"The winners in business have always played hardball," write George Stalk and Rob Lachenauer in their new book, Hardball: Are You Playing to Play or Playing to Win? But what does it mean to play hardball? Stalk, a senior vice president and director of The Boston Consulting Group, Inc., explains in the following Q&A with HBS Working Knowledge. Co-author Lachenauer is CEO of GEO2 Technologies and was formerly a director of BCG.
Martha Lagace: A title like Hardball will certainly raise eyebrows at this time of renewed calls for business to be a little nicer. What's the basic philosophy that guided you and your co-author, Rob Lachenauer? What is it to play hardball in business, and what is it not?
George Stalk: The book and its title are intentionally provocative. We seek to rebalance the emphasis of today's debate on the sources of management success: from "soft side elements" such as leadership, values, spirit, meaning, and motivation to the "hard side" elements of management such as competition, attack, consolidation of gains, and re-attack using powerful strategies. Strategies that get results indirectly improve soft metrics of success.After more than twenty-five years helping companies become more successful, we've seen certain patterns emerge:
- To make money and prosper a company must have competitive advantage.
- The stronger the advantage, the better the performance.
- The strategies for achieving decisive advantage are many, demonstrable, and executable, as we show in the book.
But, management is increasingly distracted from a focus on creating and reinforcing competitive advantage by a plethora of "soft" issues:
- Elevated attention to corporate governance.
- Recrimination for outsourcing and offshoring.
- Motivating employees in times of increased uncertainty.
- Pressure on CEOs to produce results or face replacement.
The management science available to them for dealing with these issues is thin:
- "Build confidence."
- Overcome "active inertia."
- "Move their cheese."
- "Hug your customers."
- And so on.
We show that these objectives can be met when leadership focuses the organization on the heart of the matter, and develops and executes strategies that lead to decisive victories over competitors. If you can win, you can afford the extra investment in dealing with "soft" issues.
We are clear in saying that bullies and mean executives are softball players. They are playing personalities and not dealing with the fundamentals of competition. Many hardball strategies are led by soft-spoken and thoughtful executives determined to win.
We are also explicit in calling for respect for the law. We advocate testing the assumptions of what is or isn't legal—as any good lawyer would do.
Q: What companies out there do you see as serious players in hardball, and why? Any companies or general business areas you'd like to see moving from softball to hardball?
A: Our perspective is that the strategies are more deserving of attention than the companies or the leaders who execute them. The serious hardball players today are those companies that use the strategies we write about in Hardball. Indeed, there are many more companies because there are more hardball strategies than are described in our book.
| There are many hardball strategies led by soft-spoken and thoughtful executives determined to win. |
Just this week, though, I learned of Burberry exploiting an anomaly management it discovered in Spain to grow the overall business. Toyota is not letting up on its attack on leading auto OEMs of the world by using its overwhelming technical and financial strength. Pepsi just turned in a 35 percent profit growth while its competitors struggle.
When looking at a company as a possible hardball player, always ask management what they have done for customers that is competitively advantaged and ask how assailable by competitors is that advantage. Are competitors on the defensive? If you find answers that hold water (and their competitors' answers do not), you are probably looking at a hardball player.
Q: In your book, you outline five principles of hardball. These are: Hardball players focus relentlessly on competitive advantage; they strive to convert competitive advantage into decisive advantage; they employ the indirect attack; they exploit their employees' will to win; they draw a bright line in the caution zone. Could you elaborate on these principles for our readers?
A: Hardball players live by five principles. These are detailed in depth in our book. So let me try to add some color.First: Hardball players focus relentlessly on competitive advantage. Competitive advantage is something that I have or do that you don't have or do. Too bad for you. But too bad for me, too—I am forcing you to find a way around my advantage or accept defeat. Hardball players are not satisfied with today's competitive advantage—they want tomorrow's.
Second: They strive to convert competitive advantage into decisive advantage. Unlike plain old competitive advantage—which can be fleeting—decisive advantage puts you out of the reach of your competitors. Decisive advantage is systemically reinforcing. The better you get at it, the harder it is for competitors to compete against it or take it away. The more likely that your competitors will "pick up their marbles" and leave.
Third: Hardball players employ the indirect attack. A direct attack means doing exactly what your opponent expects (and is prepared for) while you're hoping that your superior resources and persistence will carry the day. An indirect attack means surprising a competitor with your actions and applying resources where the opponent is least able to parry them.
Military and business histories show that the most decisive victories are won through the indirect attack. "The indirect attack is by far the most hopeful and economic form of strategy," writes B. H. Liddell Hart, a military historian, describing over twenty-five centuries of military conflict. "The most consistently successful commanders, when faced by an enemy in a position that was strong naturally or materially, have hardly ever attacked it in a direct way. And when, under pressure of circumstances, they have risked a direct attack, the result has commonly been to blot their record with failure."
Fourth: Hardball players exploit their employees' will to win. To achieve competitive advantage, people must be action-oriented, always impatient with the status quo. Fortunately, the will to win can be fostered; softball players can be transformed into hardball players. But as your competitive advantage grows, it gets harder to exploit your employees' will to win.
Fifth: Hardball players draw a bright line in the caution zone. To play hardball means being aware of when you are entering the "caution zone"—that area, so rich in possibility, that lies between the place where society clearly says you can play the game of business and the place where society clearly says you can't.
Rarely do hardball strategies cross over into the caution zone. Leadership is responsible for knowing where the bright line is and for letting everybody know when they're getting close to it, and for taking corrective action as soon as anybody steps over it.
When hardball players operate in the caution zone, they must take extra care. There are a few questions to ask that can make it easier to recognize the caution zone and establish a bright line at its outer boundary:
- Will the proposed action break any laws?
- Is the proposed action good for the customer?
- Will competitors be directly hurt by an action?
- Will an action hit a nerve with a special interest group in a way that might damage the company?
- Will the action provoke positive change?
Q: Sometimes competitors end up joining forces later. How does one play hardball now, but yet guard against potential conflicts later?
A: Collaboration is a glorified compromise (as are joint ventures, strategic alliances and partners, co-optation, etc.) when greenfield investments or acquisitions are not options. Few strategies that rely on collaboration result in hardball competition. Too many compromises are required to get cooperation.Q: What's next for you?
A: There is enough experience at BCG to write Hardball Part Deux. We are not seriously working on this now because we have our hands full with Part Un. There are many more hardball strategies than we have been able to describe in one book, including:
- Bundle your pricing "around" your competitors.
- Power by the hour.
- Manage the three states of market share.
- Gain shares through service.
- Variety wars.
- Use debt strategically.
- Global chess.
We took the liberty in Hardball of speculating on "changes in the field of play." This was a lot of fun. We see the changes as:
- Playing the China card.
- Getting stuck in the middle.
- Dealing with stranded assets.
- Being "Wal-Marted" (see book excerpt in the sidebar).
These present significant challenges to hardball players. Some will meet these challenges. Other's won't. This excites me as much as the many years spent in Japan developing strategies to parry the Japanese threat. I want to be here to do battle.
I'm with John Belushi in The Blues Brothers when he said, "I like performing for angry mobs." 
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Being "Wal-Marted"
by George Stalk and Rob Lachenauer
The Borg is a character in the television show Star Trek: The Next Generation, an alien life form that is part human and part machine. A network known as "the collective" links its life forms to one another. The Borg regularly attacks alien cultures and absorbs them into the collective, saying, "Resistance is futile. You will be assimilated." The Borg is unstoppable.
Wal-Mart is the Borg of business today, the largest retailer on the planet. It is more than three times larger, when measured in sales, than the next largest retailer, Carrefour. (Carrefour has more stores.) Wal-Mart is the largest, or among the top three largest, sellers of many categories of goods, including groceries, family clothing, toys, personal care products, home electronics, magazines, and others. Wal-Mart continues to push into new categories with catastrophic consequences to traditional competitors. Its cost position is so strong that their competitors' attempts to match it on "every day low prices" end in failure. As one of our colleagues observed, "The world has never known a company with such ambition, capability, and momentum."
Wal-Mart presents a dilemma to its suppliers. It is the most profitable customer for many suppliers on an absolute basis and often on the basis of percentage. It helps everyone strip out costs from the supply chain. Although it keeps a lot of the savings, it also shares some of them with its suppliers. So suppliers dearly want to keep their Wal-Mart business.
However, Wal-Mart has another agenda that is not so beneficial to their suppliers. It wants to stock your brand to build traffic to their stores, but it really wants the consumer to buy Wal-Mart's private label products once they get there, because they are far more profitable for the retailer. The fastest growing apparel brand? Wal-Mart's Faded Glory—$10 for a pair of jeans, some of which are sourced from Mexico, the same country that supplies Wrangler jeans that sell for $14.
Another big Wal-Mart threat, as Rubbermaid so painfully learned, is that when it represents such a large percentage of your business, it can hurt you badly if it dumps you. (It accounts for some 25 percent of P&G's domestic business.) So, to avoid being Wal-Marted, make sure you balance your portfolio by selling through other channels and into international markets.
But there are chinks in the monolith's armor.
Customers are forced into a compromise when they shop at Wal-Mart. They usually have to travel a long distance to get to a store. They have to park in a large, crowded lot. They must roam through acres of retail space, through aisles designed to take them ever deeper into the store. Sales help is scarce and not always knowledgeable. The prices are dramatically low, but the experience is mediocre at best and unpleasant at worst. Some customers (although probably fewer than the media would like you to believe) refuse to shop at Wal-Mart because they don't enjoy the experience. Others refuse to shop there because they are opposed to Wal-Mart's effect on communities or dislike their labor practices.
Some suppliers don't like Wal-Mart, either, and won't sell to them. They believe that Wal-Mart stifles innovation. James A. Wier, CEO of Simplicity Manufacturing, told BusinessWeek, "Wal-Mart really is about driving the cost of a product down." Simplicity makes lawn mowers, and made the decision to stop selling to Wal-Mart. "When you drive the cost of a product down, you really can't deliver the high-quality product like we have."3
Whether to sell to Wal-Mart is your choice to make. The carrot is the large volume of purchases. The stick is the need to submit to the Wal-Mart way, including pricing that is expected to always go down. The promise is that your brand will get huge exposure and increase its customer base. The danger is that your brand will lose its vibrancy in its association with Wal-Mart and that you will not have enough cash to innovate and improve the product.
Your strategy options include:
- Don't sell to Wal-Mart at all. Accept the fact that your sales will be lower but your margins will likely be higher, and accept the risk of your competitors selling to Wal-Mart. If they do, they will achieve higher volume than you can, drive down costs, and may then attack the profit sanctuaries you have created in alternative channels.
- Sell some products or brands to Wal-Mart, but create a separate product line that you sell through other channels. This will be difficult. If the outside brand is successful Wal-Mart will want that one too, and can leverage your existing sales with them to convince you to give the new brand to them, as well.
- Establish a pattern of rapid product innovation. Sell new products outside of Wal-Mart for as long as possible at as high a premium as possible and then sell through Wal-Mart when the products mature. But Wal-Mart is quick. The window of opportunity won't be open very long. They will likely want to bring the new products inside before you'd like them to. If you resist, they may create a knock-off, as they did with Mainstays, which is positioned against Martha Stewart's Everyday brand at Kmart.
It is very difficult to play hardball against a hardball player as accomplished as Wal-Mart. However, in addition to breaking the compromise of the customer experience, there are two other possibilities:
- Exploit anomalies. Even with Wal-Mart's enormous inventory, it is focused on utilitarian goods at low prices. It has not been successful in competing against premium new luxury brands.... Such goods appeal strongly to groups of consumers that are, by nature, anomalous to the undifferentiated "general population" that is Wal-Mart's customer base. Most important, such premium products are sold, and very profitably, on the basis of emotional engagement—at purchase and in use. The Wal-Mart atmosphere is the antithesis of new luxury. The shopping experience does not enhance the product; it often degrades it. It costs money to create an appealing store environment, through better layout and design, lighting and fixtures—money that Wal-Mart is reluctant to spend.
Internet retailers such as Tesco and grocerygateway.com can be seen as exploiting the same anomaly—the willingness of some customers to pay higher prices for a better experience. Internet-savvy consumers who value their time and want competitive prices, but don't need the very lowest prices, find shopping online to be a perfectly acceptable substitute for shopping at Wal-Mart and other big box retailers. At grocerygateway.com, shoppers can get groceries at competitive prices, hardware from The Home Depot, liquor, and more, at the click of a mouse. The goods are delivered within an agreed-upon time and unloaded into the house. No driving. No parking. No crowds. No wandering the endless aisles. No lugging packages. No Wal-Mart.
- Raise costs. Wal-Mart is also vulnerable on its image. It is perceived by some people, not as a hardball player, but as a bully. Wal-Mart has taken heat for pressuring its employees to work unpaid over-time, offering meager health benefits, damaging small businesses, polluting the environment, and even for being philanthropically stingy. A smart competitor may figure out a way to raise Wal-Mart's costs by exposing Wal-Mart's performance on a specific issue, bettering that performance, and forcing Wal-Mart to raise its costs in that area. But be careful, Wal-Mart's costs are so low in comparison to their competitors it will be difficult to force them up enough to make Wal-Mart feel the pain.
Eventually, Wal-Mart's business model may no longer provide the growth it wants or needs. One potential source of trouble for Wal-Mart is global expansion. The company cannot maintain its domestic growth rate for many more years; they will have to figure out how to grow internationally, where they have struggled for years. If Wal-Mart's growth rate falls, while that of others increases, its economic model may destabilize and become vulnerable to attack. Perhaps a new kind of competitor will emerge to challenge the big box concept. A likely one is some form of online retailing that effectively provides a much larger box than the biggest bricks-and-mortar retailer could ever build, while dramatically improving the shopping experience.
Market forces may change, or new ones may emerge, that will threaten Wal-Mart's supply chain-based competitive advantage. We don't know what they will be, but they always have emerged, and—barring any government attempts to "fix" the problem—they will prevail again.
What is Wal-Mart if not the current incarnation of history's "undefeatable" human achievements? "Wal-Mart is the logical end point and the future of the economy in a society whose preeminent value is getting the best deal," Robert B. Reich, former secretary of labor, told the New York Times.4 The history of warfare, however, is littered with "ultimate weapons" that eventually became obsolete. The crossbow. The battleship. The ICBM.
But even if Wal-Mart is eventually marginalized or defeated, it is likely that a different Borg will arise and present some new, seemingly insurmountable, challenge to the world's competitors.
Reprinted by permission of Harvard Business School Press. Excerpted from Hardball by George Stalk and Rob Lachenauer. Copyright 2004 by Boston Consulting Group; All Rights Reserved.
Footnotes:
3. Anthony Bianco and Wendy Zeller, "Is Wal-Mart Too Powerful?" BusinessWeek, 6 October 2003, 100.
4. Steve Lohr, "Is Wal-Mart Good for America?" New York Times, 7 December 2003. section 4, page 1.