UMKC Mergers and Acquisitions in Modern Competitive Environment Discussion Please read the attached article from Strategy+Business Magazine titled: The New

UMKC Mergers and Acquisitions in Modern Competitive Environment Discussion Please read the attached article from Strategy+Business Magazine titled: The New Supercompetitors. Note the number of food and consumer goods companies illustrated in the article. Over the past decade major international food companies have arisen through mergers and acquisitions. There are distinct strategies that have driven these actions.https://www.strategy-business.com/article/00272 What do you think drives organizations to acquire or jettison major divisions as noted in the article?In light of your prior readings, how would you categories the strategies at work in the article?What light does this knowledge about supercompetitors shed on your own career and future in foodservice? Do you think the trends will continue? Are extremely large global companies good or bad? Please be specific and detailed in your response. Use all you have learned to date to inform your writing. 11/22/2017
The New Supercompetitors
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Published: August 8, 2014 / Autumn 2014 / Issue 76
STRATEGY & LEADERSHIP
The New Supercompetitors
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Companies that realize the power of their capabilities can shape how industries evolve. And watch the
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by Thomas N. Hubbard, Paul Leinwand, and Cesare Mainardi
Since the mid-1990s, the source of competitive advantage has been shifting. Leading companies
used to be diverse conglomerates that based their competitive strategy on assets, positions, and
economies of scale. Today’s market leaders, by contrast, are more focused enterprises. They do
not follow the traditional portfolio strategies of seeking short-term profitability or growth
wherever they can find it. Rather, they recognize that value is created by their distinctive
capabilities: what they can do consistently well. Their strategic approach, which is based on a
single powerful value proposition backed up by a few mutually reinforcing capabilities, gives
them a continuing advantage over their rivals. As they consolidate their efforts around this
approach, they fundamentally reshape their industries.
Illustration by Javier Jaen
We call the companies that achieve this form of influence supercompetitors. A supercompetitor
is a company that, by competing successfully with its distinctive capabilities, changes the dynamics of its business environment.
A capability, in this context, is the ability to consistently deliver a specified outcome relevant to the business. This takes place
through the right combination of processes, tools, knowledge, skills, and organization, generally developed across functional
boundaries. Supercompetitors are emerging today because, in industry after industry, their few distinctive capabilities are both
scalable and relevant, while other forms of competitive advantage, like sheer size, have decreased in importance.
The New Supercompetitors: WATCH THE RELATED VIDEO
The New Supercompetitors
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Consider, for example, the impact that the supercompetitor Amazon has had on a variety of sectors and markets. Starting as a
Web-based bookseller, Amazon learned how to develop distinctive online retail interfaces that presented complex information
in a clear, intuitive way. It combined this with world-class IT and supply chain capabilities and its own unique approach to
automating customer recommendations on the basis of sales and preference data. It was these capabil-ities—and especially the
way they worked together in a mutually reinforcing system—that enabled Amazon to expand across multiple product categories,
including housewares, clothing, and cloud-based computer services. By 2013, its sales had reached almost US$75 billion—more
than four times the sales of the entire trade book publishing industry. Other well-known supercompetitors in the computer
technology industry, such as Apple and Google, have also staked out cross-sector spaces, applying their own distinctive
capabilities systems to everything they do.
Supercompetitors in other industries (see Exhibit 1) include IKEA, which revolutionized the home furnishings industry by
creating a globally scalable business model for affordable home goods; Starbucks, which uses its experience design and
customer engagement prowess to deliver a distinctive coffeehouse ambience around the world; Danaher, which reinvented the
conglomerate by replicating operational excellence across its internal boundaries, serving scientific and technical tool markets
with immense profitability; Enterprise Rent-A-Car, which developed a new type of auto rental business for people with
unplanned transportation needs; Inditex, inventor of a uniquely effective fast-fashion business model for apparel; McDonald’s,
whose global supply chain and marketing capabilities gave it one of the most iconic global brands; Qualcomm, whose prowess in
developing and licensing breakthrough technologies led the mobile phone industry toward the smartphone; and Toyota, which,
despite its difficulties in the early 2010s, is still the creator of the production system that every other automaker emulates.
The success and influence of the supercompetitors have begun to change the way business strategists think about industry
evolution and the nature of competition. For business leaders who want to stake out a winning position in their industries, it is
critical to recognize the role that the new supercompetitors play. Amid the fierce competition and turbulence of many industries
today, they have found a way to gain control over their destiny.
How Industries Evolve
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The uncertainty and hypercompetitive nature of today’s business world, thanks to outside forces such as technological change,
globalization, and the ease of reverse-engineering many products and services, has shifted advantage to companies with
distinctive capabilities. Since competitive advantage is increasingly short-lived, winning companies cannot rely on scale—the
leverage that comes from being bigger than other companies. Nor can they rely on one or two assets, products, or services. They
need a steady stream of offerings that only capabilities can deliver. Capabilities like these are not easy to build. They are
complex and expensive. Most winning companies can only support a few—typically three to six—where they focus
disproportionate investment, energy, and management attention.
By necessity, they choose not to do the things they can’t do well. Amazon sells a wide variety of products and services, as diverse
as books, shoes, electronics, and cloud computing—but has never opened a bricks-and-mortar store, where it would need to be
good at face-to-face sales. IKEA manufactures a wide variety of distinctive products, but never sells them through other
companies’ retail channels. Qualcomm develops breakthrough technologies, but licenses them to other companies for consumer
marketing.
At any time, in any given industry, there may be one, two, or several supercompetitors. Just as keystone species transform their
environment to better meet their needs, these new market leaders act, bit by bit, to turn industry dynamics to their advantage.
Having prioritized the capabilities that matter most, they invest heavily in them. Because of the fixed costs and cross-boundary
nature of most distinctive capabilities, there is a tremendous economic incentive to apply them broadly. The companies that do
this are more effective at providing value, and, thus, customers are attracted to their products and services.
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Most of the supercompetitors also grow through mergers and acquisitions. They are helped by the fact that transactions that
favor capabilities systems outperform deals with a limited capabilities fit—by 12 percentage points on average, according to one
study. (See “The Capabilities Premium in M&A,” by Gerald Adolph, Cesare Mainardi, and J. Neely, s+b, Spring 2012.) This
provides further incentive for industries to align around a few supercompetitors. Many of these companies use M&A to bring in
products and services that have languished elsewhere, but that will thrive with them. (Danaher is known for this.) They seek out
businesses with capabilities that will complement their own. (Amazon frequently uses this strategy.) They also divest businesses
that don’t benefit from their capabilities. These activities draw in more skilled employees, who find that more focused
enterprises make better use of their talents and interests. The most proficient suppliers and distributors also find themselves
more attuned to supercompetitors, which often invite them to play a more strategic role, in a context where their work will be
valued more highly.
Over time, all of this gravitational pull has a profound influence on the industry; it realigns around companies that use their
capabilities well. Many industries thus evolve toward a new equilibrium in which a few supercompetitors, each with a singular
value proposition and a capabilities system to match, have carved up the market among them (see Exhibit 2).
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One powerful example of this kind of industry evolution has occurred in consumer packaged goods (CPG). In the early 1990s,
the CPG industry was dominated by large, diversified enterprises selling food, beverages, and personal care products. Unilever,
Procter & Gamble, Kraft, Colgate, Nestlé, and Sara Lee each owned a tremendous range of brands and business lines, many of
which had arrived through mergers and acquisitions. These giants owed their success to economies of scale and bargaining
power: They marketed and muscled a broad portfolio of consumer products through their control of retail channels. Scale also
gave them lower costs in back-office functions, and the deep pockets needed for expensive network television advertising.
But these advantages did not last. Complex collections of loosely related brands and products became too unwieldy to sustain.
Kraft, for example, made dairy-case products (including Kraft American cheese and Philadelphia cream cheese), frozen foods
(DiGiorno pizza), chocolate (Cadbury), chewing gum (Trident and Chiclets), and snacks (Ritz crackers and Oreo cookies). Such
different types of foods required completely different capabilities to produce and market. Success with chewing gum, for
example, relied on rapid-fire flavor innovation, a complex form of direct-store delivery to control the shelves near checkout
counters, and a distribution chain that could deal with convenience stores and gas stations. These capabilities were of much less
value to Kraft’s businesses involving cheese and meats, where commodity price management and a more technological form of
innovation were critical to success. Unilever, Procter & Gamble, and Sara Lee were even more diverse, offering a mix of personal
care, food, and household products, along with outliers like specialty chemicals (at Unilever) or pantyhose and handbags (at
Sara Lee).
Since the early 2000s, as competition in each CPG category intensified, the challenge of managing business units requiring such
different capabilities grew more and more daunting. The value of scale diminished in other ways as well. For example, as the
cost of information technology dropped and outsourcing became more prevalent, any small company using third-party cloud
services could rent a back office as sophisticated as those that used to be available only to the major players. Smaller companies
(Annie’s Homegrown, Green Mountain Coffee Roasters, Applegate Farms, and many others like them) gained better access to
markets, selling to global retailers like Walmart or through the Internet. These smaller companies thrived by staking out a
position based on a few specialized capabilities rather than the broad marketing or innovation functions around which the
larger companies were organized. (See “The Big Bite of Small Brands,” by Elisabeth Hartley, Steffen Lauster, and J. Neely, s+b,
Autumn 2013.)
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Gradually recognizing their loss of advantage, leaders at some large CPG companies began rethinking their strategies. Instead of
maintaining broad product portfolios, they picked spots where they could compete best, choosing the product lines and value
propositions that matched their strengths. They doubled down on investments in distinctive capabilities that supported this
portfolio, acquired other businesses that matched, and shed businesses that didn’t fit (see Exhibit 3).
For example, starting around 2005, Kraft CEO Irene Rosenfeld saw an opportunity to redefine the company along the lines
suggested by its distinctive capabilities. Kraft focused its attention on its snacking business, acquiring Danone’s biscuit division
(which fit well with the capabilities used for Ritz crackers and Oreo cookies). Ultimately, the Kraft organization split in two:
Kraft took the traditional grocery businesses, and a new company, Mondelez International, took instant-consumption products
like snacks. In just a few years, with Rosenfeld as CEO, Mondelez has grown to a multiple of the old snack business under Kraft.
Another example is Sara Lee, which began a program of strategic divestment in the early 2000s. This program culminated in
mid-2012, when Sara Lee divested its Amsterdam-based coffee business, known as Douwe Egberts, forming a new company
called D.E Master Blenders. The remaining North American bakery and deli meat business, now renamed Hillshire Brands, was
so much smaller that it was taken out of the Standard & Poor’s 500. But it was also more profitable; the string of divestitures
more than doubled overall enterprise value for Sara Lee shareholders. (Tyson Foods is set to merge with Hillshire Brands in
2014.) A further development in 2014 reaffirmed the value of capabilities systems. Mondelez spun out its coffee business, which
included brands such as Jacobs and Tassimo, and has announced plans to merge it with D.E Master Blenders to create a new
company called Jacobs Douwe Egberts. Under Kraft and Sara Lee, these coffee businesses had never fully realized their
potential; in combined form, they would be the world’s largest pure-play coffee company and would be focused on the
capabilities needed to maintain that position.
These capabilities-driven transformations are typical of the industry. A study of the top 15 CPG companies (by market cap)
between 1997 and 2013 has found dramatic reductions in scale and scope. The average number of segments per company
dropped from 4.3 to 3.1. Unilever dropped its healthcare and chemicals businesses; Procter & Gamble sold off its food and
beverage divisions; Kimberly-Clark, its paper goods businesses. At the same time, average revenue per segment (after correcting
for growth of the sector) increased 25 percent, from $8.9 billion to $11.2 billion. As these companies focused on capabilities,
they grew stronger and more dominant across a smaller number of categories. They have become the supercompetitors of the
supermarket shelf.
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Where Supercompetitors Thrive
A growing number of industries are ripe for supercompetitors. The readiness of an industry depends on its underlying
competitive logic. Industries poised for this type of change have two fundamental qualities. The first is the scalability of critical
capabilities. A potential supercompetitor’s capabilities system must be applicable to a broad (and expanding) number of
products, services, and customers, so that the extensive fixed costs of a distinctive capability (such as IT, supply chain, and
talent costs) can benefit from that large base.
A relatively recent line of research, starting with John Sutton’s landmark book, Sunk Costs and Market Structure: Price
Competition, Advertising, and the Evolution of Concentration (MIT Press, 1991), has shed light on the importance of scalable
capabilities to an industry. This research shows that when companies compete on the basis of capabilities that involve sunk
costs (costs that are irretrievable once incurred), conditions are created in which only supercompetitors can thrive. In such
circumstances, even when the addressable market is very large, the competitive logic of the industry enhances the advantages
associated with distinctive capabilities. Companies that do not develop such capabilities, or that cannot scale them through
innovation or some other means, are shaken out of the market.
Consider the differences between lower-end restaurant chains and premium dining establishments. Both are in the restaurant
business, but their competitive logic is quite different. Chains compete on the basis of highly scalable capabilities—generally in
marketing and operations—that can be applied to many locations. Premium restaurants compete on the basis of higher-quality
ingredients, specialized menus that change from day to day, and more personalized service. Successful premium restaurants
often have strong, distinctive capabilities, which they need to attract customers, but these tend to be hard to scale across
multiple locations. This lack of scalability inhibits the emergence of supercompetitors among premium restaurants, while they
thrive as lower-priced chains.
One enterprise that learned the importance of scalability the hard way was Gerald Stevens, a florist company founded by two
veterans of Blockbuster Video in the late 1990s. Just as Blockbuster had done with local video stores, Gerald Stevens acquired
and consolidated local full-service florists throughout the United States, trying to build a national brand in this category. But it
turned out that some critical capabilities for full-service florists are not scalable—for example, working on local events
(weddings, funerals, and other gatherings) and managing the stock so that all flowers are eventually sold. The freshest flowers
must be sold to customers who value freshness the most (the buyer of flowers for his or her home, where the flowers may be
displayed for days, cares far more than the buyer of a centerpiece for a hotel banquet). Only when Gerald Stevens ultimately
sold the florists’ shops back to their original owners, with a loss of more than $170 million, did the businesses return to
profitability.
By contrast, the eyeglasses business, which might have seemed similarly difficult to consolidate, was ultimately overtaken by
LensCrafters, which used its one-hour technology (and a scalable system of marketing, fashion, and customer service
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capabilities) to gain market share, acquiring most of its optical chain competitors in North America.
IKEA used its scalable capabilities to gain market leadership as the world’s largest home furnishings company. Other
competitors pose such a small threat to IKEA that the company’s strategic leaders don’t even track them consistently. Some
competitors, like high-end furniture crafters, have capabilities that aren’t scalable. Others, like those that make or import
traditional furniture designs, don’t appeal to the same customers. A few have tried to compete directly with IKEA in local
markets, but they are so far behind in developing their capabilities system that they haven’t been able to catch up.
The second factor in the readiness of an industry for supercompetitors might be called differentiation relevance. It is the
number of customers (business or consumer) who might value the distinctions that a great capabilities system can deliver. The
appeal might be through higher value (as with Walmart and Amazon), through differentiated products and services (as with
Apple and Starbucks), or through both (as with McDonald’s and IKEA). Potential relevance is not a function of the capabilities
system only. It depends on the interests and needs of the customer base.
One might argue that every category has relevant audiences who care about some distinguishing factor. But some categories
struggle with decreasing loyalty simply because all the competing products have reached a threshold of “good enough” value and
usefulness. For example, paper towel manufacturers have tried to differentiate with thickness, absorption, environmental
footprint (“greenness”), and cost, but relatively few consumers seem to care much. The same is true of many other utilitarian
products, such as matches and toothpaste, and of trave…
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