UK: IT'S THE TAKING PART THAT COUNTS - MANAGEMENT. - True competitors can't bear to believe that they aren't superior on each and every count, says Robert Heller, and that means constant measurement against not one but a whole series of criteria.

Last Updated: 31 Aug 2010

True competitors can't bear to believe that they aren't superior on each and every count, says Robert Heller, and that means constant measurement against not one but a whole series of criteria.

Few league tables are stranger than the World Economic Forum's annual ranking of the competitive power of nations. Is it really true that Canada almost exactly matches the prowess of Britain? Or that the Italians are half as potent as the Brits, who hold 14th place overall? That position is below four other European partners, and a full third under the leading US score - for what that's worth.

That isn't very much. Nations don't compete (except to win prestigious dam and defence contracts, etc, which are often better lost). Competition is between firms, which ultimately means managements. It wasn't the mythical Japan Inc. which clobbered the US in cars. Firms such as Honda did the damage: MITI, erroneously thought to be the boardroom of Japan Inc., actually tried to stop the motorcycle champ from diversifying into cars.

Honda's US opponents were 'uncompetitive': that is, their costs were too high. But relative costs (with labour showing the largest international discrepancies) only partly determine basic competitive ability. Exchange rates, over which no management has control, profoundly affect this issue. But they don't explain why Volvo needs double the Japanese man-hours to make a car. Plainly, Volvo is less uncompetitive than 'non-competitive': a miler who lets his opponent get two laps ahead isn't exactly in the race.

Your true competitor is like the original, great Robert Bosch, to whom it was always 'an intolerable thought...that someone should inspect one of my products and find it inferior'. True competitors can't bear to believe that they aren't superior on each and every count, including market share, whose loss hurts them profoundly. But that competitive blessing is decidedly mixed if share is the be-all and end-all.

Market share obsession easily leads to price wars, product proliferation and dirty tricks. The airline industry is a ghastly example of the consequences: the Americans are quite proud that, at last, none of their extant airlines is actually bankrupt.

The true competitor concentrates on cost wars and product differentiation. Get those right, and you don't need underhand methods - or ruinous pricing.

The Japanese have long understood this elemental truth. The custom in the domestic market is to compete voraciously on everything except price. In Britain, the contrary usage has generally prevailed. Industry offers few sights more pathetic than high-cost producers defensively slashing prices and margins: but that pattern has prevailed. Very obviously, the high costs are a symptom, not a root cause. That lies in the 'non-competitive' mentality - something which even the Forum isn't able to measure.

Non-competition, though it invariably leads to exceeding discomfort, begins by seeming more comfortable. You needn't change, challenge or innovate, which all appear to be relatively difficult steps. Yet what's hard about avoiding these traps? Selling 800,000 cars a year to rental companies at bargain prices, and thus indirectly sabotaging your own new car sales with low-mileage sell-offs; letting three of your main brands compete with all-but-identical cars; and spending heavily on new models which are then shelved because you can't afford their launch.

These three no-brainers by no means complete the dusty defects that John Smith, the new broom at General Motors, has been sweeping away. GM, though, had to approach bankruptcy before Smith received his mandate for change. That's only one huge example of the West's excessive tolerance of non-competition. Managements may suffer from this pernicious disease unknowingly: often their target is less the competition than the investment analyst, to whom marketplace realities may be a closed book.

To the analytical mind, GM's turnround - from $10.7 billion of North American losses to last year's $362 million of profit - is the vital and impressive statistic. But the whopping size of the swing reflects the awful depth of the previous loss, not the brilliant height of the subsequent recovery. Enter market share again. In both cars and trucks, GM has continued to lose ground. The decisive factor in its sales turnround is therefore external, not internal: the 12% boom in US car demand overall. True, major internal improvements are flowing forth: given the gross nature of the previous faults, that isn't Smith's most immortal achievement. He has already shown with GM Europe, though, that an ailing contender can rise Phoenix-like to lead the competition - if it concentrates, not on pleasing the analysts, but on building basic strengths and efficiencies right across the board.

That's where the Forum's rankings make some sense - they rest on a number of criteria. In assessing managers, smart companies now use several yardsticks, mostly non-financial. In assessing themselves, smart managements use 'the balanced score-card' or the nine-yardstick quality models. But most important, they never slacken the multi-dimensional competitive drive. Bosch had it right again: 'You can only compete against efficiency with efficiency.'

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