Innovation key to surviving cutthroat competition

By Kim Da-ye

Until a few years ago, the mobile phone market had multiple players ― Nokia, Samsung Electronics, LG Electronics, Motorola, HTC, Sony Ericsson and more. Apple’s launch of the iPhone changed that by starting the era of the smartphone and as the leading telecommunications device, it seemed invincible.

Apple is now challenged by a strong, wide-ranging line up by Samsung Electronics that aims to strike a commercial blow against the American company with each new model. The latest survey by consumer research firm Kantar Worldpanel ComTech showed that Samsung accounted for 45 percent of smartphone sales in Germany, France, the U.K, Spain and Italy in the second quarter.

The Korean electronic giant’s stellar performance may not last long because Apple is soon expected to unveil iPhone5 and Chinese manufacturers such as Huawei are racing to catch up.

Idalene Kesner, associate dean of faculty and research at the Kelly School of Business, Indiana University, describes such an industry as “hypercompetitive,” adding that it is the most common business environment that Korean companies operate within.

“The way you win in hypercompetitive industries is by constantly scanning the environment, innovating and bringing your products and services faster,” Kesner said in an interview with Business Focus.

The professor visited Korea to deliver lectures to executive MBA students of Sungkyunkwan University ― SKK GSB. The Korean business school provides a dual degree program jointly with Indiana University whose professors come from the U.S. to teach courses here.

Kesner teaches about strategic management, which she identifies as decisions and actions that ultimately aim to create “sustainable” competitive advantages.

In hypercompetitive industries in which sustainable competitive advantage is rarely held by one company for long, the professor says that Korean companies must continue innovating.

“In stable environments, once companies gain competitive advantage, they build barriers to prevent others from attacking them,” Kesner said. “In hyper-competition, it’s not possible to build a wall. You have to be the source of new innovations.”

The greatest risk stemming from a hypercompetitive environment is the commoditization of products and services ― they become less unique and become treated like commodities, traded only at price, she said.

Kesner discussed the issue of hypercompetition last year at the headquarters of AmorePacific, Korea’s largest cosmetics producer by revenue. She was invited by the company to deliver a speech because she had used a case study by Harvard Business School on the company in her classes.

She told AmorePacific CEO Suh Kyung-bae and the employees that hypercompetition combined with the economic crisis would cause “even greater erosion in the value of brands” as consumers are forced to conserve.

The professor said that it isn’t clear if consumers will return to their old buying behaviors from prior to the crisis and some marketing experts are concerned that because of the long duration and severity of the crisis, its impact on consumer behavior will last longer as well.

“My parents lived through the ‘great depression.’ I can assure you that the depression had an impact on their buying behavior for the rest of their lives,” she told AmorePacific.

Such a grim outlook, however, isn’t impossible to overcome. Kesner advised companies to continue to come out with new products that respond to the needs of customers _ “products that consumers don’t even know would exist in the future and that solve the problems that you didn’t even think existed.”

She said that one of the key strategies to maintain a company’s agility and responsiveness is “knowledge management” ― sharing best practices within the company.

Kesner cited Sony as an example of failure. “Each of Sony’s businesses was a self-contained silo. When they did well in one business, it wasn’t shared by other businesses. The result was a lot of infighting and competition inside the company,” she said.

She pointed out that the culture in Korean companies is different, saying that there is a genuine emphasis by leaders on units and businesses to share information and best practices in order to sustain the process of innovation.

In the meantime, enemies do not come from just outside, the professor said. She warned that complacency, which played a role in Sony’s fall, can also visit Korean companies.

“When you think you are too mighty or too strong to be defeated, that’s when you become vulnerable. It’s psychosocially important for Korea’s business leaders to continue to believe they are in a fight in order to continue to be innovative and respond to that very intense competition,” Kesner said.