“For decades, scholars have thought about business competition in terms similar to those of a sports contest — almost like a boxing match,” says Ming-Jer Chen, Leslie E. Grayson Professor of Business Administration at the University of Virginia Darden School of Business and a leading expert on competitive dynamics. “The language they have tended to use — words like ‘attack,’ ‘dethronement’ and ‘retaliation’ — is the language of head-to-head, winner-take-all combat.”
Such a conceptualization may well have been appropriate in the post-war era of American economic and industrial dominance. But in a world in which globalization and technology are rapidly recoding the very DNA of business, Chen says it’s time for a profound reexamination of the meaning, parameters and aims of competition. “Businesses can no longer view their so-called ‘industries’ as defining the context in which they’re competing,” he says. “Is Ford’s toughest competitor GM, or is it actually a tech company disguised as a taxi company called Uber? Similarly, would it make more sense for Domino’s Pizza to acquire direct competitor Papa John’s — or Uber?”
Chen says the rapid ascent of new global players has likewise laid bare the need for new ways of understanding competition. “Americans tend to think of an economically powerful China as a competitor whom the U.S. must ‘defeat,’” he says, by way of example. “But the situation isn’t nearly so clear-cut: China is one of America’s top trading partners — so does it really make sense to think of them simply as a traditionally defined “competitor”? Beyond that, do China’s economic gains really necessitate America’s economic losses?” Indeed, Chen says, “the complex realities of contemporary business make it imperative that we move beyond simple notions of ‘winning,’ and toward a much more expansive conceptualization of value creation.”
Chen, along with co-author Danny Miller, professor of strategic management at HEC Montreal and Alberta School of Business, recently laid out a bold, broad new framework designed to do exactly that. In a Strategic Management Journal article titled “Reconceptualizing Competitive Dynamics: A Multidimensional Framework,” the two argue for a fundamentally new outlook on competitive behavior, which they dub “relational.” At its core, Chen says, the idea is that firms can create significant, sustainable value for themselves not by appropriating value from their competitors, but by creating value that “lifts all boats” within the broad group of stakeholders with whom the firms enjoy relationships.
“The emphasis is on understanding and building productive relationships with all of the stakeholders — including customers, suppliers, partners, community members and even direct competitors — in a firm’s environment, in order to most effectively gain their support and cooperation,” Chen and Miller write. “A powerful competitive device may now take the form of building an excellent reputation for socially responsible behavior, compiling an impressive record as a superb employer or acting as a fine citizen in the global community.” Through such strategic actions, they argue, a firm may not only enhance its reputational status, but also gain access to critical financial and human resources, build valuable goodwill among existing and potential rivals, and create enduring strength for the firm — all without engaging in costly, potentially damaging competitive “wars.”
“Gaining short-term competitive advantage — say, offering your customers lower prices by squeezing your suppliers — isn’t always the most sensible objective,” Chen explains. “Firms need to realize that actors other than immediate competitors are absolutely critical to strategic outcomes, and many of the most important outcomes extend well beyond simple economic gains for owners and managers.”
Chen and Miller cite outdoor apparel company Patagonia’s willingness to share with rivals its industry-leading sustainable manufacturing practices. Pointing out that some competitive advantages may indeed be lost through such sharing, they say that the losses are more than offset by reputational gains among the company’s green-leaning clientele, as well as by the productivity of a motivated and inspired workforce. “The aim doesn’t have to be for a firm to destroy, or outcompete, its competitors,” Chen says. “A firm can even help its rivals, as long as — in the end — its position is strengthened.”
Chen says the relational approach to competition offers tremendous potential for enhanced and sustainable value creation for firms. Indeed, he points out, according to a study by Babson College business professor Raj Sisodia, a leading scholar of “conscious capitalism,” publicly traded firms that operate with a clear, relational stakeholder orientation outperformed the S&P 500 index by a factor of more than 10 during the years 1996–2011.
More, Chen says, a relational outlook may well prove critical to success in the global business arena. “Eastern firms — and to some extent, European firms — tend to operate far more relationally than their American counterparts,” Chen says. “In the long term, the success of American business — and America itself — may well depend on the ability to build strong, sustainable, mutually beneficial relationships with global partners.”
Ming-Jer Chen co-authored “Reconceptualizing Competitive Dynamics: A Multidimensional Framework,” which appeared in Strategic Management Journal, with Danny Miller of HEC Montreal and the University of Alberta School of Business.