Strategy – Changing the Rules of Play

BLog post 2Many theories have emerged over the years about how to grow your business at a competitor’s expense. Having identified your competitor’s areas of excellence – you might think that the best way to grow is to ‘out excel’ the competitor.

Our experience has shown that if you are not the leader, don’t try to play the game according to the rules that the leader has set. In other words, don’t try to ‘out excel’ the competitor in his areas of excellence or strategic capabilities. Playing by the rules set by the leader in an industry is certain death over time. The leader understands the rules better – because he/she designed them.

A better approach, in our view, is to change the rules of play. By changing the rules, you neutralise and paralyse the leader. As the leader is temporarily immobilised and on the sidelines, you can make significant gains against that competitor.

Examples of Companies that have Changed the Rules

One of the first companies to introduce a paper copier was 3M. But within a few years, 3M was out of the copier business. During our consulting work with 3M, we asked some of their executives to explain what had happened. 3M, they said, sold their machines to their customers. Xerox introduced its copiers and started leasing them to its customers. The 3M executives could not figure out how Xerox could make money by leasing machines. All the equations they used on leasing as an option turned out red ink. Model after model, time after time. 3M could not bring itself to understand the leasing business. As a result they were paralysed, sat on the sidelines, and watched as Xerox took the market away. Xerox had changed the rules of play!

A few years later, Canon came into the market with its copiers and changed the rules of play again. Xerox sold its machines through a direct sales force. Canon started selling through distributors. While Xerox sat on the sidelines paralysed, Canon gained a significant share of Xerox’s market.

In 2009, Travis Kalanick and Garrett Camp founded Uber. They have re-written the ‘taxi for hire’ rules by enabling customers with smartphones to submit a trip request via the Uber smartphone app, the request is then submitted to Uber drivers in the vicinity who use their own cars. All payments are billed direct to the customer’s credit card so no money is exchanged with the driver. Uber has received strong criticism from local governments and taxi firms alike but it continues to grow and expand. The business model that it has started has been duplicated by other firms and is colloquially referred to as ‘Uberification’. It will be interesting to see how Uber continues to compete against the real-time ridesharing start-ups such as Lyft and Haxi – these start-ups haven’t tried to ‘out excel’ Uber, they in turn, have also changed the rules of the game by offering reduced cost car pooling.

A company that had considerable success in a very mundane business is Domino’s Pizza. And most of that success was achieved by changing the rules of play. Thomas Monaghan, founder of Domino’s, invented the concept of ‘guaranteed home delivery within 30 minutes’. This guarantee was possible because of the development of a special envelope around the pizza to keep it warm during the delivery. As a result, Domino’s grew to several thousand outlets with almost no reply from its competitors.

Back in 1983, Tim Waterstone, the founder of Waterstone Booksellers, decided to change the rules about how books were marketed. He introduced the concept of bookstores with over 100,000 titles – compared to the W.H.Smith stores which carried less than half that number. The choices that Waterstones made during the next few years have ensured its continued prominence in the high street where other booksellers have failed.

In 1997 Reed Hastings and Marc Randolph decided to change the rules of the ‘movies at home’ game by founding Netflix. DVD and Blue-ray disc rentals were sent to customers via the mail system in the US. By 2007 Netflix had delivered its billionth DVD, four years later it reported 23 million subscribers in the US and 26 million worldwide. With the worldwide transgression to on-line movie streaming in January 2016 Netflix reported that its total number of global streaming subscribers had reached 74 million!

Our experience with corporations has made us firm believers that the best way to neutralise a competitor’s strategic heartbeat is to change the rules of play.