In the 15 seasons between August 1994 and May 2009, Manchester United played 286 home games in the Premier League. Of those matches, United won 212 and lost only 23. Visiting sides had, on average, an 8% chance of coming away from Old Trafford with three points, and a 75% probability of leaving with nothing but a poorer goal difference.
Not only did the away teams have United’s great players to deal with, but also crowds of up to 70,000 people or more, and match officials who may (or may not) have been intimidated by these fans, let alone United’s manager, Sir Alex Ferguson, and his infamous stopwatch!
Few managers, planning their seasonal campaigns, look forward to the visit to United with any kind of optimism.
And yet, many businesses operate in markets that are the equivalent of playing away at Old Trafford every week. Trying to imitate the market leader, they effectively end up playing to another company’s rules, on another company’s pitch, with another company’s ball.
Take the European airline market, for example. During the 1980s and into the 1990s, national carriers, offering similar levels of service, dominated the market. Second-level players found it nearly impossible to build a profitable business by tackling these carriers, many of them receiving government subsidies, head on. British Midland, for example, struggled to deliver a profit margin of more than 1-3% during this period.
Instead, it took Ryanair, followed by EasyJet and others to revolutionise the market by offering no-frills, low-fare air travel to the millions of customers who had previously been priced out of the market. Ryanair had struggled for some years to match British Airways and Aer Lingus on routes between the UK and Ireland, and so it took a different route to growth.
There are ways you can tilt the odds in your favour, and to start to play on your pitch, with your ball and to your rules.
- Identify where there are potentially valuable unmet customer needs in and around your markets. Michael O’Leary, Ryanair’s CEO, realised that there were millions of people who wanted to travel, but simply couldn’t afford to.
- Determine which of these unmet needs your business has the passion and capability to meet. O’Leary had the passion to make the change, but had to develop the airline’s capabilities to deliver reliable, low-cost air travel over a period of time.
- Begin to prototype, test and, if successful, roll out your new offer. Ryanair started to offer low-cost flights into regional airports, rather than the capital cities favoured by the full-service carriers. Within 5 years passenger numbers had risen from less than 1 million to over 2.5 million.
- As you succeed, build barriers to new entrants. O’Leary exploited the airline’s burgeoning success by operating solely Boeing 737’s (minimising maintenance costs), using smaller, quieter airports (cheaper and quicker to turn around), and using PR to create a brand of a maverick airline championing low fares.
- Drive further innovations that underpin your position as the owner of this area of the market. Since 2000 Ryanair has launched on-line booking, launched more routes, bought rival airline Buzz at a significant discount, and further added to its low-cost, no-frills position by eliminating airport check-ins and adding ancillary charges for services such as carrying baggage in the hold and early access to the plane’s seats. It has even talked about offering standing areas on its planes.
Not all customers like Ryanair’s offer or its attitude. But it continues to play to its own rules. Its strategy has helped it become Europe’s largest and most profitable airline, and over the past decade or more, it is the national carriers who have been forced to play on its pitch.
Excellent article, well observed and well written. It’s easy to see the potential for rule-changing in retrospect, but at the time it’s usually a shot in the dark, and a big risk. That’s why the bigger players struggle to do it – they have more to lose, more conservative ambitions, and tend not to feel the flames of failure licking at their feet (until it’s too late).
I’d submit though, that point 1 is generally “discovered” rather than analysed out, and that 2, 3 and 4 follow like dominos. The key I think is point 5. Sustaining an advantage from setting new rules means relentlessly pushing the envelope, expanding the market, and continuing to revolutionise the model. That becomes more difficult as the business becomes more successful. It relies on the drive of leaders like O’Leary, Dyson and Grove, the people they surround themselves with, and the culture they generate. If BA bought and integrated RyanAir, how long would it take before it lost its lead in the budget sector?
Martyn, I agree that new needs can be ‘discovered’ as well as analysed, but in both cases it won’t happen by accident. Even when the opportunities are discovered, there is a requirement for the ‘discoverer’ to be looking out for something. An ex-boss of 3M once said that the company had stumbled on many of its great innovations, but, importantly, in order to stumble you first had to be moving.
I agree entirely that many/most large companies are too defensive to make these changes, often until it’s too late.