Abstract Acquiring and improving profits has always been a core proposition for companies to settle down. However, our understanding of the question "Where is the excess profit coming from?" has been updated. In the 1980s, strategy master Michael &mid...
Acquiring and improving profits has always been a core proposition for companies to settle down. However, our understanding of the question "Where is the excess profit coming from?" has been updated. In the 1980s, the strategist Michael Porter and the followers of the industrial structure school attributed the source of excess profits to the elements of industrial structure, the theory of “economies of scaleâ€, “experience curveâ€, and “entry barriersâ€, which are closely related to industrial structure. Be regarded as the golden rule;
In the 1990s, with the emergence of “core competencies†by Prahalad and Hamel and the rise of the resource-based view and dynamic capacity theory, people’s perspectives began to shift to the enterprise itself, focusing on “core competitivenessâ€. Classic concepts related to corporate value chain activities such as “dynamic capabilitiesâ€.
In recent years, in the context of the emergence of new technologies, the turbulence of the industrial environment, and the increasing expectations of consumers for integrated solutions, industrial boundaries have become increasingly blurred, and cross-border cooperation and value have become a trend, making business ecology The circle has become a hot concept.
However, can building or rebuilding an ecosystem bring sustained excess profits to the company? What does it have to do with competitive advantage: is it "fish and bear's paw" or is it "indispensable?" Can ecological advantages replace competitive advantages? These issues are forcing us to rethink the source of our business today.
Competitive advantage of the classic strategic framework
To clarify the source of competitive advantage in the ecological era, we must first sort out its reference frame, the classic strategic framework and its explanation of competitive advantage.
In this era, the classic strategic framework believes that the profit rate of a company is mainly determined by two parts:
First, the industry structure, that is, the competition, the bargaining power of suppliers and buyers, the newcomers and substitutes threaten the combined effects of these five forces. Porter's "Five Forces Model" systematically describes the industrial structure, and uses factors such as "economies of scale" and "entry and exit barriers" to predict the direction of influence of "five forces." The combined strength of these factors ultimately determines the average profit margin of the industry.
The second determinant is the resources that the company owns and controls, which can help the company maintain a cost-leading or differentiated competitive advantage and get a good positioning. If the resources owned by the company are valuable, scarce, imitation and difficult to replace, they constitute the core competitiveness. It determines whether the company can continue to earn excess profits above the industry average.
It can be seen that the industry structure and the core competitiveness of the enterprise jointly determine the profit rate of the enterprise. Since the industry structure is considered to be established and stable for a long period of time, “core competitiveness†has always been the mainstream concept used when people consider increasing corporate profitability and enhancing competitive advantage.
There are two important assumptions behind the classic logic framework:
The first is the "zero sum game." Because the core resources are very scarce, one or the other, companies must compete for you. This is reflected in the relationship with competitors, which is short-handed and incompatible with each other; in the relationship with upstream and downstream partners, it is to increase the power of negotiation and compete for a larger share of the profit pool.
Second, the core competitiveness places great emphasis on the possession and control of internal resources. When Prahalad and Hamel proposed the concept of core competence, they defined it as “the accumulation of knowledge within the enterprise, especially on how to coordinate different production skills and organically combine the skills of multiple technologiesâ€. It can be seen that core competitiveness is endogenous. In other words, the competitive advantage comes from the resources owned by the enterprise value chain activities.
These two assumptions inevitably bring two limitations.
The first is the unity of core competitiveness. For any company, resources are always limited and cannot be comprehensive, so they cannot form a sustainable competitive advantage in all aspects of the value chain. In fact, companies that can truly cultivate a core competitiveness are already quite good, and companies with multiple core competencies are almost non-existent.
Another limitation is that core competencies tend to become core rigid. Core competitiveness requires the support of a systematic organizational system such as structure, process, and culture. The stronger the core competitiveness, the stronger the systematic coupling of organizational processes, culture and people, thus forming the path dependence of the organization. When the industry changes, the stronger the core competitiveness, the more difficult it is to change. Kodak is a classic case subject to core rigidity. In the 1990s, Kodak Films had annual sales of US$19 billion. Its brand is deeply rooted in people's hearts and has a lucrative reputation. It has world-leading technology research and development capabilities. However, the absolute advantage in film technology has become the biggest constraint for its transformation of digital technology. Kodak first invented the digital camera, but because the popularity of digital technology will damage the sales of its core business film, Kodak has been stunned by the advancement of digital technology, and ultimately suffered from it, missing new opportunities in the digital age.
The sources and limitations of corporate competitive advantage under the classical strategic framework are quite obvious. In the context of the big industrial era, the industrial structure can remain stable for a long period of time, and consumers' demands for products are relatively simple and single. Therefore, the rigidity and unity limitations of core competitiveness are not outstanding. The development of core competitiveness in a fixed value chain is the most common and secure way to gain competitive advantage. This is why the classic strategic framework has been around for a long time.
Ecological advantages in a new competitive environment
Entering the information age, especially after the popularity of mobile Internet and smart hardware, the industrial environment and consumer demand have undergone tremendous changes.
On the one hand, the need for integration increases: consumers are no longer satisfied with a single product function, but want to get a package of personalized solutions from a small point of contact through simple, extreme interaction. On the other hand, industry cross-border increases the uncertainty of competition. Around 2007, after the birth of the mobile Internet, the industry environment became more complicated and blurred. For companies in the midst of it, competitors and partners may come from unexpected cross-border areas, and they must always be prepared to enter unfamiliar areas and meet the challenges of cross-border traders.
That is to say, today, the rigidity and unity of core competitiveness have become the main contradiction. Industry integration and turmoil do not allow companies to stand still, and the escalation of consumer demand has forced companies to remain open and flexible. Obviously, the applicable conditions of the classical theory have changed, and we must rethink the source of the competitive advantage of the enterprise in the new context.
Therefore, we propose the concept of “ecological advantageâ€. The “ecology†here refers to the value circulation system of symbiotic, mutual and regenerative enterprises and individuals with heterogeneity on the basis of mutual dependence and reciprocity. The advantages of enterprises are not only derived from the optimization of internal value chain activities and the accumulation of resource capabilities, but also the effective use of external resources, that is, the ability of enterprises to combine business ecosystem elements, coordinate and optimize partnerships within the ecosystem. Contrary to endogenous competitive advantage, ecological advantage emphasizes “external relationshipâ€, not only focusing on its own value chain, but also redefining and optimizing the activities on the value network, and managing resources that are not owned.
Under the classic strategic framework, companies develop core competencies by occupying and controlling valuable, scarce, difficult to imitate and irreplaceable resources, thereby continuously providing cost-leading or differentiated products. From an ecological perspective, companies should continually increase the heterogeneity, embedding and reciprocity of their partners in the ecosystem. Heterogeneity corresponds to “symbiosisâ€, which makes the ecological function more rich and diverse; embeddedness corresponds to “mutual interactionâ€, which makes the ecological partners depend on each other and support each other; reciprocity corresponds to “regenerationâ€, and the whole ecology is in the individual. Balance and enlargement with collective, current and future interests. Ecosystems with heterogeneity, embedding and reciprocity have the ability to adapt and amplify – flexibly combine the core competencies of different firms, adapt to changing environments, and create synergies and amplify competitive advantages.
Corporate advantage panorama
Competitive advantage and ecological advantage are two parallel concepts. From the definition of comparison, the competitive advantage within the main, the ecological advantage is outside, in each dimension, there are essential differences between the two; from the perspective of the path affecting the profit rate of the enterprise, the competitive advantage directly affects the competitive position, and the ecological advantage changes. Collective action, and indirectly optimize the industry structure and improve the competitive position through collective action, respectively affect the profit rate of the company from different paths.
It can be seen that competitive advantage and ecological advantage do not have a mutual substitution effect, which is a different dimension to explain the level of corporate profitability.
With the two dimensions of “competitive advantage†and “ecological advantageâ€, we can outline the advantages of different companies. According to the different positions of the company in the map, it can be divided into four types: "panda", "tiger", "ant colony" and "wolf group".
In the lower left corner, companies with relatively few competitive advantages and ecological advantages are called “pandasâ€. Nature's giant pandas have poor adaptability to the environment and can only survive in the nature reserve. Similarly, panda-type enterprises refer to those enterprises whose core resources are weak, unable to mobilize and make full use of the partners in the business ecosystem, and usually rely on low labor costs, policy protection and other factors to imitate follow-up. In order to survive.
For example, in many industrial parks, incubators, and monopolistic companies in our country, this is the case: their survival depends on lower factor prices (sometimes at the expense of the environment), special relationships or policies with related parties. The monopoly position under protection does not really establish a competitive advantage and an ecological advantage.
Tiger
The second type of enterprise is in the upper left corner, and we call it "the tiger." The tiger is fierce and unusual, and he is the only one who is the best in the mountains. But if you face agile prey in the open area, there are very few tigers in individual combat. Analogous to the enterprise, the Tiger Tiger Enterprise refers to a company that has core competitiveness and can continuously innovate and achieve breakthroughs on a given track, but is not good at connecting external resources and partners, and the ecosystem optimization ability is weak. If the industry structure of the Tiger-type enterprises is relatively stable and the development track of the industry is mainly driven by incremental innovation, their competitive position is hard to be shaken.
If the industry in which it is undergoing major changes under the influence of technological applications, consumer demand and other factors, and the development path is driven by discontinuous innovation, the tiger-type enterprises will face considerable challenges. Even star companies in the industry may be overturned. For example, as a leader in the field of consumer electronics, Sony's e-book reader and MP3 were defeated by Amazon's Kindle and Apple's iPod, respectively. The reason is that the value of the consumer electronics industry is not only in the context of the popularity of wireless network applications. It's just technology, it's also a combination of content providers to provide a solution that integrates (both hardware, platform and content). Amazon and Apple seized the opportunity to build an ecosystem with e-book/music content providers. Although Sony has a strong hardware design and craftsmanship, and its core competitiveness is strong, it has to be inferior in competition because it is not good at building an ecosystem.
Ant colony
The bottom right corner of the matrix is ​​the third type of enterprise "ant colony." Ants are characterized by their weak body, but they have strong synergistic organization. Therefore, as a group, the power of ant colonies cannot be underestimated. The same is true for ant colony-type enterprises: although they are not strong in their own core competitiveness, they have a sensitive insight into the trend of industrial change, have a strong appeal to ecosystem partners, and are good at mobilizing and utilizing external resources. Used. In this way, with the ecological advantage, ant colony enterprises are likely to surpass the tiger-like enterprises that are known for their core competitiveness in a complex and dynamic environment.
For example, when Amazon introduced the first-generation e-book reader Kindle, the performance and design of the hardware were not top-notch; when the Xiaomi mobile phone was released, it was only for some existing module integration and system optimization, and there was no unique core resource. But with the understanding of user needs and the combination of industry resources, Amazon and Xiaomi have a great impact on the ecosystem.
However, what must be seen is that ecological advantage is only one aspect of corporate advantage and cannot replace the competitive advantage brought by core competitiveness. When it is affected by new technologies, industry integration and cross-border cooperation become frequent (that is, when the ecosystem becomes important), ant colony enterprises are likely to take the lead in competition with Tiger Tiger enterprises by virtue of their ecological advantages. But this is only temporary. In the long run, the changes in the industrial environment are intermittent, and in the relatively stable stage, they mainly rely on core competitiveness.
In addition, when the snoring "tiger" wakes up and focuses on building an ecological circle, it will also bring great competitive pressure to ant colony-type enterprises. Although Xiaomi mobile phone is good at building an ecosystem, it has not established its core competitiveness for many years. Recently, it has been challenged by traditional star companies such as Huawei, whose performance is not as good as expected, and the voice of Xiaomi is also being asked more and more. It can be seen that even if the ecological circle is perfect again, it cannot give up the cultivation of core competitiveness, otherwise it is likely to be short-lived.
Wolves
The upper right corner of the matrix is ​​the "wolf group." The speed and endurance of the wolves are outstanding, and it is commendable that the collaboration ability is also excellent. Corresponding to enterprises, wolves-type enterprises refer to enterprises that have both competitive advantages and ecological advantages. Today's unusually turbulent, uncertain, complex, and ambiguous environments increasingly require companies to have the characteristics of a "wolf group."
When Amazon introduced the first-generation Kindle, its design and performance were not as good as those of Sony's readers. However, its performance has been continuously improved. It has launched innovative products such as the backlit screen and the color screen Kindle Fire series. Its minimalist design is also available. Praised by the outside world, this shows that Amazon has fundamentally strengthened its competitive advantage. In fact, after the success of the first generation of Kindle, Barnes & Noble, the largest book retailer in the United States, followed the example of launching its own reader Nook. Apple also released the iPad and supporting e-book market to face Amazon. However, none of these latecomers can shake the Kindle's leadership position, which is inseparable from Amazon's continuous consolidation of its core competitiveness and construction of a moat. The background of the consumer electronics industry has typical characteristics of high competition, complex fuzzy turbulence and high uncertainty, requiring enterprises to have both ecological and competitive advantages. It is because of its ecological advantages that Amazon can win in the competition with Sony. It is precisely because of the rapid development of competitive advantage that it can compete with giant companies such as Barnes & Noble and Apple in an invincible position.
An important implication of the enterprise's advantage map is that the source of future advantages may come from within or outside, and is a combination of competitive advantage and ecological advantage. Each company can assess its position on the map based on a panoramic view of the company's strengths. Some enterprises (below the dotted line, the lower right corner of the matrix) use external resources to make up for the lack of internal resources. Some enterprises (falling above the dotted line, the upper left corner of the matrix) use internal resource capabilities to make up for the shortcomings of external connections. .
This map is not intended to compare the pros and cons of pandas, tigers, ant colonies, and wolves, and in many cases different types of businesses (due to their environment) are not comparable. In fact, whether it is a panda, an ant colony, a tiger or a wolf, as long as it matches the competitive environment of the industry, it can survive and develop. But we must see two things:
First, whether the enterprise's advantage matrix can help it achieve higher profits is inseparable from its environment. When the competition is fierce, but the industrial structure is stable and gradual development, the competitive advantage based on core competitiveness is more important; when the industrial structure undergoes discontinuous changes and cross-border integration becomes the main theme, the ecological advantage based on collective action is more important; When the industrial environment has high-intensity competition and structural changes at the same time, competitive advantages and ecological advantages are indispensable.
Second, if we look at the general trend of changes in the industrial environment, we can be sure that under the impetus of policies and technologies, the “cherished animal protection zone†(stable environment) suitable for pandas will be less and less. Competition among enterprises will become more and more fierce, and changes in industrial structure will become more frequent. Different industries may have a rush in the process of going through this process, but this is still the trend of the times. Enterprises must review the situation and make precautions based on their judgments on the future business environment, and adjust and update their own advantages in time.
Path to enhance corporate advantage
The competitive environment is ever-changing, and the position of the enterprise on the dominant matrix is ​​not static. In the PC era, Microsoft is regarded as a classic, whether it is its own competitive advantage or based on its relationship with Intel and many software developers, hardware manufacturers, and channel providers. However, after entering the mobile era, due to the lack of corresponding layout, Microsoft's ecological advantage was gradually lost, and it was once in crisis. However, with the launch of a series of products such as Windows 10 and Surface Pro and the emphasis on mobile, Microsoft is working hard to return to the ranks of wolves. It can be seen that the combination of competitive advantage and ecological advantage of enterprises is dynamic.
And such dynamic changes are regularly ruled. Let's go back to the "Business Advantage Panorama" for analysis.
When the company is in the upper left corner and has the characteristics of “tigerâ€, it can build the ecosystem more effectively than the “panda†lacking core competitiveness. This is because: core competitiveness is the basis for calling on ecosystem partners and combining ecological capabilities. Once this foundation is lost, the company loses its foothold in the ecosystem. Imagine how a mediocre company can attract the best partners, coordinate and mobilize the resources of ecosystem partners. It may be possible in the short term - this requires business leaders to have outstanding personal charisma and resource organization skills. But in the long run, high-quality partners will sooner or later turn to more powerful companies and abandon participants without core competencies.
In the 1980s, as the PC hardware boss, IBM gathered a group of companies such as Microsoft and Intel to achieve the ecosystem of compatible machines around IBM-Windows-Intel with an open attitude, and defeated the competitors at that time. Apple. But then, as IBM further opened its hardware standards, it was unable to maintain its resource exclusivity in hardware manufacturing. IBM gave up its core competitiveness and lost its voice in the ecosystem. The PC compatible machine market has also evolved into an ecosystem centered on Windows and Intel (known as Wintel). Today, Apple is able to attract a large number of software vendors, channel vendors and other service providers around it, forming a virtuous circle of ecosystems, which is inseparable from its strength in hardware and system design. Therefore, the competitive advantage based on core competitiveness is the fulcrum of inciting ecological advantages.
When the enterprise is in the lower right corner and has the characteristics of “ant colonyâ€, it can also make full use of the power of the ecological circle to develop competitive advantage compared to the “panda†lacking ecological advantage. This is because: the ecosystem provides enterprises with a rich external resource pool, from which they can selectively extract valuable, scarce, difficult to imitate and irreplaceable resources to become core competitiveness. For example, for Alibaba, around its e-commerce platform, payment tools, communication tools, O2O and other derivative services have formed a feature-rich ecosystem. These in turn help Ali get more data, have a more accurate and deeper understanding of the user, and consolidate its core capabilities. It can be seen that the ecological advantage is the source of amplifying competitive advantage.
Competitive advantage and ecological advantage complement each other: competitive advantage is the basis for maintaining ecological advantage; ecological advantage is a system for amplifying competitive advantage. Whether it is to develop competitive advantage first, then use its power to incite ecological advantages, or to develop ecological advantages first, and then use its resources to build competitive advantage, it is the same goal. However, the choice of path is closely related to the industrial environment: when the competitive environment is extremely fierce, the urgency of competitive advantage will be higher; when industrial integration and cross-border cooperation arise, the importance of ecological advantage will be particularly obvious.
Smart companies should always pay attention to the changing trends of the industry and adjust their own advantages and combinations. In this process, if you are good at using the relationship between competitive advantage and ecological advantage to form a virtuous circle, it will enable the company to get twice the result with half the effort and get to the road to success faster.
Liao Jianwen Cui Zhiyu | Wen Liao Jianwen is the Associate Dean of Cheung Kong Graduate School of Business and the Academic Director of the Innovation Research Center. Cui Zhiyu is a researcher at the Innovation Research Center of Cheung Kong Graduate School of Business.
Li Jian | Edit this article has been abridged, the original text see "Harvard Business Review" Chinese version of July 2016 "Enterprise Advantage Matrix: Competition vs Ecology" (Eco-advantages: A new dimension of advantages).
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