Saturday, April 28, 2012

Is Competition Over-Emphasized?

This David Brooks article on competition versus creativity rings true for me.
One of [Peter Thiel's] core points is that we tend to confuse capitalism with competition. We tend to think that whoever competes best comes out ahead. In the race to be more competitive, we sometimes confuse what is hard with what is valuable. The intensity of competition becomes a proxy for value.
Stipulated that competition will always be a big part of business. No doubt. But competition is a means not an end. I remember a former boss--who I never felt much affinity with--saying, "I wake up every morning and think 'let's go beat [Brand X]' ". I thought that was off-base. First of all, what does "beat" mean? Does it mean sell more units, or make more money? (There can be a big difference--just ask Apple.) Does it mean destroy the competition by any means? (Even if it risks violating regulations or laws?) Much better to wake up and think "let's go create, build and deliver great products that will delight customers, who will pay enough to provide a healthy profit margin".

Along the same lines, something I heard in business school has always stuck with me:
In an extended simulation exercise, CEOs would sacrifice up to half of annual profitability, in order to "win"--with winning defined in terms of market share.

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