Competitive Position and the Red Queen

The contest for survival can be referred to as the “Red Queen’s race,” named after a character in Lewis Carroll’s Through the Looking Glass (a sequel to Alice’s Adventures in Wonderland) (Barnett, 2007;   Carroll, 1991). In this novel, Alice comes across the Red Queen – a life­size, animated chess piece – that relentlessly runs faster and faster, never stopping. There is a moment when Alice breathlessly comment s that everyone in the domain of the Red Queen seems to be perpetually running, and yet the faster she runs, the more she tends to stay in the same place relative to other fast ­moving and uncertain activities in her environment. (Schindehutte 2008)

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.

“The ‘red queen effect’ refers to the red queen’s advice in Lewis Carroll’s Through the Looking Glass in which she says, in order to stay in a (competitive) place you have to run very hard, whereas to get anywhere you have to run even harder. In today’s knowledge and mobile environments we know that businesses cannot survive by just running harder, but rather by running differently and ‘smarter’ than competitors.” (Voelpel 2005)

A Red Queen strategy infers that you cannot always out-maneuver the Red Queen nor can you avoid her. Its her world and her rules. The question is can you get ahead of the curve and can you and should you work in harmony with the escalating Red Queen of competition. rather than trying to avoid or do away with her.

The Red Queen hypothesis, also referred to as Red Queen's, Red Queen's race or the Red Queen effect, is an evolutionary hypothesis which proposes that organisms must constantly adapt, evolve, and proliferate not merely to gain reproductive advantage, but also simply to survive while pitted against ever-evolving opposing organisms in an ever-changing environment.

This is the paradox of the Red Queen; recognizing that, unlike in the tidy world of economics and management theory, in the real world there is constant disruption and disequilibrium between competitive markets and a firm's ability to adapt and respond.. The competitive game never ends.

According to Andy Grove, the founder on Intel "Competition is one of the best forces for organizational learning and improvement, Developing coping strategies to deal with competitors allows an organisation to build the capacity for the future”.

Good business models arise from trial and error,"

This may suggest why those organisations (VAG Group?) that survive traumas and near-death experiences end up the innovators and can go on to be the most viable and successful in their industry sector.?

So what does the Red Queen tell us about possible futures for companies like Nike?

  1. There is no equilibrium only innovation and disruption and that is the DNA that facilitates market growth.
  2. Organisation need to constantly adapt to their business environment and maintain the ability to anticipate and respond to change.
  3. To counter direct competitive challenges, business need to continuously learn new ways of improving their efficiency and performance.

According to Burnett (Stamford)  “Managers, must 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."

Take the example of Nike.

Sports footwear is technically complicated and fashion intensive. Nike’s market positioning is not selling shoes or athletic apparel–it’s pitching a lifestyle.  A lifestyle that most people aspire to. This goes beyond a tagline - just do it and is part of a 29 year campaign to create a relationship that resonates with key market segments. Topically one example is #nikewomen.

According to Nike ““The power of NIKE’s diverse, global portfolio delivered another solid quarter of growth and profitability,” said Mark Parker, Chairman, President and CEO, NIKE, Inc. “To expand our leadership and ignite NIKE’s next phase of growth, we’re delivering a relentless flow of innovation through performance and style, increasing speed throughout the business and creating more direct connections with consumers leveraging digital and membership. (Nike News)

Nike has 566 factories in 44 countries. The company estimated that there are over 1 million people engaged in the production of Nike brands including Converse, Hurley, Jordan Brand and Nike Golf in China, Indonesia, Vietnam, Philippines Taiwan and South Korea.  http://nikeinc.com/pages/manufacturing

This means that production needs to be flexible and responsive to changing customer expectations both in terms of the pre-production research and development and the post production activities of marketing distribution and sales channels. The strategic marketing question is how should Nike, gain competitive advantage by matching its production and distribution capabilities with changing demand?

A recent press report noted that “nearly 20% of Nike and Adidas products will be manufactured in automated factories by 2030, according to a report. The report, by Morgan Stanley, said growing consumer demand for fast “buy now/ wear now” fashion would spur the athletics companies to speed up supply chains by moving towards automation. With companies such as H&M and Amazon offering two-day delivery, the fashion calendar has been abandoned and the old model where wholesale decisions were made months in advance of when they hit the shelves is becoming obsolete.” Supply Chain Management 2017

 Up until recently, the only element that was manufactured within the US were technical core components of Nike Air system. It looks like this is about the change as Nike seeks to be more responsive to fashion trends and out-performs its most immediate rivals.

In August 2017 Bloomberg reported, “The most labor intensive part of putting together a pair of Nikes is assembling the “upper" — the flexible part of the shoe that sits on top of your foot. On many sneakers, uppers look like a single piece of material with no visible stitching, but they can actually be made of as many as 40 pieces that are stacked up just so and then heated so they fuse. In the past month, Grabit has begun providing facilities that make Nikes with a handful of upper-assembling machines that can work at 20 times the pace of human workers. By the end of the year, about a dozen of these “Flyknit machines” will be operating in China and Mexico.

The company has also set up an Advanced Product Creation Centre at its headquarters in Oregon to explore other automated production methods, including 3D printing, announced in Oct 2015,  
Some commentators have suggested that this could be a step forward in Nike’s attempt to change the economics of shoemaking so it can relocate manufacturing closer to the big consumer markets in the U.S. and Europe. Recently the company has acquired existing apparel suppliers in North and Central America. “Automation factors heavily into Nike’s plan to move factories closer to the U.S. There are already 49 factories making Nike products here. On average, each facility employs about 130 people – the average Nike-making factory in China has about 1,300 – and they specialize in things like high-tech air bubbles, not finished shoes.” Bloomberg 2017

Your Task

Based around the idea of a Red Queen Strategy, you task is to work out what Adidas’s response to the Nike transformation will be and then to anticipate the market innovation that Nike will adopt to stay ahead of the curve.

To prepare for this you need to:

  1. Read up, using from reliable sources, the idea of a red queen strategy and establish its links with business innovation.
  2. Explore the Nike marketing strategy and its impact on the position of the company, its shareholders, its suppliers and its channels to market.
  3. Anticipate the competitive response from Adidas and other similar competitors.
  4. Present a Red Queen strategy for Nike to continue transform core elements of its business.

Reading

Jobber Chap 11, p 343-372  Value through Innovation

Voelpel, S., Leibold, M., Tekie, E., & Von Krogh, G. (2005). Escaping the red queen effect in competitive strategy:: Sense-testing business models. European Management Journal, 23(1), 37-49

Nike Investor Relations, available from http://investors.nike.com/investors/news-events-and-reports/investor-news/investor-news-details/2017/NIKE-INC-IS-ACCELERATING-A-CONSUMER-LED-TRANSFORMATION-TO-IGNITE-ITS-NEXT-PHASE-OF-LONG-TERM-GROWTH/default.aspx accessed Dec 2017

Nike Manufacturing Map,available from  http://nikeinc.com/pages/manufacturing accessed Dec 2017
http://nikeinc.com/pages/manufacturing

Bloomberg These Robots Are Using Static Electricity to Make Nikes, 30 August, available from https://www.bloomberg.com/news/articles/2017-08-30/these-robots-are-using-static-electricity-to-make-nikes accessed Dec 2017

Nike Inc., Reports third quarter 2017 https://news.nike.com/news/nike-inc-reports-fiscal-2017-third-quarter-results 

Marcus Thompson January 2018 - Based on a case Study from Van Weele 2018