Companies don’t operate in isolation.
Instead, they operate in fields with three to twenty competitors. And any slight, unexpected occurrence can cause a shuffle in the ranks.
It doesn’t matter if the occurrence is good or bad. Whether it be a technical breakthrough or a tsunami, change destabilizes the entire competitive environment.
Businesses have to adapt one way or another. For example, if interest rates go from 1% to 17% over a couple of years, you can’t afford to borrow money the same way you used to.
If foreign imports are entering the market and they are priced below your production costs, you either adapt (enter a specialty market, switch product lines, etc.) or you go bankrupt.
The company that changes most rapidly, seeing where the industry needs to go, will be the company that reaps the most reward. That company will move into the possibilities that arise, instead of running away.
Even in a bad situation, a company can strengthen itself comparatively against its competitors.
An example from telecommunication industry
Years ago, this reality played itself out in Israel’s telecommunication industry.
The long distance calls market in Israel was governed by one company until 1997, when the market was opened and two other companies emerged. The three companies were then in competition, but the long-established one had the advantage: anyone using a default “00” number for calls would go through their service instead of the other two.
Four years later, a four-month period arrived in which the companies could sign customers; after the four months, whoever was left unsigned would be randomly assigned to one of the three companies based on market share.
One of the two newer companies was already prepared for this period. They had invested in a variant of the Income|Outcome business simulation and rolled out the workshops with 70 managers from all over the company. The simulated product—a minute-long call to the U.S.
At the beginning of the simulation, a long distance call cost $1 per minute—which matched the real world pricing. But in one of the three workshops, the price dropped to $0.30, a 70% decrease. This result was not contrived; it rose to the surface through the simulation.
Later, when the managers got together to discuss the experience, most people said a 70% decrease in the real world was impossible. But the CEO knew better, pointing out that if it happened in a simulation, it could happen in reality.
So they prepared. They designed a strategy that would deal with that kind of pricing, and later when the price of calls did in fact drop by 70%, only one company in the market was able to digest the drastic change. They were profitable when their competitors lost money, and they grew at their competitors’ expense until their market share was neck-and-neck with the former leader.
This story illustrates that the company that responds fastest to changing conditions will be in the best position to win.
Life wasn’t made easy when those prices fell, but the prepared company used the situation to identify better growth opportunities and develop an enviable marketing position.
Speaking of preparation…
A rapid response in and of itself isn’t helpful. To truly be beneficial, the response must come from good preparation.
Simulations are great for preparation. This is why you have fire and earthquake drills.
Even though there isn’t a fire or earthquake, the participants understand what might happen. If disaster strikes, they can respond immediately and appropriately rather than panicking.
It’s exactly the same with financial obstacles.
What will happen if oil rockets back up from $60 to $200 a barrel?
If you’re prepared, you’ll have mental agility to handle it. The rise in price isn’t going to make life more profitable, but prepared companies will lock in future purchases or find ways to switch out from oil to other forms of energy.
Big changes are happening three or four times every decade. There is a gulf war, a financial collapse, a technological breakthrough . . . any number of unforeseen game-changers.
There are no stable industries any longer. The closest thing to stability is adequate preparation. If you can simulate changing conditions, you will have the means to respond.
Your company culture should have a rapid flow of information and understand the needs of each department.
In that environment, you’ll have people who are more interested in coming up with plans—and being flexible about re-thinking those plans.
Your greatest competitive advantage is not your existing technology or your existing infrastructure. The best strategic benefit that you can have as a company is your ability to respond to unexpected change.