How Companies Compete – A Historical Perspective

How Companies Compete

In the last 120 years or so, there have been five distinct movements in the way companies compete.  This has been covered extremely well in the attached article by Ken Favaro of the consultancy firm Strategy&.

Efficiency. The first movement was efficiency, propounded mainly by Frederick W. Taylor. He wrote The Principles of Scientific Management in which he outlined his efficiency techniques. According to Peter Drucker, ‘Frederick W. Taylor was the first man in recorded history who deemed work deserving of systematic observation and study. On Taylor’s ‘scientific management’ rests, above all, the tremendous surge of affluence in the last seventy-five years which has lifted the working masses in the developed countries well above any level recorded before, even for the well-to-do. Taylor, though the Isaac Newton (or perhaps the Archimedes) of the science of work, laid only first foundations, however. Not much has been added to them since – even though he has been dead all of sixty years.’

Many companies still compete the Taylor way. Later concepts like business process engineering and lean production were successors to Taylorism.

  • Scale. Scale is closely related to efficiency. In this movement, companies exploit economies of scale to reduce unit costs. The Cost Leadership concept of competing is really based on scalability to reduce costs. Many companies consolidated and globalised in the mid-twentieth century to achieve economies of scale.
  • Quality. The quality movement owes a lot to the work of W. Edward Deming who introduced quality to Japanese companies. Japan’s economic miracle of the 1950s onwards is largely credited to Deming’s teaching points:

* Better design of products to improve service
* Higher level of uniform product quality
* Improvement of product testing in the workplace and in research centers
* Greater sales through side [global] markets

Even today, many global companies are competing by concentrating on one or more of the three principles of efficiency, scale and quality.

  • Network. The network way of competing started with the advent of the internet in the 1990s. This movement was not based on competing on costs or quality but rather on getting large number of people (consumers and companies) to use a company’s products and services. Microsoft was the first to exploit this by ensuring that their operating system was compatible with any brand of personal computer. Google, Facebook, LinkedIn and others have become global giants by using the network way of competing.
  • Ecosystem. Today is the age of the Ecosystem movement in which companies encourage third parties to build on and leverage a company’s products and services to add additional utility for customers. Today, we talk of the Apple Ecosystem, the Amazon Ecosystem and the Google Ecosystem. A major reason for the phenomenal success of the iPhone, despite Steve Jobs early misgivings, is the app store which has thousands of apps developed by independent developers.

Could there be more movements in the future? Favaro lists three and you can find them in Favaro’s article. You can read it here.

Source: Wikipedia

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This article was written by andy

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