A NEW CHALLENGE FOR BUSINESS ADMINISTRATION IN THE
NEW MILLENNIUM: CONFRONTATIONAL COMPETITION
Gökhan ÖZER
Assoc. Prof. Dr.
Gebze Institute of Advanced Technology
Orhan SAVAŞ
Lecturer
Erciyes University
Yozgat Faculty Of Economics And Administrative Sciences
Key Words:
Survival Triplet, Survival Zone, Confrontational Competition
ABSTRACT
As more firms convert themselves to lean enterprises, the way they have to compete
will change from mass competition to confrontational competition. As far as we are
concerned; competition among firms in the new millennium will be determined by the
conditions of confrontational competition.
What is confrontational competition environment? What are differences from
confrontational competition and mass competition? Why do M. Porter’s generic strategies
not suit in the new competition environment? In this study, the answers are investigated these
questions above mentioned.
1. INTRODUCTION
20th century has experienced two major revolutions that to be realized in production.
One of them is mass production and the other is lean production. Because these production
systems have spread to other countries and industries more slowly, they could not be seen as
major factors determined competition strategies. This situation has caused to be seeked
unrelated factors to explain the conditions of changing competition.1
M. Porter’s generic competition strategies are result of mass production2 and
confrontational competition strategies are result of lean production system. Naturally,
competition among firms adopted mass production and lean production will be different from
each other.
But, confrontational competition does not emerge suddenly. Until the number of firms
adopted lean production system in an industry has reached to sufficient level, lean enterprises
compete as if they were mass producers and earn high profit. When the number of firm is
sufficient, confrontational competition which is the new way of competition is appeared
clearly.
1
Cooper, Robin; When Lean Enterprises Collide, Harvard Business School Press, Boston Massachusetts, 1994,
p. 3.
2
Porter, E. Michael; Competitive Strategy: Techniques For Analyzing Industries And Competitors, New York,
The Free Press, 1980.
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Related to emerging and spreading of lean production, competition environment will
transform from mass competition to lean competition. Before business managers have
planned the futures of his firm, they have to understand that lean enterprises do not compete
as mass producers.
What are the characteristics of confrontational competition environment? Why do not
Porter’s generic strategies suit in the new competition environment? What are competition
strategies to be followed in confrontational environment? The aim of this study, to find
answers these questions above mentioned.
The generic strategies of competition, managing survival triplet, surviving in the
confrontational competition environment are main titles that have been examined our
research topic.
2. THE GENERIC STRATEGIES OF COMPETITION
Generic strategies related to competition among firms can be classified as cost
leadership, differentiation and confrontation strategies. Most of existing literature related to
competition strategies based on that firms can gain sustainable competitive advantages related
to product and in this way, can avoid from competition.1 For example, the cost leader is able
to offer products that are low in price and functionality by developing a sustainable cost
advantage. This ability allows the cost leader to avoid competition by rendering its rivals
unprofitable.
Differentiators offer products that have higher functionality than the cost leader but,
sell at higher prices. Product differentiators avoid from competition by hinting that it is
impossible to compete with them.
This thinking way above mentioned has based on strategic portfolio planning.2 In this
context, stars are the units of firm that can be differentiated easily. Question marks are the
units of firm that have differentiation potential. Dogs are the divisions that can not
differentiate themselves. Cash cows are the divisions that have lost its differentiation
potentials.
The contrary assumption which is that competition is unavoidable leads the emergence
of the generic strategies of confrontation. Firms adopted confrontation strategy do not try to
be cost leader and product differentiator. Instead, while they try to keep their products ahead
of those of their competitors, do not hope sustainable competitive advantage. In contrast, Lean
enterprises compete through transitory competitive advantages.3
2.1. Survival Triplet And Survival Zone
The three product characteristic known as survival triplet have an important role firm
success that adopted confrontation strategy. Survival triplet is different from producer
perspective and customer perspective. For a customer; While the characteristics of survival
triplet are product price, perceived quality and product functionality, for a producer, are
product cost, quality and product functionality. Product cost can be independent from its cost
1
Ghemawat, Pankaj; “Sustainable Advantage”, Harvard Business Review, September-October 1986, pp. 53-58.
2
Heldey, B; “Strategy and The Business Portfolio”; Long Range Planning, February,1977, p. 12.
3
Cooper, Robin; Ibid., p. 11.
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as transitory. But, in the long term, firms desired to become profitable have to adjust to costprice relationship carefully. Consequently, the characteristics of survival triplet can be
determined as cost-price, quality and functionality.(Figure 1)
quality
functionality
Figure 1: Survival Triplet
In the survival triplet approach, it is accepted that selling prices are determined by
market conditions that are highly competitive. Product cost is the value of the resources
consumed to get the product into the hand of customer. Cost includes all investment costs
such as research and development costs, all production costs and all marketing and selling
costs. It is not externally, unlike prices, like quality and functionality has to be managed
carefully.
Quality is defined as the performance of product specifications. This definition renders
an opportunity that quality and functionality can be seen as two different product
characteristics.
Functionality is the specifications of product. It is not a single dimension but, rather is
multidimensional. In this context, firm may want to differentiate between the fundamental
functionality of the product and service functionality. Such a differentiation may permit better
understanding of competitive conditions that firm face.
Each product sold by the firm has different value related to the characteristics of the
survival triplet. Only product that its value of survival triplet characteristics accepted by
consumer has a chance of being successful. Consequently; for each product, it is useful to
define a survival zone identified by the gaps between the feasible and allowable values of
three dimensions of survival triplet. (Figure 2)
For quality and functionality, minimum allowable level is the lowest value of each
characteristic that the customer is willing to accept regardless of the values of the other two
characteristics. Few customers are willing to buy a product no matter how low the price or no
matter how high the quality.
For quality and functionality, maximum feasible level is the highest value can be
achieved by the firm without inducing significant penalties in other characteristics. Above a
certain functionality level, quality problems related to products will happen and higher price
will be demanded to earn sufficient profit. Products which are low in quality and high in price
will be desired few customers. Because its maximum allowable level is determined by the
customers and minimum feasible level is determined by the firm, price is different from other
characteristics of survival triplet. The maximum allowable price is the highest price that
customers are willing to pay regardless of the values of the other two characteristics. The
minimum feasible price is the lowest price can be accepted by the firm at the allowable
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quality and functionality level of the product. While the critical characteristic is price in
customer, for a producer, is cost. The minimum acceptable profit at any price level transforms
cost to price.1
Figure 2: The formation of the survival zone for a product
Source: Cooper, Robin; When Lean Enterprises Collide, Ibid, p. 19.
2.2. Product survival zones for mass and lean producers
In markets where mass producers are competing, one producer occupies cost leader
position and the others occupy differentiator positions.(Figure 3)
Normally, there is not competition between cost leader and differentiator as long as
the quality and price gaps are sufficiently large to support the price gap. Consequently, the
cost leader offers products as close to origin as possible. But, these products are inside their
survival zones.
Because the differentiator sells the products at high quality and functionality than the
cost leader at a high price, the differentiator offers products that is as far away from origin as
possible. These products are inside their survival zones, too.
Emerging of the lean enterprises changes the shape of survival zone. Although lean
enterprises increase the level of quality and functionality significantly, they narrow the ranges
of survival zone dramatically. (Figure 4)
Improvements realized in product functionality are sourced from faster learning ability
of lean enterprises.2 Because their competitors catch up quickly, the differences between
product functionality are small. These ideas related to product functionality are also valid for
the other two characteristics of survival triplet. It is not possible to remain as a differentiator
in the narrow survival zone of lean enterprises. There is not enough customer for a firm to
differentiate their products significantly and will sell them at high price to cover increased
cost.
All lean enterprises offer products at a low cost and with high quality and
functionality. In this reason, confrontational competition strategies are applied effectively
when all firms occupy same competitive position. Lean enterprises offer equivalent products
1
Slagmulder, Regine; Cooper, Robin; Target Costing And Value Engineering, Productivity Press Portland,
Oregon, 1997. p. 34.
2
Womack, P. James; Jones, D. T.; Lean Thinking, New York; Simon & Schuster, 1996.
80
to almost the same customer group. Because the firms are almost matched on all three
dimensions of the survival triplet, there is not alternative to compete head on and to adopt
confrontational competition strategies. This result is sourced from the narrow survival zone.
Figure 3: Survival zones for mass producers
Source: Cooper, Robin; Ibid., p. 20.
Figure 4: The collapse of the survival zones of mass producers
Source: Slagmulder, Regine; Cooper, Robin; Ibid, p. 35.
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3. MANAGING OF THE SURVIVAL TRIPLET CHARHACTERISTICS
Firms adopted confrontation strategy should be expert to offer products that have
desired functionality by the customers, at low cost and high quality. Cost, quality and
functionality expertness required this result should be applied consistent strategy based on
offering products at right quality and functionality and at the right price. Confrontational
competition approach requires the integration of cost, quality and functionality management
systems. The fast reaction of the firm to economic conditions is sourced from the integration
of the systems above mentioned.1 Features concerning the cost, quality and functionality
management systems in confrontational environment are explained in the paragraph below.
3.1. Managing the product functionality
To shorten the time required to add new features to the product, to change the way of
product differentiation and to change the nature of product features are method that may be
used competing via product functionality.
3.2. Managing product quality
Quality is managed via total quality programs.2 In most Japanese firm, total quality
programs are so successful that additional improvements in quality do not posses any
importance for the customers.3 Consequently, the survival zone in most products is extremely
narrow in quality characteristic. From now on, quality is negligible hygiene factor as long as
under control.
3.3. Managing the product cost
In this frame which is the expertness which to offer the products at high quality and
functionality at low price, lean enterprises competing in confrontational competition
conditions have to manage the product costs effectively. Cost management techniques that
can be classified such as managing new product cost, managing existing product cost and
harnessing entrepreneurial spirit of work force are used to control the life-cycle costs of
products. While target costing, value engineering and interfirms cost management systems are
techniques for managing new product costs, kaizen costing, operational control and product
costing systems are techniques for managing existing product costs. Sperating of the firm into
real and posedo micro profit centers are techniques for harnessing entrepreneurial spirit of
work force.4 The most important one of the cost management techniques above mentioned is
Target costing because effective cost management must focus design phases.(Figure 5)
1
Slagmulder, Regine; Cooper, Robin; Ibid, p. 37.
2
For the total quality management, Crosby, P. B; Quality is Free, New York: Mc Graw-Hill, 1979.; Hauser,P.,
Clausing, D; “The Hause Of Quality” Harvard Business Review, vol.66, May-June 1988. pp. 63-73.; Ishikawa,
K; What is Quality Control? The Japanese Way; Englewood Cliffs,Prentice-Hall, 1985 may be examined.
3
Slagmulder, Regine; Cooper, Robin; Ibid, p. 38.
4
Monden, Yasuhino; Hamoda, Kazuki; “Target costing and Kaizen Costing In Japanese Automobile
Companies” (A); Journal of Cost Management Accounting Research, 1991. Vol. 3, p. 16.
82
Figure 5: Life-cycle Costs and Cost Committ,ment
Source: Lorino, P. 1995. Target Costing- Part 1: Target Costing-Practice and
Implementation. Articles of Merit 1995 Competetion: FMAC Article Award for Distinguished
Contribution to Management Accounting.
In addition, Target costing offers a lot of advantages as follows: first, it reinforces topto-bottom commitment to process and produce innovation to achieve some competitive
advantages. Second, it helps to create a company’s future with market-driven management for
designing and manufacturing products that meet the prices required for market success. Third,
it uses management control systems to support and reinforces manufacturing strategies; and to
identify market opportunities that can be converted into real savings to achieve the best value
rather than simply the lowest cost.
3.4. Managing the Survival Triplet Characteristics Simultaneously
While competing in confrontational competition environment, it will be wrong to give
same importance to the survival triplet characteristics. Fundamental subject is to identify the
degree of improvements related to each survival triplet characteristics. For example, the most
important characteristic for product that customers want functionality improvements
continuously and are willing to pay its price is functionality. In competitive conditions that
prices are determined by the market, cost will be the most important survival triplet
characteristic. While to be very good at one of the survival triplet characteristics, not to give
sufficiently importance to the other characteristics will cause to be moved out of the survival
zone.1 One of the subject must not be forgotten that being too good at survival characteristics
is usually as bad as being not good enough. Second is that the most important characteristic of
the survival triplet may change continuously.
1
“The Five Deadly Sins of Japan’s Expanding “High Tech Syndrome””, Tokyo Business Today, May 1992,
pp. 34-36.
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4. SAME IMPORTANT ASPECTS OF TRANSITION PERIOD TO
CONFRONTATIONAL COMPETITION ENVIRONMENT
It is uncertain that whether all firms in the transition period survive or not. All firms in
the transition period should determine, firstly, that their weaknesses and strengths and
evaluate the success chance of transition efforts. Instead of delaying withdraw time by
attempting with insufficient resources, it may be useful to be withdraw from the market.
Firms that have decided their resources strong enough to realize the systems which are total
quality management, product development management and cost management, organizational
context and culture must be in harmony for successful adaptation of the confrontation
strategy.
Firms which have understood that the cost leadership and differentiation strategies can
not be applied in confrontational environment must examine competitive conditions which
consist of detailed analysis of competitive environment, product life-cycle and technologic
maturity when they are ready for entering to the confrontational competitive environment. It
may be useful for some firms to delay adopting the confrontation strategies to spend the
transition period to get ready for the hard conditions of confrontational competition
environment.
Once the firms in an industry have adopted the way of lean competition, The way of
competition does not change suddenly. Indeed, it changes gradually from mass competition to
confrontational competition.1 As the cost leader generates extra profit by allowing the
differentiators to create price umbrella, in the early days, lean enterprises generate extra profit
by allowing the mass producers to create the shape of product survival zone. As lean
enterprises increase in an industry, they change the nature of competition by changing the
shape of product survival zone. In this situation, as the confrontational strategies are dominant
factor, mass producers which are the remainder of the transition experience that their profits
and ability based on the survival triplet characteristics required to create sustainable
competitive advantage have lost. This contention is supported by the results of a survey
conducted in process and assembly companies by Tani, Okano, Shimuzo, İwabuchi, Fududa
and Cooray.2 Firms in this position should avoid to make a mistake like protecting existing
competitive advantage or spending sources to create new competitive advantage because there
is not sustainable competitive advantages, from now on.
5. SURVIVING THE CONFRONTATIONAL COMPETITION
ENVIRONMENT
Surviving the lean competition environment (Confrontational) is based on creating
endless and temporary advantages by managing survival triplet characteristics effectively. All
products produced by a firm should be inside their survival zone. Factors determining the
shape of product survival zone are the changes of customer preferences, the management way
of the survival triplet characteristics of competitors and firm’s distinctive competencies.
Because they help determine which characteristics dominate to the survival zone, the changes
of customer preferences is important.
The firms can change the customer preferences and the shape of product survival zone
by offering the products that have different features in each survival triplet characteristics
while the customer preferences change the shape of product survival zone. For example, in
1
Slagmulder, Regine; Cooper, Robin; Ibid., p. 40.
2
Tani, T., Okano, N., Shimuzu, Y, Iwabuchi, J, Fududa and Cooray, S, Target Cost Management In Japaneese
Companies: Current State of The Art; Management Accountig Research 1994. N. 5, pp. 67-81
84
situation that the product functionality have determined the shape of product survival zone,
the functionality expertness of the firm will change the customer preferences and the other
firms in industry have to catch up this firm which has functionality expertness. The critical
point in confrontational markets is to change the customer preferences.1 On the other hand,
firm’s distinctive competencies can be used to differentiate their products or services and can
change the customer preferences for a temporary period.
5.1. Some Features of the lean leadership
It is possible to become lean leader in markets where dominated lean enterprises if
they manage the characteristics of survival triplet better than the competitors do. One of the
methods to become lean leader is to change the shape of survival zone radically. The product
survival zone is reshaped via radical changes. The competitors either have to catch up the
leader or have to withdraw from the market. Second method of becoming lean leader is to
achieve more improvements continuously in the management of survival triplet characteristics
than their competitors do. As all competitors in market try to achieve the same position, it will
be difficult to obtain the leadership position.
Firms that is lean leader and can sustain their leadership position realize the
sustainable competitive advantage as possible as in the confrontational markets. These firms
obtain either above average profits or market share by creating continuous competitive
advantage. But, these advantages are temporary. Although the sustainable competitive
advantage expresses a static position, the transitory competitive advantage suggests a dynamic
position. The firms avoided competition try to protect existing competitive position. Thus
these firms attempt rarely to try the efforts which will require the confrontational competition.
When the competitive advantages are temporary, there is not a position which will not be
changed. In this reason, Firms in the lean competition environment have to find the ways
continuously to beat their competitors. The lean competition environment is the environment
where competitor’s competitive advantages are beated continuously and own competitive
advantages which are changed in the short time are replaced.
5.2. Strategic Alternatives Can Be Followed By The Lean Leaders
A lean leader which want to use the advantages of its leadership position and to earn
high profits can follow, first, the strategy which is to accelerate the rate at which survival
zones shift. The lean leader with this strategy attempts to leave its competitors behind so that
their products fall outside their survival zones. This strategy is suitable both to increase the
amount of profit and the market share.
The second strategic alternative can be followed by the lean leader is to allow the
other firms in industry to dictate the rate at which the acceptable values of each survival
triplet characteristics shift. Under this strategy, firm manage the survival triplet
characteristics better than their competitors do. This strategy do not suit to increase the firm’s
market share although it is suitable to increase profit enhancement. Although a number of
factors determine which of two strategies that the lean leader will adopt, the primary one is
the relative technological capability of the firm in comparison to its competitors. If the lean
leader has the most advanced products that is, the lean leader’s first mover advantage is
strong, the first strategic alternative will be suitable. The risk of this strategy is to give a
change to the competitors such as to find out from the most advanced products. The lean
1
Hamel, Gary; Prahald, C. K.; Competition For The Future; Harvard Business Scool Press Boston,
Massachusetts 1994, pp. 73-75.
85
leader that produce at the limit of firm ability continuously can be beated their competitors
which have found out its products. If the lean leader’s first mover advantage is small, it
should be thinked about adopting the second strategy. The extra profits generated by the
firm’s superior ability to manage the survival triplet characteristics reflect the firm’s superior
efficiency relative to its competitors.1 The strategic alternatives can be followed by the lean
leader change the competitive objectives. While the first strategy is suitable for the profit
maximizing objective, the second strategy is suitable for the maximizing market share.
Firms that are not leader but, want to become leader can be leader easily in the future.
This ability reflects to the dynamic nature of the confrontational competition. Firms that do
not desire the leadership position can follow to third strategy by following the leader. In doing
this, the firm does little of the fundamental research and development required to introduce
new product and use some techniques to catch up to their competitors quickly.2
If customers compose of trendsetters and copycats essentially, the strategy of
following the leader works well. The trendsetters buy the product as soon as they are
available. The copycats buy the products after the trendsetters have bought. If the delay
between the trendsetters buying and the copycats buying is less than the time it takes the
follow the leader firm to introduce its products, first mover advantages are small and the
follow the leader strategy may be successful. If the delay between the trendsetters buying and
the copycats buying is more than the time it takes the follow the leader firm to introduce new
products and the trendsetters are more numerous than the copycats, the strategy of following
the leader will not be successful because first mover advantages are strong.
6. CONCLUSION
The conclusion of this study which explains the features of the confrontational competition
can be summarized as follows.
1. As firms become lean, it will be seen that to achieve the sustainable competitive
advantages will get difficult, cost leadership and differentiation strategies (Mass
competition strategies) will get inefficient and the profit margins will get small.
2. As more firms convert themselves to the lean enterprises in an industry, interfirms
competition will change from mass competition to the confrontational competition. In this
new competition environment, The competitive advantages are not sustainable but, are
transitory. The cost leadership and differentiation strategies do not suit but, only
confrontation competition strategies suit in the new competition environment. Finally,
small profit margins will be real
3. Firm’s success in the confrontational competition environment bases on the effective
management of the survival triplet characteristics known as the cost-price, quality and
functionality. This result determined as the firm’s success requires the organizational
context and culture which will obtain the integration of the systems which are the cost,
quality and product development management.
4. The strategic alternatives can be followed by the lean leader in the confrontational
competition environment are to accelerate at which the survival zones shift and to allow
the other firm to dictate the rate at which the acceptable values of each survival triplet
characteristics. Firms that do not desire to become the leader may follow the strategy of
following the leader.
1
Hamel, Gary; Prahald, C. K.; Ibid., pp. 149-176.
2
Value Engineering and Reverse Engineering (Tear-down Analysis) are techniques used for this aim.
86
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