You can beat a competitor by taking out the “loose bricks” in their wall – customers, products, even staff – that are most easily taken, but valuable, until the wall falls over.
But how do you actually do it?
Here, I will give a couple of examples to illustrate the principles, then explain how this is just one use you can make of understanding the quality of resources that drive business performance.
(Not all advice from strategy gurus is useful, or even safe!, but this tip from Gary Hamel, in ‘Competing for the Future’, was spot on.)
What NOT to do. Start by thinking about your rivals’ customers. It is tempting to try stealing those customers that generate the biggest sales for your competitor. After all, that will give your sales the biggest boost. Problem is, it usually won’t work.
The business-customer division of a large bank told its account managers to list customers that they most wanted to steal from their competitors – the biggest companies in each business sector and region. They called this the “customers to die for” list.
How many such customers had actually been won in the past year? – none. Why not?
… the competitor had strong relationships with those customers
… the competitor noticed efforts to steal such key accounts, and reacted to protect them.
What does work? A mid-size Danish bank was smarter. Its account managers compiled lists of a big competitor’s 2nd tier customers – customers that were likely not in the top-10 for the competitor’s account managers. They then targeted random customers from those lists – picking targets in different sectors and regions, so that the competitor would not notice, and not realise that they were under a relentless, systematic attack.
Over a few years, their business banking division overtook the former leader in the market.
A more detailed story. I was once the strategy guy on a team that took out a top competitor for a fledgling restaurant business. The established leader (a business unit in a larger corporation) had 300 units, and we had fewer than 50. What did we do?
We ranked the sales and profitability of each of the competitor’s units. (That’s true “competitive intelligence” and not hard to do)
We targeted our new restaurants to be located near our competitors’ 2nd-ranking units, spread around different regions and supervised by different managers.
We ensured each of our new units got the best managers we could find, and was over-staffed to ensure the best customer service. And we dropped repeated value-added promotions to households in the catchment area of each unit.
What we did not do was any price discounting. It’s a costly hit on profitability and undermines the brand.
Over some 3 years, we pushed most of those competing units out of business. This figure shows the impact on our competitor’s performance. I have just stacked up the profits made by groups of 10 units, starting with the most profitable at the bottom left and the least profitable at top-right. At right, I show the total profit contribution coming from the restaurant units, then deduct central costs to get their operating profit.
I have highlighted the total contribution from the 2nd-rank units, and shown at right what would happen to their operating profit if they lost that contribution – profits would fall by about 1/3.
2nd-order impacts That alone would be serious for our competitor, but we did not have to wait 3 years to see that victory was within reach. How come?
Imagine you are the general manager of that competitor. You see your quarterly profits falling – but don’t know why. Then HQ demands you turn those profits round. So:
You set higher targets for the unit managers, which they can only hit by cutting staffing costs … which hits customer service … so they lose sales, and profits fall further …
You cut central costs – marketing, product development, training – which hurts the customer offering still more
Then you start losing your best people – executives and unit managers – and guess where they go? To us!
The end-game. Just five years after we started this assault on our competitor’s “loose bricks”, its parent company put the business – by then, on its knees – up for sale. Of course we were only too happy to take the problem off their hands. When their marketing VP joined us, he was shocked to know what we had done.
In the words of another guru (I can’t recall which) we had “nibbled them to death”.
Understand and manage business quality. This “loose bricks” competitive strategy is just one particular application of a strategy dynamics framework for understanding the quality of a business – not product quality or service quality, but the quality of the resources that make the system work.
We do not just want more customers – we want better customers; those who buy more, are less price-sensitive, not costly to serve, and so on.
We do not just want more products in our product range – we want better products. That is, commercially-better, appealing to more and better customers, and capable of commanding better prices.
We do not just want more staff – we want better staff; more skilled, productive, experienced …
… and in the restaurant case, or any retailer, we don’t just want more units, we want better units; able to reach more, better quality consumers. We beat that rival by hitting the quality of their units. (Time and again, retailers mess up by over-extending their store network. Starbucks once had to shut 500 units for that mistake, at huge cost)
And if you sell through intermediaries – dealers, agents, retailers – you again want better ones, capable of reaching more end-customers.
As ever, it’s super-helpful to model how and why these resource qualities have been changing, starting with understanding the “quality curve”, like the figure above. Then you can set a strategy to improve that quality and simulate how fast that can be achieved, and to what level it can be raised. Then, whether you do this to take out a competitor or to build a powerful business of your own, use that digital twin model to continually manage how the initiative develops.
How to do this? See class 5 of my dynamic business modelling course – one of several Extensions that you can learn to apply, building on the Core principles of classes 1-4.