Last Updated Jul 31, 2008 3:03 PM EDT
- The Find: Like Lewis Carroll's red queen, companies in a cut-throat business environment can put so much effort into just keeping up with the competition that they fail to see they're getting no advantage for all their effort.
- The Source: The Random Rantings blog of Freek Vermeulen, strategy professor at the London Business School.
They were running hand in hand, and the Queen went so fast that it was all she could do to keep up with her: and still the Queen kept crying 'Faster! Faster!' but Alice felt she could not go faster, though she had not breath left to say so. The most curious part of the thing was, that the trees and the other things round them never changed their places at all: however fast they went, they never seemed to pass anything...The same concept applies in business. In today's competitive environment continual striving just keeps you on par with the competition. Getting ahead takes a truly heroic effort. This might be exhausting for managers, but Vermeulen points to research that suggests it does have benefits:
'In our country,' said Alice, still panting a little, 'you'd generally get to somewhere else â€" if you ran very fast for a long time, as we've been doing.' 'A slow sort of country!' said the Queen. 'Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!'
Professor Bill Barnett, from Stanford, studied Red Queen effects among companies at length. He found that those exposed to ongoing competition and change improved considerably and became much stronger firms... in such a race, the weakest firms go bankrupt, leaving only the strongest competitors. However, it also stimulates firms to learn and adapt quickly. And if you're learning and adapting, and becoming a more agile competitor as a result of it, it prompts your competitors to do the same (or die). It's a bit like an arms race-- But one that consumers, and society as a whole, benefit from.However, the red queen effect isn't an unalloyed good. It also presents dangers. Companies can be so intent on not losing ground that the fail to see that they, and their competitors, are running hard in the wrong direction. Vermeulen calls this a success trap: "firms have been running in a particular direction only to find out that the world has just changed and some other corner of the market has become more attractive. This triggers the entry of newcomers, while the original leaders struggle to catch up."
The Question: What industries have gotten caught out by innovative competitors while engaged in a red queen race?