Richard D’Aveni wrote an article discussing the challenges faced by industry leaders or incumbents who often encounter threats that could render their competencies and products outdated. These threats can manifest as new technologies or business models, which the author refers to as revolutions. In his article, D’Aveni outlines the structure of a counterrevolution and suggests strategies that incumbents should implement to defend themselves against revolutionaries. The author provides a detailed explanation of five different strategies that industry leaders should employ for self-protection against revolutions.
According to D’Aveni, in strategic management, counterrevolution strategies are important for incumbents who face potential threats to their industry from new technologies and business models. After analyzing the strategies of over 100 incumbents, D’Aveni discovered that many revolutions fail. The few successful revolutions owe their success more to the incompetence of the incumbents rather than the strength of the revolution itself.
According to D’Aveni, industry leaders often neglect revolutions for too long, allowing them to gain momentum in the industry. On the other hand, he also discovered that by fully embracing revolutions, companies end up weakening their strengths and depleting their resources. To mitigate the impact of revolutions, companies can adopt suitable counterrevolutionary strategies. D’Aveni suggests five strategies for incumbents to counter a revolution: containment, shaping, absorption, neutralization, and annulment.
These strategies are used in relation to the status of the revolution. A containment strategy is employed when a revolution is detected early. If containment is no longer possible, an incumbent can employ the shaping strategy. However, if a revolution is projected to succeed, an absorption strategy may be utilized. If a revolution is discovered too late to be countered by the previous strategies, it must be neutralized. Ineffective application of any of these strategies allows the incumbent to resort to the annulment strategy.
The containment strategy can stop the revolution before it starts or provide leaders with time to analyze the threat and plan their next step if it fails. There are several methods to employ containment against revolutions, such as utilizing loyalty or incentive programs. Incumbents can try to secure customers by keeping them dedicated to their existing services and products. For example, major airlines offer frequent flyer programs to retain customers.
Another tactic for containment involves increasing switching costs, effectively discouraging customers from switching companies. Additionally, incumbents can implement another method of containment by flooding the distribution channels with a diverse range of products, thus overwhelming new entrants. Industry leaders also employ the strategy of creating smoke to contain revolutions. Within the high-tech industry, it is common for leaders to announce or advertise products that are still in early development stages, known as “vaporware” in the software industry.
The strategy of pre-announcing software is utilized by companies in order to delay customers from purchasing products and instead wait for their own offerings during the revolution. Through the use of public relations, these companies aim to discredit the revolution and create a perception that it is not as anticipated. The containment strategies employed are intended to impede the revolution and compel the challenger to invest significant resources. If containment proves ineffective, the incumbent should proceed with subsequent counterrevolutionary tactics. The second strategy involves shaping the revolution with the ultimate objective of achieving coexistence.
Incumbents frequently prefer collaborating rather than competing. D’Aveni illustrates this with the case of the Big Three U.S. automakers, who combined their resources to create new environmentally friendly electric technologies for cars. Joint ventures prevent any one company from gaining a competitive edge in the hybrid market. According to D’Aveni, money plays a crucial role in shaping revolutions, so industry leaders utilize joint capital to shape potential revolutions.
By combining resources, they can invest in start-ups to develop innovative technologies and dictate their standards instead of competing ones. The established company can also influence the revolution by serving as a supplier to these start-ups, enabling them to control the price and quality of the challenger’s production. When efforts to shape the revolution prove unsuccessful, the incumbent can resort to absorption as a third strategy. By absorbing the revolution, incumbents retain their expertise and advantages while shifting all costs associated with creating a new value proposition or technology onto the competitor.
Smart industry leaders use polarized blocs of suppliers and distributors to make it challenging for revolutionaries to succeed. This tactic was exemplified by Coca-Cola, Pepsi-Co, and Cadbury Schweppes, who made it exceedingly difficult for Gatorade, Mad River, and Snapple to enter the market. The only path for these revolutionaries to become part of the industry was through absorption. In cases where the threat becomes too significant and initial strategies are ineffective, incumbents have the option to employ a more aggressive approach – neutralization.
The strategy is to confront and end the revolution directly. Legal methods can be used to neutralize it. For instance, Napster being shut down by the courts, under pressure from the Recording Industry Association of America, is a good example mentioned in the article. By shutting down Napster, other similar companies were discouraged from growing and becoming a threat. Another way to neutralize is through acquisition, where a revolutionary company is acquired and removed from the market. Offering free benefits similar to those offered by the challenger is another effective way to nullify revolutions.
Microsoft employed a similar approach with its Internet Explorer during the time Netscape was charging for its browser. Industry leaders can also enhance their products and business models by investing in research and development and leveraging their position in the industry to eradicate the disruptors. The ultimate strategy is annulment, which is deployed when the disruptive force becomes unstoppable. This strategy is deemed the most precarious, costly, and time-intensive to implement. Annulment can be executed through leapfrogging or sidestepping.
The concept of leapfrogging in the industry allows incumbents to become leaders, but it comes with risks such as cannibalizing their own products. To illustrate this, D’Aveni used the example of Gillette and its competitor Bic. Bic was able to persuade shavers to switch to its disposable razors, creating an opportunity for Gillette to leapfrog and develop the superior quality Mach 3 razor. However, leapfrogging is considered risky, and a better approach is sidestepping, which aims to neutralize a revolution. By changing the basis of competition to other competencies that have the potential for success, industry leaders can avoid the threat altogether.
