11 September 2014
I win, you lose. That was one traditional approach to competition in business.
You were involved in a head-on fight. Of course there would be casualties and some squandering of resources as product categories or brands lost out. But that was OK.
We lived in a growing and largely predictable world. There was no reason to abandon business as usual.
Today, things look different. Recovery from the global financial crisis has been slow and uncertain. And even now, in markets where economic data might be expected to provide encouragement, business confidence is hardly soaring. This “new normal” displays symptoms of a hangover earned at a party that ended several years ago.
These are some of the conclusions to be drawn from a soon-to-be-published report from PA Consulting, called The new nature of competitiveness: Beyond a culture of contest.
The firm has spoken to 300 companies of various sizes and sectors operating in 19 countries, and found leadership teams struggling to innovate and develop new business models, often impeded by outdated legal and regulatory environments, and undermined by unthinking and ultimately destructive financial orthodoxy.
But it is not all bad news. Consider the aerospace industry. Colm Reilly, managing director of PA Consulting’s trade and investment team, notes that collaboration has brought huge efficiency savings and allowed technological advances to be shared.
Innovation is plateauing, we’ve not had this ‘cycle of demise’ since the Renaissance
Aircraft fly carrying a fraction of the fuel they used to need, while strong composite materials make them lighter and safer. The overall industry safety record – leaving aside the two recent (and exceptional) Malaysian Airline incidents – is impressive.
In the pharmaceuticals industry, on the other hand, competition provokes destructive behaviour.
Legal action can be taken to prevent cheaper products being brought to market if they might damage the earnings potential of key (and still patented) drugs and the short-termism of investors dissuades companies from researching treatments for more difficult medical conditions.
Pharma is not the only sector to be hamstrung in this way. “Innovation is plateauing,” Mr Reilly says: “We haven’t seen this sort of ‘cycle of demise’ since the Renaissance.”
The report makes a radical proposal to promote more effective innovation: “There is a need for government and companies to work together to remove barriers to intellectual property and create a new approach to R&D where it becomes a ‘free good’ [something available without limitations], and the prize goes to the exploitation of R&D and not its creation,” PA says.
“Collaboration in all of these fields is essential, although competition can exist at the product, market and service level.”
Intelligent collaboration rather than head-on competition makes sense in a world of limited resources and financial volatility. Less dramatic. But much more effective.