An Interview with Richard D'Aveni

interview by Des Dearlove & Stuart Crainer  |  first posted: 11 Jan 2008

In November 2007, Richard D'Aveni was named as one of the world's top 50 business gurus in the Thinkers 50, the highly regarded ranking published by the Times newspaper. The ranking also placed him among the top 10 living strategy thinkers.

Best known for his work on Hyper-competition, D'Aveni is Professor of Strategic Management at the Tuck School of Business at Dartmouth College. Winner of the prestigious A. T. Kearney Award for his research, he is credited with creating a new paradigm in the field of strategic management based on temporary advantages – using rapid manoeuvring rather than defensive barriers.

A highly sought after advisor and speaker, Professor D'Aveni consults to Fortune 500 companies, including GE, PepsiCo and Motorola, as well as major European companies such as Philips Electronics, and Reuters, and some of the world's wealthiest families.

He is the author of several highly influential articles in the Harvard Business Review and MIT/Sloan Management Review, as well as the best selling book Hyper-competition (Free Press, 1994), and Strategic Supremacy (Free Press, 2001). His new book, "Beating the Commodity Trap: How Smart Companies Out-maneuver their Rivals to Win the Price War", is forthcoming in 2008.

A pragmatist in a world dominated by Ivy League theorists, D'Aveni is the champion of dynamic strategy over static analysis. He has been described as "the Kissinger of corporate strategy," and "strategy's answer to Realpolitik."

Here he talks to Stuart Crainer about his work and the strategic challenges posed by the emerging economies.

You are best known for your work on hyper competition – the term you coined in the mid-1990s. Is that concept still relevant today?
It's even more relevant today than it was when I first introduced it. The core idea was that competitive advantages were becoming unsustainable because of globalization and technological disruption. That was in the mid-1990s and both of those trends continue apace.

Today, we are facing Hypercompetition on steroids. Globalization is accelerating because of the rise of China and India, and the falling entry barriers around numerous other countries. Of course, technology hasn't slowed down at all. The internet, which was once considered to be revolutionary, is now par for the course everywhere, and it is still having the same radicalization effect on many, many markets. It's just that we don't talk about it anymore, because it's so endemic in every marketplace.

In such a disorderly, chaotic world, isn't strategy more like wishful thinking than a constructive use of an executive's time?
Yes, that's the whole point of hyper competition. What I argued was that long-term strategies are no longer appropriate. In the hyper competitive world we live in today, strategies are about sequencing lots of short-term advantages and exploring your way forward.

Think of the way the explorers Lewis and Clark found the Northwest Passage to the Pacific. They were surrounded by forest and literally had to navigate from hilltop to hilltop. It's the same for executives today.

You only know what direction you're headed in when you go from hilltop to hilltop looking around for the next hilltop. You can't chart the course all the way from beginning to end the way you might have been able to 20 years ago when things were stable.

You can't know where you're going to end up in this kind of world, and you have to learn to live with the uncertainty. You have to have tolerance for that kind of a world. But you also need to have the faith and the courage to be able to move forward from hilltop to hilltop and not get caught in the intellectual trap of thinking that you have to continue to leverage the same competences that you had one year ago or five years ago. Because that won't get you to where you want to go.

Why should executives, beset with all this turbulence and change, listen to someone like you, an Ivy League Professor - Joe Bowtie, if you like? How do you understand their world?
That's a good question -- executives should always ask their advisors that. I think the main reason is because I live in their world. OK, so I spend some time teaching at this idyllic place up here in the woods of New Hampshire. [The Tuck School of Business at Dartmouth College.] And I tell the students and executives who come here these stories about strategy.

But where do you think the stories come from?

They come from my consulting with hundreds of companies, from my research. They're coming from practical experience, and the way I learn is by talking to lots of managers, finding out what their concerns are, what's happening in their lives, what's affecting their businesses. So it's really a story that doesn't just pop out of nowhere.

What I am is an importer and exporter of ideas. I import ideas from one marketplace to another. And I can see general trends that the average manager doesn't see, because I see what's going on in one industry and another industry and another industry, and I pull them together.

And that gives you a different perspective?
That's right. That importing and exporting role is really what I do that managers can't do for themselves. I can't know an industry better than a seasoned industry exec can. He or she has a lifetime of experience in it. What I can do is import and export much better than they can.

I don't live every day in just one world, but I show up often enough to find the right information, and I can take it somewhere else and I can sell it, just like any merchant would, travelling from one nation to another. And my ability to see those trends and to transport them across industry borders is really what I'm good at.

You work with a lot of CEOs. What's the biggest issue that they face right now?
They have all sorts of issues. They have issues of making their numbers for Wall Street. They are constantly worried about living up to the expectations of the Street. This has shortened their horizons. But, from a strategic point of view, the number one issue that everybody has today is dealing with commoditization. How companies can avoid that trap is the subject of my next book.

Given that this may be a new term for some people, what is your definition of commoditization?
Basically, it is when a product becomes indistinguishable from others like it and consumers buy on price alone – so it becomes a commodity.

What is driving that commoditization?
A confluence of factors: the pressure of vast amounts of product proliferation, of escalating price wars and quality wars, of imports from China and elsewhere. These pressures are overwhelming and unrelenting. This goes back to your first question about why is hyper competition relevant today. It's because it's showing up in what I call this commoditization trap, and that's escalating.

Why is it escalating?
We're seeing a whole new round of it hitting us because of globalization from China and India. Now, in the US and the other developed economies, we're going to suffer at the hands of this commodity trap at a much greater level than we did back in the early 1990s when it was the Japanese and the Asian Tigers. They were much smaller nations and their standards of living went up a lot faster.

In China, it is going to create an unrelenting competitive pressure. Sure, Shanghai's standard of living is going up, and costs will go up accordingly. But the factories are just going to move inland. And when that standard of living goes up, they'll just go inland some more.

It's going to be decades before all the peasantry of China is absorbed. So it will be years before the low cost labour of China is absorbed into first world labour rates. That's very different to what happened in Japan where it maybe took two decades for that to occur.

So hyper competition is really going to occur because of the size of the economic Tsunami that will hit the West and the much longer duration of that Tsunami. And that problem is going to become more and more severe, especially the more Wall Street keeps insisting on making short-term profitability numbers.

So corporate America and companies in the other developed economies are under threat and are going to remain under threat for the forthcoming decades?
It's the nature of free markets, isn't it? It's what makes us great and what makes us better.

It's easy to believe in free markets until they start taking our jobs. But you're optimistic rather than fearful?
I think you have to be fearful in order to be optimistic. If you're not, then you become complacent.

Have you ever been tempted to put your theories into practice and run a business?
I started a consulting firm based on my theories of strategy and ultimately I folded the practice into a large private consulting firm.

But you haven't been tempted to run a business that's not a consulting firm?
No, I love my life now. I like teaching and I like researching and importing and exporting ideas. I have acted as the informal CEOs of two $1 billion firms in the US in business information and wholesaling, and had a lot fun creating value with bold moves that disrupted their industries. So I suppose if the right opportunity comes along, I might jump at it. But in general I "drank the cool-aid" at The Tuck School a while ago.

What about the MBA students who come to Tuck? A criticism of MBAs is that they're all the same - they all know the four Ps of marketing and the five forces framework, but they're all from the same cookie cutter?
I would say that's true in general. I like to do something a little different with my students. If you're familiar with my work you'll know I take some pretty different approaches to strategy compared to many of the other gurus. I truly believe that, if you think hard enough, every strategy has the seeds of its own destruction embedded in it.

I like to build my unique perspectives into the coursework. So in fact, I set out with a goal a few years ago to differentiate our students in the strategy area. In the first year course, we now teach the standard things that every MBA should get. They understand Michael Porter and SWOT analysis and leveraging core competencies, and so forth, in the first year program.

So what do you do in the second year?
Most students will take my course. And my course covers things like military strategy, we will cover Carl von Clausewitz, Sun Tzu, Mao Tse-Tung, and we will apply them to industries like disposable diapers. It sounds ridiculous, right? But disposable diapers are a great case of barriers to entry and the use of concentrated force and circumvention strategies, and it's a great case of von Clausewitz's ideas of encirclement.

I weave these together with my unique strategy concepts, such as creative disruption of a rival's center of gravity or its spheres of influence, and with stronghold and price-quality mapping techniques that I published in the HBR, Financial Times, and Wall Street Journal. So the students apply the concepts to business using vision visual maps to see the shape of the battle.

What does that mean for the students?
It's very practical. For example, we cover a series of corporate spheres of influence and diplomatic strategy, looking at how global corporations stake out strongholds and use positioning to create detente with other global players to divide up the competitors' space.

And I invite CEOs from Fortune 500 companies into the classroom, who have employed these tools and methods in their companies, to talk about that. This school year 21 Fortune 500 CEOs will come to speak in my courses.

Through all these approaches, we try to give our students a very different perspective, which has made them very successful in getting jobs.

So, ideas like von Clausewitz and Sun Tzu, they're still appropriate in a business environment where there's increasing emphasis on collaboration, partnerships, working with customers to come up with new products. They're still relevant?
Sure. The whole point of all that collaboration is to still beat someone.

And you're comfortable in corporate America learning from Chairman Mao?
Sure, why not? We're competing with Chairman Mao right now.

You've been compared to a combination of Henry Kissinger and Sun Tzu. Do you see that as a compliment?
Yeah, sure, who wouldn't? I guess from the way you asked that question, you're suggesting that I shouldn't see it as a compliment, but I guess I'm so into strategy that I wouldn't know why you would even ask that question!

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