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2. Literature Review
This study will be applying Richard D’Aveni’s concept of hypercompetition to the travel industry;
in particularly in the sector of travel agencies. As the travel industry has changed significantly due to the emergence of the internet and later the growth of social media. Entry barriers which once exerted a stabilizing force on competition have fallen in the face of the rapid changes of an information age, leaving companies exposed to the full force of hypercompetition. Richard D’Aveni argues that in a hypercompetitive environment, companies are competing in four arenas:
1. Cost-quality advantages: Companies try to create high quality products or services at low costs in efforts to differentiate themselves. D’Aveni believes that companies will gravitate towards an “ultimate value” where they gain advantage by providing more quality by focusing on different areas on the price-quality axis thus value for the cost and avoiding pure price wars.
2. Timing and know-how advantages: Companies invest in innovation to gain advantage over competitors. However, competitors will imitate and the innovators find themselves being pushed to create new products and/services at an accelerating rate to a point where it no longer exceeds the gains.
3. Strongholds from setting up entry barriers: In hypercompetition merely setting up entry barriers to keep out most competitors is not enough. It would only take one hypercompetitive entrant to disrupt the environment and break down advantage.
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Therefore companies must be vigilant in setting up entry barriers that would keep out all potential competitors.
4. Deep pockets: In hypercompetition, competitors will be constantly undermining each other. Therefore, having extra margin to sustain losses would help companies in survival within the environment when they meet formidable competitors that attack.
Smaller companies could create alliances to build deep pockets to protect themselves.
He continues to say that focusing on keeping an advantage on only one of these arenas is not going to help the company in the long term. Rather, companies must move quickly and smoothly between each arena in order to stay ahead of competitors and survive in the hypercompetitive environment (D’Aveni, Richard, 1994). Travel agencies today are competing in all four arenas as the travel industry has shaped itself to become populated with multiple competitors who will undercut each other given the opportunity. There has been a lot of movements seen in this sector where companies must adapt to new tactics and quickly attain resources and knowledge to use as tools for competition in these four arenas. As travel agencies are now competing in an environment that looks more and more like hypercompetition, their reactions are starting to look similar to those in the four arenas. Currently travel agencies have been clustering around the first arena mainly and spreading towards the other three arenas as they realize that dominance in only one of the arenas is not enough to survive.
D’Aveni goes deeper in to details and mentions how companies are able to sustain the momentum of competitiveness by using the new 7S framework. Deriving from the original
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McKinsey set of 7S framework, D’Aveni creates a new set of approaches that companies can refer to help maintain their advantages which are constantly short lived in a hypercompetitive environment. The new 7S’s the D’Aveni proposes are:
1. Superior stakeholder satisfaction: The company focuses on stakeholder satisfaction (mainly customers) therefore look for new ways to improve the quality of their product or service to cater to existing customers or new untapped markets.
2. Strategic soothsaying: The company focuses on boosting their internal organization procedures and culture to unify employees to think of putting customer needs ahead of individual needs. The company also considers the customers as priority before the other stakeholders (i.e. employees, shareholders, etc.) here.
3. Positioning for Speed: The company structures itself to be able to respond to changes in the market quickly and also dictate change in the market quickly to disarm competitors with disruption.
4. Positioning for Surprise: The company structures itself to be flexible and creates a series of moves that is purposed to confuse or stun the competitors so the company itself can find new opportunities for advantages when competitor advantages are destroyed.
5. Shifting the rules of competition: Here the company takes action and disrupts the environment by taking advantages away from their competitor. The company distributes an innovation into the market that drives demand differently or reshapes the supply chain.
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6. Signaling strategic intent: The company communicates intent to their competitors to either throw off or de-motivate the competitors. These actions include early promotion of new products that seem very powerful and unable to be copied even if the products are still at immature stage.
7. Simultaneous and sequential strategic thrusts: Here the company sets up multiple moves simultaneously or very quickly so to confuse competitors. It may fake a move in one direction and move forcefully in the opposite direction. The company can also adopt the tactic of using the same moves repeatedly until seemingly predictable to competitors and then change directions suddenly to attain advantage.
Figure 1 below illustrates how the seven approaches are grouped together and how they can be useful for the company to adopt as a strategic approach. They are grouped by how they function to create disruption in the market place. These new approaches are some approaches that companies may take to bring about disruption to the environment so they can destroy entry barriers and try to create new opportunities for them to gain advantage. These approaches are to be used continuously to constantly tear down strategies and create new ones so the competitors cannot keep up (D’Aveni, Richard, 1995).
It will actually be difficult for a company to perform highly in all seven approaches as each have their own tradeoffs. To excel at superior stakeholder satisfaction, an organization would lose speed since they would need time to test new products or services to ensure quality before distributing to consumers. As for strategic soothsaying, the tradeoff there is giving up speed also.
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Generally when a company uses soothsaying to regroup and unify the organization internally to boost the quality of products and/or services, there is a period of time needed for the change to sink in with all of the employees thus staying quick and flexible becomes a difficult issue to excel in. The tradeoff for the position for surprise is often signaling. Positioning the company for surprise requires keeping some aspects hidden from competitors so they do not become aware of the company’s advantage; however, this effect is lessened when signaling is executed which requires revealing the strategic intent of the company. Lastly, shifting the rules and use of strategic thrust have tradeoffs in that they usually lessen the quality of products/services as employees, and stakeholders can become confused along with the competitors (D’Aveni, Richard, 1995).
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Figure 1: Disruption and the New 7S’s
(D'aveni, Richard A., Jonathan M. Canger, and Joseph J. Doyle. "Coping with Hypercompetition: Utilizing the New 7S's Framework [and Executive Commentary]." The Academy of Management Executive (1993-2005)9.3 (1995):
45-60. JSTOR. Web.)
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These concepts are currently in use within the travel industry. How companies are using these key approaches and highly perform in one or few of these approaches can determine their success in surviving in today’s hypercompetitive environment. Observing how companies choose their strategies and if they adhere to these seven concepts would be insightful to understand how the hypercompetitive environment is shaped in the travel industry.
With technological advances happening so quickly the rules and standards of the industry have been revolutionized; competitive advantages are compensated for by competitors increasingly quickly and thus cannot be sustained (Matzler, Kurt et al., 2009). In particular to travel agencies, businesses no longer can look at their internet component merely as a supplement to their business but focus on the development of new strategies to meet the demands of the future. They should detach from traditional ways of relying on long term relationships with suppliers and direct efforts to product specialization and information specialization (Barnett, Martin et al., 2000). The Internet has become a major source of information for travelers and a platform for tourism business transactions; the tourism industry specifically is one of the leading applications of the internet in a business to consumer context (Pan, Bing et al., 2007). Studies have shown that the travel industry has gravitated towards fulfilling customer demands for good experiences.
They rely on consumer word of mouth to gain presence within their target audiences. Though the internet is an important medium for travel information, the confidence the consumers place in Internet advertisement is low (Pan, Bing et al., 2007). However, at the same time technological advancement and increased international competition affect significantly how consumers perceive and consume travel destinations (Frias, Dolores et al., 2012). This race into tapping into
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the customer needs has become more and more difficult for travel agencies to sustain. Past research has derived that companies in hypercompetitive environments need to maintain an ongoing process of variation and flexibility in order to overcome routinization and chaos (Volberda, Henk W., 1996).
Flexibility is an important trait for travel agencies to have in the current hypercompetitive market.
They must be able to exert speed in response for short-term changes that may arise through customer demands, social expectation, or new government regulations as well as the agility to evolve and grow through adaptation of new technologies for long term sustainability (Carlopio, James, et al., 2012). Factors that they may need to consider in developing their online interface are:
Flexibility in sourcing new travel products or packages
Minimizing the costs of development and maintenance of the website
Access to expertise in web strategy, development and implementation
Capitalizing on a high profile offline image
Accessing new customers
The potential for channel conflict
Travel agencies may need to perform highly on a few of these characteristics in order to be able to stay competitive within the dynamic market place (Carlopio, James, et al., 2012).
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An example of a market place that became hypercompetitive where businesses needed to change their strategies in order to stay competitive is the case study of the Japanese Beer Wars. The Japanese beer industry had evolved into a hypercompetitive environment during the 1980s when the demand for new beers became a trend and a burst of various beers became available to consumers on the market place. Consumers had gained a large share of bargaining power as their tastes changed quickly and many types of beers were available to choose from on the market place. Beer companies, especially those who were dominant players had to restructure organizationally and become flexible in order to stay competitive. They had to be faster and faster in judging the changing taste of the customers, create new ways to distribute their product and also produce new products. The speed ability in creating changes weakens and becomes status quo. Companies had to develop difficult to imitate specialized capabilities continuously to keep their advantage in the market. The rare and specialized capabilities remained the most valuable as long as the broader hypercompetitive conditions persisted in the industry (Craig, Tim.
1996). The travel industry has also become a hypercompetitive environment similarly with a burst in free or very low cost information available and new distribution channels that allow consumers to have direct contact with suppliers giving the consumer a disproportionately large bargaining power and thus consumer demand dictates the dynamics of the market place.