June 1, 2011

Competition and risk - not so bad after all

I'm generally a non-confrontational and risk-averse person. But in reading the assigned articles for week 3, I've come to the realize that competition and risk are not so scary and in fact, should welcome it. Without competition and risk, there would be no motivation for improvement and innovation.

In the McKinsey Quarterly article, "Going from global trends to corporate strategy," business executives in 2006 thought that in the next 5 years, the growing number of consumers in emerging economies would have a significant impact on business as well as the profitability of their company. In 2011, I'd say that this continues to be true. Catering to the base of the economic pyramid is very challenging given their many constraints, as witnessed by Tata Motors when developing the Nano. And while this may not seem like an immediate threat to car companies in more developed countries, they will feel the effects eventually and will get their "wheels" turning on new innovations, whether anticipated or not.

One example that made sense to me was in Harvard Business School's article, "Competitor Analysis: Understand Your Opponents." They listed the example of the photographic imaging business. More than 20 years ago, Kodak and Fuji were competing for market share of film, paper and processing. Then came Sony, a consumer electronics company known for its radios, with their digital camera. Today, it's all about digital. I believe these kind of disruptive innovations will happen often when catering to the base of the economic pyramid. And while developing world consumers may benefit from companies competing to offer cheaper and more accessible products and services, I believe these disruptive innovations will ultimately benefit companies as well as they redefine their strategies.

On another note, I remember the day when gas used to less than $2/gallon. With the increases in oil prices, it's encouraging to see how far companies have come to become more "green" and fuel efficient. If not for this risk, car companies like Toyota would not have made the strategic decision to offer the hybrid Prius, with much success. Many other car companies are following suit to gain some competitive advantage, which will ultimately lead to an environmentally-friendly way to travel. One interesting thing to note is that indirectly, increases in fuel prices have also increased demand for videoconferencing technologies, as mentioned in McKinsey Quarterly's article, "Risk: Seeing around the corners". Not only do car companies find the need to strategize, so do companies like Skype.

While competition and risk may be stressful, it's ultimately beneficial to the company, the industry and its consumers because it encourages innovation. Furthermore, the need for innovation gives companies (both young and old) opportunities to gain competitive advantage by redefining their strategies.

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