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At the Uncertainty Project, we explore models and techniques for managing uncertainty, decision making, and strategy. Every week we package up our learnings and share them with the 1,800+ leaders like you that read this newsletter!

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Competition and Strategic Decisions

Part 1 of 3

Over this three-part series, we will explore how competition is the underlying fabric of our context for strategic decision making. Here in Part 1, we will make the case that there are forms of competition shaping the strategic context at all altitudes and all functions in an organization. With an understanding of competition influencing value creation, better tradeoff decisions can be framed and executed. This focus is what reveals (competitive) advantage, and how you drive change, to create that advantage, to “win” or succeed.

First, let’s remind ourselves why it’s worth talking about competitive pressures with a wider set of leaders across the organization.

One of the ways to improve decision speed and quality is to push decisions closer to the front lines. Decentralizing decision making demands that we strengthen the organization’s decision making capabilities, with good decision architectures.

And when we ask a wider group of leaders to make decisions, we are asking that wider group of leaders to think strategically. Pushing decisions down through the organization implies that we are pushing strategic thinking down through the organization.

And that leads us to thinking about competition.

Competition is the backdrop for strategic decision making. A lack of clarity around competitive pressures can contribute to the overall sense of uncertainty. This is a big source of the fog that envelops us.

When making strategic decisions, making something better will always look like a good idea, in isolation. But with finite resources, you’ll have to focus in some areas at the expense of others. These tradeoff choices must be shaped by the competitive environment.

We usually think of competition as something that happens between companies, enterprises, or large organizations, but it’s more pervasive. All decisions are made in some kind of competitive environment. The trick is to define it: to identify the playing field and the players accurately.

And, most importantly, you don’t have to be running a business to take on this mindset. We all face different forms of competitive pressures. Ignore your competitive context, and you’ll notice that things around you maybe “just aren’t making sense”.

Take a look: You create some kind of value in your organization. You’re competing against:

• Alternatives - that your customers or your users could choose or use

• Time - erosion or decay of value, or limited windows of opportunity

• New Ideas - that are also worthy of investment, in your own organization

And the rules of the game are subjective. It’s more like Olympic diving than swimming. Scoring is done by judges, and their incentives can be opaque.

Once you can describe the competitive environment, you can seek to “get inside the head” of the competition, with OODA loops. A competitor will react to your actions. Have you considered that possibility in your strategy? The fog thickens.

Overall, developing a competitive mindset should help shape and then improve your organization’s decision architecture. Your decision architecture can enable:

• Criteria that establish “good” in a way that is relative to alternatives (not absolute)

• Decisions that seek to extend leverage with asymmetric bets vs. seeking a balance and distributed investment (i.e. “peanut-buttering”)

• A more comprehensive shared understanding of competition, to support decentralized decision making across the organization

• Leaders to make tough, unpopular decisions, by taking friction out of these trade-off decisions

• Better definitions of (and comparisons of) value, relative to the competitive context

Where does competition happen? 

Everywhere. Everyone competes. Some are just more aware of it than others.

“Feeling” competition is part of having an entrepreneurial mindset about your job. Andy Grove once said, “Only the paranoid survive.” That’s a sign of someone fully aware that they work in a competitive environment.

Competition forces us to define what success means. What is a “win”? From that we can think about risks to that envisioned success - the things that might prevent us from “winning”. Discussing these risks helps us surface the “uncertainty that matters” (which is one definition of risk). 

And the risks frame our strategy development. Strategy has a playing field. A field on which we compete. But that dense fog hovers over that field. But still! Decisions are happening all over that field, all the time. As they must.

Given these foggy conditions, Roger Martin argues that we need to move the center of gravity for competitive decision making from the top of a hierarchy to the front lines, where customer interactions happen. From the coach on the sidelines, to the quarterback on the field.

“Understanding competition as something that happens around individual customers at the front line rather than as a war between organizations upends much of what managers assume, consciously or not, about mission, strategy, culture, organization, and decision making.”  

“The classic model holds that corporations compete, and a central job of the corporate level is to organize and control the levels below it. A more effective model holds that competition happens at the front line where real customers are served, and that the job of every corporate level above the frontline level is to help the level below it to serve the customer better.” 

- Roger Martin, “A New Way To Think”

This redefinition of the job of senior leaders is consistent with the idea that they should “decide how to decide” and own the decision architectures for their organizations (but maybe make fewer decisions directly).

So, what’s happening out on those front lines, and at the ground level, in teams of all kinds? Value creation. And this is where we need to amplify the idea that we are operating in a competitive field.

We create and deliver value, as we see it. But value perceived is always relative to the competitive environment. 

For this reason, we must build our understanding of the competitive landscape, when we focus on value creation. 

Understanding your (local) competitive landscape

Down on the playing field, we talk about competitive dynamics in terms of forces and power.

In “On Competition”, Michael Porter introduced five forces that drive competitive dynamics within an industry:

1. Competitive Rivalry - who has the upper hand, among rivals?

2. Supplier Power - who has the upper hand on rates and pricing, you or your suppliers?

3. Buyer Power - who has the upper hand on pricing, you or your suppliers?

4. Threat of Substitution - can you buyers go with something else instead?

5. Threat of New Entry - are new rivals emerging?

This concept of wielding power to handle the forces at play is a key strategic concept, for businesses, that can be extended to anyone creating value.

Power (noun):

1. the ability to do something or act in a particular way, especially as a faculty or quality.

2. the capacity or ability to direct or influence the behavior of others or the course of events.

Power means advantage, in competition. So once you can define your competitive pressures or forces, you can start to seek leverage in your strategic choices to address those forces with increased power.

Can this really work conceptually, even deep within an enterprise? For example, in internal organizations that provide shared services and/or build things for others to use (internally or externally)?

Well, if you create value, then you can talk about:

• A “customer” (the consumer of your value)

• Your “offer” to that customer, at some “price” (in time, money, or attention)

• Your customer’s “willingness-to-pay” (in time, money, or attention)

• Your customer’s level of satisfaction and/or delight with the offer 

And from there, you can ask yourself questions, about the competitive forces at play, relative to the value you create:

• What is a potential alternative for your customer (either today or tomorrow)? 

• Do people “buy” your delivered value? Or pay with time, attention, or focus instead? Are they delighted with your offer? What’s the difference between what they “pay” and their “willingness-to-pay” (WTP)?

• What, if anything, do you use or consume yourself, to produce value? What is the “willingness-to-sell” (WTS) of suppliers?

• In a pinch, what could your customer substitute for your offer, to maybe still get the job done, but less effectively?

• What trends are happening in your domain or “category”? Is it attracting new investment around new technology, leading to new offers or options being put in front of your customers?

These are generic questions about the competitive forces affecting the creation and realization of value.

So it seems we can bring the idea of competition down inside any team creating value. And this opens the door for leaders of a handful of teams creating value to do more strategic thinking. Strategic dialogs about competition are not limited to just the higher levels of leadership.

Making good strategic choices to address competitive forces can increase your power out on the playing field.

We’ll get into how to do this in next week’s newsletter.