Conferencia

1. Conferencia DECONSTRUYENDO VALOR ROMPER LAS REGLAS

2. Mr. Richard A. D’Aveni Profesor de Dirección Estratégica de AmosTuck Business School, Dartmouth College

3. DECONSTRUCTING VALUE Breaking the Rules of the Competitive Game Instituto de Empresa Annual Alumni Conference November 25, 2005 Professor Richard D'Aveni Tuck School of Business at Dartmouth College

4. Goals To Strategize About How to Use Rapid and Disruptive Change to Break the Old Rules of Competition • To Change Mindsets by Embracing External Disruptions as Opportunities to Break the Rules • To Examine How Traditional Strategic Rules Fail in Disruptive, Hypercompetitive Markets • To Understand How to Win Using Fast Paced Disruption Strategies that Change the Rules of the Game

5. We Live In a Disruptive World Stability and Traditional Sustainable Advantage Period of Advantage Competitive Advantage Slow Counter Attack Launch Time Disruption and Unsustainable Advantage Short Period of Advantage Competitive Advantage Launch Rapid Counter Attack or Disruption Time

6. Fragmenting and Escalating Customer Demands Falling Entry Barriers Accelerating Technological And Business Model Change Rising Deep Pockets Capitalizing on the Four Driving Forces of Hypercompetition Hypercompetition

7. Old Rules Don’t Apply Because Time, Speed and Maneuvering Matter

8. Perfect Competition IN THE STONE AGE

9. Strong Defensive Walls The Old Rules: Win By Reducing Rivalry Build Non-Competitive Industry Structures • Reduce Rivalry • Avoid Price Wars • Differentiate—Generic Strategies • Segment and Divide Up Markets • Use the Power of Monopoly • Over Buyers • Over Suppliers • Barriers to Entry • Exclude Competitors

10. …Falling Barriers • Unconventional Entrant? • Foreign Entrant? • Adjacent Industry? • Convergence? • ...Escalating Competition • Quality War? • Price War? • ...Aggressive Disruption • Shift in the Rules of Competition? • Revolutionary Technology? • New Business Model? • Deregulation or Privatization? What Kind of World Do You Live In? Please Sit Down if Answer is Yes

12. What are the New Rules of Hypercompetition?

13. A Series of Advantages Advantage Time Strategic Dominance Long-Term Advantage Advantage Time

14. Doing Setting Up Planning Envisioning Do Not Wait Until It Is Too Late Advantage Four Virtually Simultaneous Organizations Time Set Your Time Pacing Interval

15. Pre-Plan Your Disruption Sequence Create a Value and Competence Migration Path Property & Casualty Insurance Industry QUALITY FUTURE Financial Strength/ Reliability Specialty Value Propositions Service/ Products Value Pricing Brand FUTURE KNOW-HOW/ASSETS Economies of Scale in Operations/ Overhead Link Marketing with Underwriting Distribution, Direct Selling, and Internet Balance Sheet Management Agents

16. The Essence of The Struggle Nothing is Sustainable!

17. Knocking Rivals Off Balance: The Center of Gravity Proactive Disruption of Competitors’ Advantages

18. Disrupting the Center of Gravity The Disruption of the Brokerage Industry Round 1: Challenging the Downstream End of the Brokerage Value Added Chain Tailored Advice Largest Broker Network Merrill’s Strengths Customer Account Reports Product Development Research/ Analysis Marketing Distribution Service Schwab’s Disruption Lower cost and 24-hr. service via electronic/telephone service

19. Disrupting the Center of Gravity The Disruption of the Brokerage Industry (cont.) Round 2: Challenging the Upstream End of the Brokerage Value Added Chain Invention of CMA/Mutual Funds Securities Analysis Merrill’s Strengths Customer Account Reports Product Development Research/ Analysis Marketing Distribution Service Schwab’s Disruption One Source provides many new products and access to research by many funds

20. Disrupting the Center of Gravity The Disruption of the Brokerage Industry (cont.) Round 3: Rechallenging the Downstream End of the Brokerage Value Added Chain Tailored Advice Largest Broker Network Merrill’s Strengths Customer Account Reports Product Development Research/ Analysis Marketing Distribution Service Schwab’s Disruption Schwab Advisor Network & Schwab OnLine

21. Disrupting the Center of Gravity Round 4: The Empire Strikes Back New Compensation System [No commission paid on small account trading] Major Cost Cut Backs (overseas & U.S.) My Financial Picture Online Retirement Planning Network Merrill Drops Megatonage Customer Account Reports Product Development Research/ Analysis Marketing Distribution Service Schwab Responds by Imitating Full Line Brokers Schwab Direct Detail (In-depth Mutual Fund Insights) Upscale Rebranding Major Employee Reductions U.S. Trust Computerized Stock Advice and Portfolio Planning & Wireless Trading

22. Disrupting the Center of Gravity Round 5: The Guerilla Strikes Back IPOs Tied to Investment Banking Deals & CMA Funds Used For M&A Loans Merrill’s Investment Banking Strengths Research Tied to Investment Banking Deals Customer Account Reports Product Development Research/ Analysis Marketing Distribution Service Schwab Challenges Conflicts of Interest Advertising De-Legitimizing Investment Banks—Biased Toward IB Clients Over Brokerage Clients

23. In Hypercompetition The Only Defense is a Good Offense

24. Embracing The Hypercompetitive Shift N = 200 Industries Industry Average Stock Performance 1980’s - 1990’s 1950’s - 1970’s Industry Rivalry Drive Growth to Create Shareholder Value

25. The Goals of the Struggle • Outmaneuver your opponent by serving your customer better • Compete to neutralize or obsolete the opponent’s advantage at serving the customer • Not to sustain your advantage

26. Chivalry is Dead The New Golden Rule • Do Unto Yourself Before Others Do Unto You The New Goals • Disrupt the Status Quo • Reshape and Reinvent the Industry

27. The Disruptive The Dead Only Two Types of Firms

28. Frequency of Disruption Low High Fluctuating Equilibrium Equilibrium Fluctuating Equilibrium (Near Equilibrium) Equilibrium (Stability) Turbulence Turbulence Competence Neutral/ Enhancing Time Time Type of Disruption Disequilibrium Punctuated Equilibrium Punctuated Equilibrium (Periodic Disequilibrium) Disequilibrium (Chaos) Competence Destroying Turbulence Turbulence Time Time The Nature of Change: Turbulence Turbulence is Disruption of the Status Quo

29. Matching Your Mindset to Turbulence The Nature of Change and Strategy Low High Fluctuating Equilibrium Leverage & Layer Core Competencies Equilibrium Strong Barriers & Monopoly Power Competence Neutral/ Enhancing Type of Disruption Punctuated Equilibrium Strategy as Revolution Disequilibrium Hypercompetitive Strategies Competence Destroying The Nature of Change Changes the Nature of Competitive Advantage

30. Which Type of Market are You In? Frequency of Disruption Low High Fluctuating Equilibrium (Near Equilibrium) Fluctuating Equilibrium Equilibrium Equilibrium (Stability) Competence Neutral/ Enhancing Turbulence Turbulence Time Time Type of Disruption Disequilibrium Punctuated Equilibrium Punctuated Equilibrium (Periodic Disequilibrium) Disequilibrium (Chaos) Competence Destroying Turbulence Turbulence Time Time Do Your People Have the Right Strategic Mindset for the Type of Turbulence You Face?