'Red Queen' of competition improves organizations

There's a moment in Alice in Wonderland when Alice comments that everyone in the domain of the Red Queen seems to be perpetually running. Were she to be in her own realm, the breathless protagonist remarks to her hostess, at least she'd be getting somewhere. The Red Queen responds that Alice must live in a very slow place indeed, for in her world everyone must run simply to stay standing.

If you're a business manager, chances are you know the feeling. Like the Red Queen, you live in a world in which continual changes in technologies, markets and organizational forms require your firm to be in constant motion just to keep in place. Business Professor William Barnett has found that getting in front of the curve is possible if you know how to strategically work in harmony with the escalating Red Queen of competition—rather than trying to avoid or do away with her.

Understanding the paradox of the Red Queen, he told an Alumni Weekend audience at the Graduate School of Business, involves recognizing that, unlike in the tidy world of economic and organizational theory, in the real world there is no equilibrium—the game is never finished. "If you're doing a good job causing problems for your competition, you're sowing the seeds of problems they'll cause you down the line," he said.

Drawing on case studies and examples from his forthcoming book Red Queen Competition Among Organizations (Princeton University Press, 2007), Barnett, the Thomas M. Siebel Professor of Business Leadership, Strategy, and Organizations, opened his Sloan Distinguished Faculty Lecture on Oct. 13 by noting how Trader Joe's moved from selling cigarettes and milk to boutique food products by creating new organizational models in areas such as human resources, customer relations, store size and product procurement. "These kinds of changes disrupt the market and, over time, alter the basis of competition," he observed.

But he cautioned that managers should keep in mind that today's innovation is tomorrow's noose. "Organizations that don't keep changing eventually become punished for being really good at what used to be rewarded," Barnett said. In the early 1980s, for example, Bank of America's efficient brick-and-mortar operation became a liability as automatic teller machines, electronic funds transfer and other mechanisms emerged to allow people to get their money more easily.

Nevertheless, competition is one of the best forces for organizational learning and improvement, Barnett argued. "In his book Only the Paranoid Survive, Andy Grove, one of the founders of Intel, was essentially remembering the days when his employees were sweating," he said. "But he became paranoid when his employees weren't.

"Dealing with the troubles of competition allows you to build the capacity of your organization," Barnett advised the audience, many of them mid-career fellows who entered the Business School's Sloan Master's Program this fall.

"Good business models arise from trial and error," Barnett said, noting that even the road to microprocessors and the Internet were fraught with early misjudgments about the utility of personal computers and linked networks. His studies of many companies and industries over several decades, he said, reveal that firms discover their industries and become better performers through competition on dimensions such as new products and ideas, pricing and services. Organizations that have survived near-death experiences in fact end up being among the most viable and successful.

Barnett warned against managers assuming—and desiring—their industries to be in a state of equilibrium. "If your ideal is equilibrium, you end up treating change as something that happens to you," he said. "Organizations that are in a constant state of reaction are simply not as profitable."

Managers, he advised, must therefore face the Red Queen head on. One way of doing so, he said, is to get in on early diffusion of the product, which can often give a firm an advantage. Establishing product teams, phase reviews and cross-functional mechanisms can all speed the rate at which an organization is able to respond to the market. "But it's not just about 'going fast,'" he said. "The art of strategy is about understanding your industry well enough to know a promising innovation from a blind alley."

Ultimately, Barnett said, managers should focus on connecting those in the firm involved with medium- and long-term planning with the product and service development teams that are actually in touch with customers. "In the end," he said, "you want to think of yourself as the architect of a system that's trying to engage, not eradicate, competition."

Marguerite Rigoglioso is a freelance writer.