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 / Winter 2008 /Issue 53(originally published by Booz & Company)


Best Business Books 2008: Strategy

The Red Queen among Organizations is written in a style that is more academic than practical. Its main thrust is theoretical, and the full implications for managers will likely not be drawn out for a few years. Nevertheless, it is the best strategy book of the year because of its main insights: Competition concerns relative performance, not absolute performance; a com­pany’s competitiveness is context specific, and contexts can change, giving rise to the competency trap; learning comes about from competing, not isolation from competition; and differentiation is desirable as a way to secure rents, but must be pursued in the context of competition, not in the vain hopes of avoiding it.

A Tale of Two Competitors
For an in-depth account of a specific competitive battle, a laudable book is Sony vs. Samsung: The Inside Story of the Electronics Giants’ Battle for Global Supremacy, by Sea-Jin Chang, professor at Korea University in Seoul (and my Wharton classmate and research partner in the 1990s). Chang paints a detailed portrait of Japan’s Sony Corporation and Korea’s Samsung Corporation as they engaged in a complex game of cooperation and competition.

Chang’s approach differs from most not only because he had superb access to senior executives in both companies, but because he refrains from easy inferences based on performance outcomes. He begins by citing articles from leading business magazines that acclaimed Sony’s brilliance in 1999, only to blast CEO Nobuyuki Idei as one of the worst managers just a few years later. Chang knows that people don’t become that stupid that quickly — and refuses to engage in the simplistic blame games that characterize so many books.

Through interviews and the analysis of company data, Chang tracks the strategies, organizational processes, and leadership styles of both companies. He demonstrates how Sony’s strategy and organizational processes were well suited to analog technologies, to which companies added value through imaginative new products. At the same time, during the 1980s and early 1990s, Samsung was little more than a component manufacturer, and unable to compete effectively against Sony. But as the rules of the game shifted in the late 1990s with the move to digital technologies, Samsung began to excel in a competitive context that rewarded low-cost components, while Sony struggled with a strategy that aimed to combine content with hardware. Further, Sony’s superiority in televisions was lost when cathode ray tube technology gave way to liquid crystal display flat screens, in which Samsung has now also overtaken Sony. Thanks to its strong position in components, Samsung passed Sony in market capitalization by 2002, and by 2006 was twice as valuable as Sony, leading its Japanese rival in both sales and profitability.

Chang concludes that the recent performance differences between Sony and Samsung were not purely the result of their different strategies, but reflected the fit between those strategies and the companies’ organizational processes and leadership. There was nothing wrong with Sony’s strategy per se, but Sony was unable to execute that strategy owing to ill-suited organizational processes and political infighting. Chang may be correct. After all, Apple has been able to succeed using a substantially similar strategy.

But another explanation is possible, as well: It may be that Sony’s inability to adapt its organizational processes is not unusual, but indeed almost predictable. Organizations often change more slowly than their environments, meaning that in time most organizations become unfitted to their new contexts. That is, of course, very much the notion of the competency trap described by Barnett in The Red Queen among Organizations, and raises the question of whether success in one context tends to lead to failure in another.

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