We believe the time has come to rebalance the hard and the soft. Softball players that have survived until now—think of most airlines, the U.S. auto industry, the recording industry, to name a few examples—are in deep trouble. Hardball players are taking their places at an unprecedented rate. Companies join and fly off the Fortune 100 list faster than ever before. In this quicker, tougher world of business, playing hardball is not an option; it is a requirement for winning.
Ready to relearn the fundamentals of winning and losing? Start with the Hardball Manifesto. It lays out the keys to becoming an effective hardball player.
Focus relentlessly on competitive advantage. The history of business is littered with the remains of companies whose competitive advantages, once robust, simply withered away. Hardball players, by contrast, strive to widen the performance gap between themselves and competitors. They are not satisfied with today's competitive advantage—they want tomorrow's.
Although a lot of companies talk about competitive advantage, few are able to put a finger on exactly what theirs is, and fewer still can quantify it. Hardball players know—empirically—what theirs is and exploit it ruthlessly.
Companies that relentlessly pursue competitive advantage are wonders to behold. Wal-Mart is first and foremost a logistics company, and it established its competitive advantage in discount retailing in the 1970s with a network of "cross-docking" warehouses. Goods from suppliers were accepted only in full truckload quantities. They were then moved across the dock and loaded onto other trucks that later departed fully loaded with a variety of goods going to stores.
But Wal-Mart didn't stop with this drastic reduction in its transportation costs. It went to "everyday low prices" to stabilize demand and thereby further reduce costs. Supercomputers were installed to track and analyze consumer purchases, competitor prices, and other information. Satellites beamed the data from stores to suppliers and on to warehouses, helping to keep inbound and outbound trucks full and shelves stocked. Suppliers were told exactly when to deliver shipments to warehouses; if they missed the window, their shipments might be returned until the next window opened—or rejected altogether. Wal-Mart also used sales and inventory data to tell companies like Rubbermaid which products it would carry—no matter what the companies thought was the appropriate merchandising of their lines.
Wal-Mart continues to tighten the bolts on this system, so far without any signs of shearing. In Wal-Mart's intense and relentless effort to further increase efficiency, suppliers' costs and consumer prices are, apparently, expected to decline forever.
Strive for "extreme" competitive advantage. To hardball players, there's something far more important than competitive advantage. It is, in effect, extreme competitive advantage, which is the ultimate endgame. Unlike plain old competitive advantage, which can be fleeting, this is something that puts you out of the reach of your competitors. They're likely to cry that such an advantage is unfair—not because it's unjust, but because no matter how hard they try, they cannot match it. Often, the hardball competitor has an economic system that is unassailable. Or a relationship with a customer or a supplier that is not available to its competitors. Or capabilities such as fast product development or superior customer knowledge that others cannot replicate.
|The nicest part of playing hardball is watching your competitors squirm.|
Toyota's production system, for example, is so much better than any other automaker's that the company practically flaunts it. The system lets Toyota produce, at both high and low volumes, a great variety of high-quality vehicles at very low cost. Toyota is so confident that its system cannot be replicated that it has welcomed competitors into its factories. "Study us all you want," the company has said. Despite decades of trying, no rival has matched Toyota's system. Toyota continues to push the boundaries of its advantage with a new type of flexible assembly line—dubbed the Global Body Line—that costs 50 percent less to install and can be changed to accommodate a new model for 70 percent less than Toyota's previous production system.
The rewards to Toyota have been spectacular. Its global market share has steadily risen from 5 percent in 1980 to more than 10 percent today, with each point of market share worth about $10 billion in revenue. Toyota, which recently overtook Ford as the world's second-largest automaker (in terms of volume), says its global market share goal is 15 percent by 2010. Does anyone want to bet against it?
Avoid attacking directly. Perhaps paradoxically, hardball players avoid direct confrontation. That's because they're smart. History shows that for a military force to be reasonably assured of success in a direct attack, its strength must be several times greater than its opponent's. That's not a prospect hardball players like. Even if they have the strength, they prefer the economies of force inherent in the indirect attack.
Southwest Airlines' unusual but highly successful route strategy is a classic indirect attack. Traditional airlines built huge competitive strengths in their hubs; for example, United has nearly 1,000 flights in and out of Chicago's O'Hare airport every day. Southwest chose not to attack the major airlines on their well-defended turf. Instead, it opened operations in small, out-of-the-way airports. For instance, bypassing Boston, it offered service out of Manchester, New Hampshire, and Providence, Rhode Island. Instead of trying to get slots at O'Hare or New York's LaGuardia airport, it set up operations at Chicago's Midway airport and at Islip on Long Island. Not surprisingly, there were no bloody battles with the major airlines for control of these locations.
Once Southwest was established in the smaller airports, the major carriers faced a dilemma. How could they respond to Southwest's small-airport success without stepping out of their well-protected foxholes at the major airports? Should they compete directly with Southwest in smaller airports where Southwest had built a competitive advantage? Or should they create their own non-hub-based airlines to compete with Southwest? With either response, the major carriers would be playing into Southwest's game. And, in fact, no major carrier has yet resolved this dilemma. Numerous attempts to confront Southwest directly—for example, Continental Lite—have failed. Meanwhile, Southwest continues to push into small cities. Its well-documented success as other airline companies teetered after the September 11, 2001, tragedy only confirms just how savvy Southwest was.
Exploit people's will to win. Hardball requires guts as well as smarts. Victory often belongs to those who want it the most. Southwest's founder, Herb Kelleher, despite his aw-shucks persona, is a hardball player, and Southwest is a hardball team. Don't be fooled by its touchy-feely image in the media—or by its stock ticker symbol, LUV. Sure, in a syrupy training video, one animated character tells employees, "Spirit is engaging our minds and our hearts and our souls to do the right thing. Southwest spirit is you." But in an advertisement for the whole world to see—including employees—Southwest once crowed: "We came. We saw. We kicked tail."
|Hardball requires guts as well as smarts.|
This is a great mantra for hardball players. To achieve competitive advantage and drive toward extreme competitive advantage, hardball players must be action oriented, constantly impatient with the status quo. Fortunately, one can foster this will to win and turn softball players into hardball players.
One way to do this is by adopting hardball strategies of the kind we describe below. These by themselves can help release people's natural desire to win. But to really turn softball players into hardball players, you need to create and maintain in people a hardball attitude. This becomes more difficult as your advantage over competitors grows and people become complacent. As Kelleher said in a letter to all employees in the early 1990s, "The number one threat is us." He added: "We must not let success breed complacency; cockiness; greediness; laziness; indifference; preoccupation with nonessentials; bureaucracy; hierarchy; quarrelsomeness; or obliviousness to threats posed by the outside world."
To avoid such complacency, you need to foster a sense of urgency. Once, in response to United's launch of a competing service in several California cities that were served by Southwest, Kelleher dispatched a letter to employees with the headline "Commencement of Hostilities." Noting that United had more than 100 planes that could be "hurled against us" on the contested routes, he warned that "our stock price, our wages, our benefits, our job security, our expansion opportunities…are all on the line." In several cities where the competition was fiercest, Southwest employees came to work wearing camouflage outfits and battle helmets.
Know the caution zone. Hardball involves playing the edges, probing that narrow strip of territory—so rich in possibilities—between the places where society clearly says you can play the game of business and those where society clearly says you can't. The hardball player ventures closer to the boundary, whether it be established by law or social conventions, than competitors would ever dare.
But to play the edges, you have to know where the edges are. This is perhaps the most complex and daunting aspect of hardball. So hardball players do their homework. They know their industries cold. They have the legal and accounting counsel to help them determine what they can and can't do. But the answers often are far from clear. […]
At the risk of repetition, let us stress once again that hardball is not about breaking, or even bending, the law. It is not about crooked accounting, breaching contracts, stealing trade secrets, or predatory pricing. It's not about being mean.
Well, not too mean. The nicest part of playing hardball is watching your competitors squirm.