Competition Demystified: A Radically Simplified Approach to Business Strategy [Paperback]

Bruce C. Greenwald (Author), Judd Kahn (Author)

Book Description

Release date: August 28, 2007

Bruce Greenwald, one of the nation?s leading business professors, presents a new and simplified approach to strategy that cuts through much of the fog that has surrounded the subject. Based on his hugely popular course at Columbia Business School, Greenwald and his coauthor, Judd Kahn, offer an easy-to-follow method for understanding the competitive structure of your industry and developing an appropriate strategy for your specific position.

Over the last two decades, the conventional approach to strategy has become frustratingly complex. It?s easy to get lost in a sophisticated model of your competitors, suppliers, buyers, substitutes, and other players, while losing sight of the big question: Are there barriers to entry that allow you to do things that other firms cannot?

Editorial Reviews

From Publishers Weekly

A conscious simplification of Michael Porter's classic Competitive Strategy, this book treats only one of Porter's five forces, "potential entrants." According to the authors (Value Investing), avoiding competition is the only way to escape "a level playing field in which anyone can join... [and] only the best... survive and prosper." Most of the book discusses ways to gain protected positions from which businesses can be run badly but still earn abnormal returns. Cutting prices, matching prices and using domination of one market to create a monopoly in another are all discussed; legality is mentioned only briefly and indirectly. The best of their recommendations is to find small, declining, local markets without existing competitors. Despite the title, the book seems aimed more at investors than managers. Stockholders appreciate the value of mediocre companies that generate steady, unexciting profits in local markets without much notice; they like them because the stock is cheap. Managers usually aspire to build something better, in order to make the stock expensive. Still, this book is a useful counterpoint to the idea that conflict and growth are good for their own sakes. (Aug. 18)
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved. --This text refers to an out of print or unavailable edition of this title.

Review

Competition Demystified is superb, with a deft balance between theory and case studies that offer fascinating explanations of strategic adventures... -- The Globe and Mail

the best of the strategy books now or soon to be in the stores... direct, non-academic... occasionally funny -- New York Times --This text refers to an out of print or unavailable edition of this title.

See all Editorial Reviews

Product Details

• Paperback: 416 pages
• Publisher: Portfolio Trade (August 28, 2007)
• Language: English
• ISBN-10: 1591841801
• ISBN-13: 978-1591841807
• Product Dimensions: 5.5 x 0.9 x 8.5 inches
• Shipping Weight: 12.8 ounces (View shipping rates and policies)
• Average Customer Review: 4.2 out of 5 stars  See all reviews (24 customer reviews)
• Amazon Best Sellers Rank: #44,223 in Books (See Top 100 in Books)

More About the Author

Bruce C. Greenwald ist einer der landesweit fuhrenden Okonomen. Er ist zurzeit Professor fur Finance and Asset Management an der Columbia Universitat. Er berat weltweit zu verschiedenen Themen wie Kapitalmarkte, Businessstrategien, Corporate Finance und Arbeitsleistung.

Most Helpful Customer Reviews

15 of 15 people found the following review helpful

5.0 out of 5 stars Excellent Text for an Investor Assessing Strategy September 5, 2005

By John A Chew

Format:Hardcover

This is an excellent text for investors wishing to develop their "circle of competence." Analysts often focus on the next earnings report but the most inefficient area of investing and hence the greatest rewards are what will be the value of a company in three to five to ten years. Throw out Beta and your Capital Asset Pricing Model and develop your valuation from a strategic perspective.

Does the company (your potential investment) benefit from barriers to entry? If it does, then what is the source of those competitive advantages: proprietary technical advantage, customer captivity and/or economies of scale? Does your company operate in an industry with market share stability, and does it have high returns on capital to confirm a competitive advantage like Coke and Pepsi in the Soft Drink Industry? If more than one company has a competitive advantage then how do they interact within their industry? If a company does not benefit from incumbent competitive advantages, then is management focused and running their business efficiently?

My point is not to summarize the book but to show the systematic analytical approach used. The authors go through numerous case studies and examples from the perspective of game theory, local economies of scale, branding, M&A, cooperation amongst competitors, competitive interactions, entry strategies and incumbent responses. The key is that you learn a process and approach to understand an industry and the interaction of competitors within that industry. Hence, you will expand your ability to grasp whether a potential investment has sustainable competitive advantages. As Mr. Buffett has often said, "How deep and wide is the moat around your castle?" Don't invest before you can answer that question. If you can't, then walk on by.

I recommend reading Michael Porter's books on strategy but I find this book superior in its clarity and focused approach. The book is almost 400 pages long and to absorb what the authors are imparting will take several careful readings. Strategic analysis even if simplified is not easy. It is more of an art than a science, but then why would the rewards be so great if the analysis doesn't take diligent effort?

By way of disclosure I have audited Professor Greenwald's-standing room only-- classes at Columbia University though I have never met him. He is a remarkably clear and entertainingly effective lecturer who uses recent business cases and events to illuminate his points. Though I am not a big fan of the typical MBA program which reminds me of the "Flat-Earth Society" instructing budding geographers-Beta and the other financial theories make no rational sense-Professor Greenwald's teachings have value. Investors can benefit if they learn how to assess the barriers to entry applicable to their companies.

12 of 13 people found the following review helpful

4.0 out of 5 stars Much Is Great, Parts Are Questionable September 6, 2005

By Ty Rockwell

Format:Hardcover

This book is wonderful on the basics of competition and market analysis - especially on the role of barriers to entry. Most of the case analyses are strong. For this discussion alone, I would recommend the book to anyone in business. Some of the prescriptive advice/analysis on cooperating with competitors is puzzling. For example, at points it seems the authors believe that collusive agreements between competitors will not reduce innovation. That is hard to swallow. Everyone knows that without a real competitive incentive, R&D costs can and will be deferred in favor of other expenditures. Why improve the cow today, if you can milk the one you have and use the money to buy a beer? The case history on gas additives is silly. The authors admit that the FTC successfully challenged these people at least twice for illegal conduct. Why would their deals be cited as a model for anything that a law-abiding businessperson might consider doing "strategically"? It is not clear that the authors have a firm grasp of the antitrust laws (which can prohibit even "tacit" collusion) or the costs of an antitrust claim - they favor an approach to "competition" (wacking up markets) that runs very close to the line. Antitrust disclaimers are thrown in from time-to-time, but the legal limits of the suggested types of collusion are never adequately explored. Read this well-written book, but use it with caution (and a lawyer).

16 of 19 people found the following review helpful

4.0 out of 5 stars Interesting Insights, Flawed Conclusions! January 12, 2006

By Loyd E. Eskildson HALL OF FAME

Format:Hardcover

Greenwald lays out what he calls a simplified theory of competitive strategy," followed by analyses of a number of real-life situations. While the theory usually makes sense, Greenwald's application is not always as compelling.

"Competition Demystified" begins by observing that for at least the last half century, strategy has been a major focus of management concern. Sometimes enormous consequences flow from decisions not even thought to be strategic - eg. IBM's outsourcing creation of its PC operating system and CPU manufacturing. Regardless, effective strategy is central to business success.

Greenwald says that the first issue is selecting the arena of competition, and the second involves management of external agents. Barriers to entry is the area one should focus on first, and primarily in these analyses. If there are no barriers many strategic concerns can be ignored - the only option is to focus on being as efficient and effective as possible.

Greenwald believes that competitive advantages that lead to market dominance are much more likely to be found in a local arena (either geographic or product space). Further, there are only three kinds of genuine competitive advantage: supply (privileged access, proprietary technology protected by patents or experience), demand (eg. psychological or actual costs of switching - includes branding, loyalty programs, laborious setup and coordination issues), and scale economics.

An elephant (vs. ants) with a competitive advantage has as its priority to sustain what it has, and must recognize the sources and limits of its competitive advantages. Alternatively, companies with a competitive advantage may have potent competitors (eg. Coke - Pepsi, Boeing - Airbus). In this situation strategy formulation is most intense and demanding. They need to know what those competitors are doing and anticipate reactions to moves the company might make.

A common managerial axiom is to avoid commodity businesses - differentiate. However, Greenwald says that this doesn't work - Mercedes and Cadillac are clearly differentiated products, but their high original returns attracted new entrants (Lexus, BMW, Accura) and they now earn only average returns. (Another alternative is for existing competitors - eg. Lincoln - to expand; Lincoln, however was not successful in accomplishing this.) "Competitive Demystified" also notes that over-capacity, especially in a capital-intensive area - airlines, can create long-term poor profits. (This contradicts Southwest Airlines' success.)

Simple products and processes are not fertile ground for proprietary technological advantage. These are hard to patent (looks like "common sense") and easy to transfer (competitors could hire away employees). Similarly, technological advantages primarily provided by consultants or suppliers cannot be markets with substantial competitive advantages provided by technology.

The best strategy for an incumbent with economies of scale is to match the moves of an aggressive competitor - be they price cut, new product, or new frill. Any market share lost to rivals narrows the leader's edge. (Alternatively, competitive advantage based on customer captivity or cost advantages is not affected by market share loss.)

Greenwald believes that only a few industries have scale economies that coincide with global size - eg. Microsoft, Intel. Most are local. Meanwhile, growth of a market is generally the enemy of advantages based on scale.

Then, we come to application problems. My guess is that if American Airlines, etc. had tried to match Southwest's early fares in Texas (Greenwald's recommendation) they would have been found guilty of predatory practices under anti-trust laws, and severely hurt themselves economically in any case.

Greenwald comments negatively at length on Wal-Mart's decision to go national, pointing out that its financial returns fell when it did so, because its competitive advantage was mostly through local saturation, and not squeezing suppliers or superior distribution, etc. However, I cannot help but believe that if Wal-Mart had remained a regional phenomena it would not have the supplier leverage it has (Greenwald's financial review of this topic was overly superficial, at best); regardless, it would have been bought by a larger competitor (eg. K-Mart, Sears) and then probably atrophied in an alien management climate. Further, it probably would not earned sufficient funds to develop its computerized management systems for store replenishment and inventory control.

In Wal-Mart's case Greenwald forgot a basic rule of economics - maximum profits are reached by expanding until marginal revenues meet marginal costs. In addition, my understanding of the stock market is that maximum share price is attained through strong, steady profit growth (even if incurred at declining rates).

Other analyses within the book can be similarly attacked. My conclusion is that strategic planning is MORE complicated than Greenwald tries to make it out to be. Nonetheless, his book does provide useful background.