Gaining Advantage Over Competitors McKinsey 2012

One major theme of business strategy is that companies should focusprimarily on rivalry and defeating the competition, whether by beating their com-petitors in a particular market or protecting themselves against fierce competi-tion by creating and exploiting barriers. A concept that is central to this view ofstrategy is that of a “sustainable competitive advantage,” a special asset orcompetence that enables a company to earn supercompetitive profits for anunusually long time.

But what, exactly, is a sustainable competitive advantage, and how can a com-pany know that it has one? In his 1984 staff paper, “Sustainable competitiveadvantage,” Kevin Coyne painstakingly analyzes the term, setting forth a rig-orous test to determine whether a company has an advantage upon which astrategy can be based. In Coyne’s view, a sustainable competitive advantagebegins with a unique capability that shields a company from competition—usu-ally something measurable, physical, and concrete, not a vague abstractionsuch as “technological leadership.” This capability must pertain to at least oneof the few product features upon which customers base their buying decisions.And, suggests Coyne, the whole arrangement must be likely to last for a long

You can outstrip your competitors in myriad ways, many of which call for you to rewrite the standard “rules” of your industry.

Gaining advantage

This article can be found on our Web site at www.mckinseyquarterly.com/strategy/gaad00.asp.

over competitors

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time. Similar “capability-based” views of strategy were to become a majortheme of business theory during the 1990s.

“New-game strategies,” a staff paper written in 1980 by Roberto Buaron, exploresa particularly powerful method for achieving a sustainable competitive advantage.Buaron considers strategies in which a company rewrites the rules of an industryfrom the ground up in such a way that the company is uniquely positioned to playby the new rules. Such strategies, Buaron argues, are the really decisive contestsof the business world and promise to bring their winners the greatest rewards—although, as he warns, they can also entail the highest risks. Buaron introducesthe “strategic gameboard,” depicting strategy as a set of choices about whereand how to compete in each market. “Where” ranges from niche markets to theentire market, and “how” ranges from the traditional modes of competition to thesorts of “new games” that Buaron is concerned with.

One way to rewrite the rules of an industry is to recognize the moment when itsprevailing technology is about to reach its fundamental limits and then to investdecisively in a new technology that has a chance of leading the next phase ofdevelopment. In a 1986 McKinsey Quarterly article, “Attacking through innova-tion,” Richard N. Foster presents a blueprint for doing just that: his concept ofthe technological S-curve. A new technology generally exhibits slow returnsearly on, as each dollar invested in it yields modest results. It then enters aperiod of rapid growth, followed by a retreat into ever-diminishing returns as itapproaches its fundamental limits. The beginning of this final phase of decay isthe moment when a company can get a jump on the next big technology, thusrewriting the rules of the industry to suit the company’s own competencies.

These three articles about crafting and maintaining a sustainable competitiveadvantage all fit neatly into the work of the “positioning” school of strategy.1 Thisgroup saw its influence reach a high-water mark in the mid- to late 1980s, andmuch of McKinsey’s early work was consistent with its main ideas. However,there were always other points of view within the Firm. Amar Bhide’s 1986Harvard Business Review article, “Hustle as strategy,” is an early shot acrossthe bow of the positioning school. Written while Bhide was an associate in theBoston office and a doctoral candidate at Harvard Business School, the articlechallenges the idea that strategy is only about major decisions designed to build and protect structural advantage. Using the financial-services industry as an example, Bhide argues that, in some industries, the most importantstrategic advantage comes from day-to-day execution, flexibility, speed, andfrontline skills—in short, from hustle. Even today, Bhide’s article still has tremen-dous appeal for many of our financial-services clients, especially those in theinvestment-banking industry, and it is highly relevant in many of today’s otherfast-changing industries.

30 FOU N D AT ION S

1See Henry Mitzberg, Bruce Ahlstrand, and Joseph Lampel, Strategy Safari: A Guided Tour Through theWilds of Strategic Management, New York: Simon & Schuster, 1998.


31G A I N I N G A D V A N TA G E O V E R C O M P E T I T O R S

Sustainable competitive advantage, we hear, is the goal of everystrategy. But what exactly is such an advantage, and how do you know whenyou have it? The answers are not always clear, and many carefully plannedstrategies have come to grief because the competitive advantages they weredesigned to achieve turned out to be ephemeral, irrelevant, or both. It may be worthwhile, then, to take a more rigorous look at sustainable competitiveadvantage and its implications for running a business.

In simple terms, producers who sell their goods or services at a profit enjoy acompetitive advantage when customers choose to buy from them instead offrom their competitors. But some advantages are worth more than others. Inparticular, for a competitive advantage to have any strategic meaning, threethings must happen.

1. Customers must perceive a consistent difference between a company’sproduct or service and those of its competition, and that difference mustoccur in one or more key buying criteria—that is, in one or more of thefew product attributes that actually shape the purchasing decisions ofconsumers.

2. The difference must come from a capability gap between the favored company and its competitors.

3. The product difference and the capability gap must endure over time.

What differences do customers want?

Competitive advantages can exist only in particular market segments. It is,after all, entirely possible to have an advantage in one segment and not inanother. That said, the essence of point one above is that although competi-tive advantage does result from differentiation among competitors in a givensegment, not just any kind of differentiation will do. To have strategic value,it must persuade large numbers of customers to buy and buy again.

Sustainable competitive

Kevin Coyne is a director in McKinsey’s Atlanta office. This article was adapted from a McKinsey staffpaper dated November 1984. Copyright © 1984, 2000 McKinsey & Company. All rights reserved.

Kevin P. Coyne

advantage

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That is why the differentiation must reside in key buying criteria. Thesekey criteria have little to do with the producer’s internal characteristics,such as plant location or choice of raw materials, unless these features

translate into product or deliveryattributes that influence buyingdecisions. Instead, the buying cri-teria are usually attributes thataffect the price consumers pay forthe product, the way they perceivethe product, or their access to it.These attributes could include

quality, appearance, functionality, and the availability of after-sales service.But in any case, they are likely to be fundamental to the concept of theproduct or service being sold. Only rarely do they include add-ons or features. Price itself isn’t always such an attribute, as Texas Instrumentslearned when it lowered the price of wristwatches to the point where cus-tomers no longer valued further reductions. Only some of these criticalattributes will matter in a given market segment, and any useful differenti-ation must target at least one of them.

A gap in capabilities

Differentiation alone is not enough. The advantage must also stem from a fundamental gap in the capabilities of the competing companies—a gapthat cannot be bridged, at least not with an economically rational amountof effort. True capability gaps consist of specific, often physical, differencesand are likely to be prosaic and measurable. Abstractions such as “techno-logical leadership” rarely qualify. Capability gaps tend to fall into four categories:

1. Business-system gaps, which result from the ability to perform individualfunctions better than competitors do.

2. Position gaps, which result from prior decisions, actions, and circum-stances. They can include reputation, consumer awareness and trust,order backlogs, and irreversible investment choices, such as better plantlocations.

3. Regulatory and legal gaps, which result from government action. Theycan include patents, import quotas, and consumer safety laws.

4. Organizational or managerial quality gaps, which result from an organiza-tion’s ability to innovate and adapt more quickly and effectively than thecompetition, consistently.

32 FOU N D AT ION S

Only some key attributes will matterin a given market segment, andany useful differentiation musttarget at least one of them


Only the factors in the first category—business-system gaps—are under theshort-term control of producers. Frustrating as it may be to the strategist,competitive advantage or disadvantage often results from factors that cannotbe altered quickly.

Differentiation must be sustainable

Finally, both the key product differences and the capability gap must belikely to last for a long time. Therefore, the differentiation must affectproduct attributes that the market will continue to care about, not attributesthat rely on ephemeral trends or are liable to be exploded by technologicalimprovements.

One of the greatest threats to a sustainable competitive advantage is a com-petitor that somehow changes the rules of the competitive game, not somuch tearing down the old capability gap as rendering it irrelevant.2 Theintroduction of the transistor in 1955, for example, did nothing to erodeRCA’s capability advantage in producing vacuum tubes, but it did render thatadvantage far less valuable.

In some cases, competitors may be perfectly able, but for some reasonunwilling, to close a capability gap. This, of course, does not create the mostsecure position for a company that relies on the gap for its viability. Such acompany should look closely at the reasons for its competitors’ forbearanceto determine whether it is likely to last.

Sustainable competitive advantage and strategy

Our definition of competitive strategy as “an integrated set of actionsdesigned to create a sustainable advantage over competitors” could be takento mean that a strategic competitive advantage guarantees business success.It does not.

Over time, such an advantage can help a producer achieve higher returnsthan its competitors, but there are pitfalls. The market segment in which theadvantage exists may not be able to sustain any profitable producers in thelong term. Competitors may inflict tactical damage using measures, such aspurchasing market share by aggressive price cuts, that are not related to thecompetitive advantage. Conversely, even if only one firm in an industry hasan advantage, others can still succeed—for instance, when the market isgrowing so quickly that the company with the advantage cannot expand production fast enough.


2See Roberto Buaron, “New-game strategies,” on the following page.


Finally, remember that although the attainment of sustainable competitiveadvantage is the goal of competitive strategy, such an advantage is not an endin itself but rather a means to an end. The corporation is not in business justto beat its competitors. It is in business to create wealth for its shareholders.Thus, actions that contribute to sustainable competitive advantage but detractfrom shareholder wealth may be good strategy in the competitive sense butbad strategy for the corporation.

34 FOU N D AT ION S

Traditionally, companies compete in their markets either by enhancingthe value of a product or by lowering its price. But there is another, oftenoverlooked, mode of competition: prevailing over your rivals. Here, insteadof accepting the market-defined rules of the game and competing obedientlywithin them, the strategic competitor seeks to influence the rules themselves,creating a new game in which its own particular strengths become prerequi-sites for success. I call such approaches “new-game strategies.”

An example helps make the point. Between 1975 and 1977, Savin BusinessMachines Corporation increased sales to over $200 million, from $63 mil-lion, in the $2.6-billion-a-year US office-copier market, which until thenwas dominated by Xerox. Savin’s strategy: attack the low- and medium-speedsubmarket by using a new liquid-toner technology and novel approaches tomanufacturing, distribution, and service.

Savin appealed to companies in the more time- and cost-sensitive market segment by offering them the opportunity to buy several cheaper machinesfor key office locations rather than leasing a costly, higher-quality Xeroxmachine and installing it in a central office—the existing paradigm. In thechosen market segment, Savin changed just about every step of the competi-tive game. Where Xerox machines used custom-made components, the Savin

Roberto Buaron

Roberto Buaron is an alumnus of McKinsey’s New York office. This article is adapted from a McKinseystaff paper dated March 1980. Copyright © 1980, 2000 McKinsey & Company. All rights reserved.

New-game strategies


product took low-cost standardized ones. And because Savin’s machines werepriced for sale rather than leasing, the company sidestepped the need tofinance a large leasing operation. Then, rather than building up a direct-salesforce to rival Xerox’s,Savin recruited inde-pendent office productsdealers, enabling thecompany to take com-petitors by surprise.

To visualize strategy ina way that allows forsuch radical realign-ments of the competi-tive landscape, you canuse the “strategic game-board”—a matrix thatshows “where to com-pete” on one axis and“how to compete” onthe other (Exhibit 1). “Where” ranges from a single market niche, at oneend of the spectrum, to the entire market, at the other. “How” ranges fromplaying by the traditional rules to rewriting them completely. It is this lattervariable that determines whether the strategy involves a same-game or anew-game approach.

Same-game approaches

The most common strategies fall in the relatively safe upper-left-hand corner:same-game/across-the-board competition. A company that follows such astrategy must accept the leader’s definition of the market, copy the leader’sfunctional approach to the business, and emulate the leader’s strengths.Rarely does such an emulator take the lead itself.

A second class of company is shrewder. In this category come the same-game/selective players. They accept the conventional definitions of products andmarkets but seek to gain an advantage by choosing market niches that playto their strengths. The more innovative among these companies “resegment”the market, tailoring their product designs or marketing approaches to a seg-ment never before viewed as a coherent group. Take a particular consumerdurables market that has traditionally been segmented by price. A producermight resegment it on the basis of consumer attitudes and lifestyles, perhapstargeting consumers who are more interested in saving energy or time thanmoney.


E X H I B I T 1

The strategic gameboard

Whe

re to

com

pete

How to compete

Emulate marketleader’s functional

approach, strengths

Rewrite industry rulesto exploit a unique,

industry-wide advantage

Create and pursue aunique advantage

Resegment the marketto create a niche

Across-the-board(entire market)

Selective(market niche)

Same game(traditional rules)

New game(rewritten rules)


For a challenger, the same-game/selective approach is often less dauntingthan confronting the market leader head-on. However, because the chal-lenger has made no basic changes in technology, manufacturing, or distri-bution, others can go after the newly discovered segment as well. In a sense,then, the same-game/selective player relies on the forbearance of its com-petitors—and this often lasts only as long as they regard the new marketsegment as too small to be worthwhile.

American Motors Corporation (AMC) learned this lesson in 1959. In justtwo years, AMC had increased its sales to 6 percent of the American auto-mobile market, from 2 percent, by focusing on the small-car segment andpersuading US car buyers to “think small.” As soon as the company’s successcaught the notice of General Motors, Ford, and Chrysler, the Big Threeintroduced compacts of their own, and by 1965 AMC was back down to 3 percent of US sales and operating at a loss.

New games

Occupying the riskier, right-hand side of the matrix are the new-game strate-gies. They are less common than the same-game approaches but carry corre-spondingly greater rewards. Like same-game strategies, new games can focuson select niches or on an entire market, as reflected by the vertical axis of thematrix.

Stanley Works embarked on a selective new-game strategy when it noticedthat many of its professional hand tools were being purchased by do-it-yourself homeowners. The company developed a cheaper line and a mass-marketing approach, tapping into large, unexploited market segments.Stanley’s risk was limited: if the consumer line failed, the company could stillfall back on its professional clientele. This is a common characteristic ofnew-game/selective strategies. The downside is limited precisely because thestrategy is selective.

The riskiest of the four kinds of strategy—and the one that bestows therichest prizes on its winners—is the new-game/across-the-board approach.Following this path means nothing less than rewriting the rules of an entireindustry to suit your own company’s strengths. It often means changing theway some customers purchase, configure, or use your product or service.You may find yourself helping customers meet a need that they, or even you,had never associated with your product. Hanes Corporation’s decision to sellpantyhose through grocery and discount chains is a good example of a new-game/across-the-board approach, as is Procter & Gamble’s pioneering ven-ture into disposable diapers. When the new-game/across-the-board approachworks, it can leave competitors stranded, like a river port town left high anddry by a change in the watercourse.

36 FOU N D AT ION S


None of the varieties of strategy on our matrix is right or wrong for everycircumstance, so the timing of the choices can be as important as the deci-sions themselves. For instance, even if you ultimately plan to play a new-game/across-the-board strategy, you may want to start more cautiously witha new-game/selective strategy, expanding to the entire market only after suc-cessfully redefining a certain niche. That is what Texas Instruments did inthe mid-1970s. First it created a new segment—simple, four-function, hand-held consumer calculators. Encouraged by success there, it then attacked thehigher-end scientific and educational segments of the calculator market.Similarly, a company with high market share may want to pursue a safesame-game/across-the-board strategy for a while, launching a new game onlywhen market conditions shift. Thus, even market leaders must constantlyscrutinize their industries to determine when to shift strategies.

New-game strategies are not for every occasion. They are hard to pull off,and successful examples are rare. But executives must always be alert tonew-game opportunities, because when the conditions are right the rewardscan be especially high.


Most of the managers of companies enjoying transitory success assumethat tomorrow will be more or less like today. Believing that significantchange is unlikely, unpredictable, and in any case slow, they strive to maketheir operations ever more cost-effective. While valuing innovation, andespousing the latest theories on entrepreneurship, they still regard it as ahighly personalized process that cannot be managed or planned to any greatextent. They believe that innovation is risky—riskier than defending theirpresent business.

Attacking

Richard N. Foster

Dick Foster is a director in McKinsey’s New York office. This article is adapted from “Attacking throughinnovation,” which was published in The McKinsey Quarterly, Summer 1986. Copyright © 1986, 2000McKinsey & Company. All rights reserved.

through innovation


Companies such as Hewlett-Packard, Johnson & Johnson, and Corningmake the opposite assumptions. They know that when change comes, itcomes swiftly. So being in the right technologies at the right times, havingthe ability to protect your competitive position, and having the best peopleare more important to such companies than becoming ever more efficient intheir current lines of business. They assume that the ultimate competitiveadvantage will go to the companies playing the role of attacker in the inno-vation war. They assume that, as risky as innovation is, failing to innovateis riskier.

They are right. And these insights are rare because they stem from some-thing that too many companies lack: an understanding of the dynamics ofcompetition, and in particular, of the relationship between the effort putinto improving a product or process and the results achieved over time.When charted, this relationship appears as the familiar S-curve (Exhibit 2).At first, as funds are put into development, progress is frustratingly slow.

Then, as researchuncovers the key piecesof information neces-sary to make advances,the pace surges.Finally, progress slowsdown again, and eachsuccessive innovationrequires a greateroutlay of resources.

Ultimately, the S-curvelevels off entirely, oftenas the technologyapproaches some fun-damental limit—forexample, the ultimatedensity of devices that

can be squeezed onto a silicon chip. Indeed, it is important to pay attentionto such limits, as they are the best clues a manager has for recognizingwhen a new technology must be developed within the company. It is com-paratively easy to see how technological limits will affect the sales of aproduct that is closely related to the technology, as computers are to siliconchips. It is not so easy, however, when dealing with air travel, say, whichcombines thousands of technologies. Still, there are usually no more than ahandful of technologies that are crucial to a certain product or process, andthese are the ones managers should identify and nurture if they hope toanticipate change.

38 FOU N D AT ION S

E X H I B I T 2

Payoff from technology investment follows S-curve

Perf

orm

ance

Investment in a particular technology

Fundamental limitof the technology


The important thing, therefore, is to spot the technological opportunities. A company should watch its rivals: when one competitor is nearing the topof the S-curve, others are likely to be exploring alternative technologies thatcould give rise to curves of their own, leading to discontinuities that couldtake a slower company by surprise. Think about the switch from vacuumtubes to semiconductors, from cloth to paper diapers, and even from conven-tional tennis rackets to those with enlarged “sweet spots.”

Today, technological discontinuities are arriving with increasing frequency.The scientific knowledge that underpins our products and processes is multi-plying by leaps and bounds in fields as diverse as quantum physics, surfacechemistry, cell biology, mathematics, and the structure of knowledge itself.Furthermore, every day brings fur-ther learning about the process ofinnovation—how it works and howit can be made to work better.

These two developments are notnew, but they have never interactedto produce an explosion of knowl-edge and change comparable to the present one. Before the year 2000, majortechnological changes may have transformed up to 80 percent of all manufac-turing industries and a large portion of all service industries. We are living inan age when the risks to industry leaders are greater than ever before. Notonly will technological discontinuities continue with increasing frequency,but during these discontinuities the attackers will have the advantage.

It is perhaps more important, then, for chief executive officers to beinvolved in technology than in other functional areas—especially because,at least in the United States, the business culture is strongly predisposedagainst such involvement. When the Conference Board asked the CEOs ofthe 400 largest US companies to identify their most trusted advisers, theytended to mention the top financial officer, the general operating officer, orthe heads of the major corporate staff functions. In only one case in fivewas the head of research and development considered a member of topmanagement. In Japan, according to my partner Kenichi Ohmae, the chieftechnical officer would make the list of key advisers in four cases out offive, putting this role about 3rd on the list instead of 11th. How is theUnited States going to compete in a world full of technological possibilitiesif the technology-savvy executives are isolated from those who can mostreadily deploy funds and people?

With the next 10 to 20 years filled with technological discontinuities, com-panies will have to innovate in new technologies, not once or twice a decade,


Every single day brings furtherlearning about the process ofinnovation—how it works and how it can be made to work better


but almost continuously. And that will happen only if the CEO helps to developthe right management practices and corporate culture. Being up-to-date on

every technology the company uses is probably unnecessary, but a CEOmust understand, in what maysometimes seem like obscure detail,the critical ones: germanium’s bandgap versus silicon’s, the differences inmolecular structure between naptha-

lene and orthoxylene, the compositions of complex and simple sugars. Thesedetails dictate the range of options managers have at their disposal.

It isn’t as complex as it sounds. To push a company toward better and moresustainable strategies, a CEO need only ask some basic questions about tech-nology—and insist on honest answers:

• For the markets my company competes in, or intends to compete in,which alternative technologies might meet the customer’s requirements?Which rivals are pursuing each approach?

• What are the two or three key parameters that influence the customer’sdecision to buy? How do these relate to the technical performance factorsor design parameters of each alternative technology?

• How far is my company from the limits of each alternative technology?Are there ways to circumvent these limits?

• How much would the customer value the remaining technical potential?How much would it cost to realize this potential?

• What portion of a technology’s value to the customer can a producer capture, given the industry’s structure, the alternatives available to the customer, and expected legislation, if any? Is the portion of value largeenough to provide adequate returns on investment?

• When will each alternative technology be competitive in the marketplace,and how long will it remain so? Can my company, or any other, developeach technology rapidly enough to meet the timing requirements?

Questions like these help CEOs see technology for what it is: a battlefield ofever-changing S-curves. Armed with the answers to these questions, CEOswill be in a far better position to tackle the ongoing process of technologicalinnovation successfully and to exploit the attacker’s advantage.

40 FOU N D AT ION S

To innovate in new technologies,CEOs must help to develop theright management practices


Strategy, its High Church theologians insist, is about outflanking competi-tors with big plays that yield long-term “rents” from a sustainable advan-tage. But it is questionable whether this proposition is itself sustainable.These strategy theologians overlook the records of the many successfulcompanies that do not have such long-term strategic plans or an obsessivepreoccupation with rivalry. These are the companies that concentrate onoperating details and on doing things well. In a word, their strategy ishustle. And executives at these companies may be doing exactly the rightthing for their industries.

The Big Play

The traditional model of strategy calls for a Big Play: a decisive move thaterects barriers around key assets, such as strong distribution systems, brandnames, and proprietary technologies. But the Big Play has its limitations,and nowhere are they better demonstrated than in financial services, anindustry in which firms somehow manage to do without the elaboratestrategies that take hold at manufacturing companies.

In financial services, strategic plans consist of targets—for revenues, costs,profits, and numbers of employees—and terse descriptions of the capabilitiesof competitors as “strong,” “weak,” or “average.” Occasionally, these plansare garnished with vague comments about a company’s own competitiveadvantages: “our abundance of capital,” “our people,” et cetera. But rarelydo such companies attempt to win the war with a single pincer move. Why?Because such tactics are largely pointless. As Warren Buffett put it, “Majorsustainable competitive advantages are almost nonexistent in the field offinancial services.” The reason for this lack of competitive advantage is that,in the financial-services industry, trade secrets are hard to protect andproduct innovations are relatively easy to copy.


Amar Bhide, an alumnus of McKinsey’s Boston office, is an associate professor at Harvard BusinessSchool. This article is adapted from an article published in Harvard Business Review,September–October 1986. Reprinted by permission. Copyright © 1986 President and Fellows ofHarvard College. All rights reserved.

Amar Bhide

Hustle as strategy


The bottom line

Without barriers to competition, conventional wisdom has it, a companywill earn uniformly low returns. Here again, the financial-services industrycasts doubt on convention. With practically no proprietary products, cap-tive customers, or economies of scale, some companies in the industry nev-ertheless enjoy huge rewards. Goldman Sachs is reputed to have earned$400 million before taxes in 1983—a 60 percent return on capital. Morgan

Guaranty regularly earns twice thereturn on assets of other banksserving similar customers with sim-ilar products.

These rewards stem largely fromsuperior execution and the abilityto adjust quickly to take advantage

of transitory opportunities, not from structural competitive barriers.Many wholesale banks earn higher-than-normal profits simply by doingwhat their competitors do—but getting it right. They make fewer creditmistakes and therefore don’t suffer large write-offs. They get a highershare of corporate cash balances because their account officers stay closeto their clients. They provide accurate and informative statements. Inshort, they hustle.

The manager’s role

When the key to profitability lies in superior execution and hustle, man-agers have a mix of responsibilities different from those they have in envi-ronments where strategic invulnerability is paramount. They don’t needto—in fact, can’t—analyze their competitors in great depth and formulatedetailed counterstrategies. Instead, they must turn inward, promoting thevigorous pursuit and satisfaction of customers. And because success in suchan environment can hinge on a company’s ability to respond to subtle butimportant differences among customers, managers cannot lead by grandproclamation.

In financial services, it makes no sense to subject every new business pro-posal to elaborate management screens. Managers simply have to live withlower levels of proof. At investment banks, for example, senior executivesallow 25-year-old traders to risk millions of dollars. By contrast, industrialcompanies subject far smaller expenditures to trial by committee.

And although the top financial-services firms do monitor the competition,they don’t let it control their own plans, because they know that, in their

42 FOU N D AT ION S

Huge rewards stem from superiorexecution and the flexibility to takeadvantage of opportunities, notfrom structural competitive barriers


business, the competition isn’t the point. “I don’t view competition as anobstacle,” says the head of one of the most successful banks. “Our most significant challenge is internal—making certain we manage our resourcesso that we are the best in the business.”

Sustaining the hustle

Paradoxically, a company can encourage individual hustle only when it adoptsa fine-grained, centralized system to measure the profitability of businessesand customers. Only then will its managers feel comfortable delegatingresponsibility, knowing that they won’t get blindsided. Good managers atfinancial-services firms know the importance of good profit measures andother metrics and are obsessed with establishing them. American Express,for instance, identified 180 measurable customer service indexes, such as thetime it took for the company to replace a lost card or respond to billinginquiries.

At a company where hustle is the main strategy, recruiting takes on a newimportance. Look again at the investment banks, where candidates are rarelyoffered jobs without being interviewed by at least one managing director.Also, managers at such firms must give as much status to back-office func-tions as to the more glamorous marketing jobs. “Class” divisions betweenlending officers and back-office operators can be crippling. Institutions thatare serious about customer service and operational quality give back-officemanagers a high level of recognition and reward.

The value of vision

The best financial-services companies have more than a well-designed set of controls and are more than way stations for capable free agents. Theirleaders have an institutional vision: a shared understanding of what the firmis about and where it is headed. Goldman Sachs and Morgan Guaranty deifyteamwork and putting clients first. Salomon Brothers focuses on takingtrading risks. Such a vision provides continuity amid the turbulence andconfers advantages that transcend the fluctuating fortunes of the company’sindividual businesses.

Perhaps for the companies where hustle is paramount, the equivalent of theBig Play is the Big Vision. Whereas the Big Play concentrates on barriers and rivalry, the Big Vision is just that: a broad view, which gives individualhustlers more freedom and flexibility to find their own opportunities.



Gaining Advantage Over Competitors McKinsey 2012

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