Business is a game -- but unlike baseball -- you can change the game. Your game-changing moves can either make you a winner to your rival's detriment or create a bigger pie that you and your rivals can share.
Those are some of the key insights from applying game theory to business. According to a Harvard Business Review article I taught in my undergraduate Strategic Decision Making class this week, there are five ways for a business leader to change the game to make their company -- and possibly their rivals -- better off.
Here is a definition of each of those strategies, an example of how they work, and how you can put it to work for your company.
1. Change the players.
There are many moves you can make to change who is playing in your market. For example, you can eliminate competitors by acquiring them or create new players.
In the airline industry, acquisitions that followed the financial crisis -- such as American acquiring US Air and United buying Continental -- reduced the number of players. When demand for air travel came back, excess capacity had been removed from the industry which gave the survivors greater pricing power and higher profits.
You can also create new players. Coke and Pepsi had long-term contracts from Monsanto to supply the Nutrasweet that they advertised on their cans. They wanted to pay less for the Nutrasweet so they encouraged a new competitor -- Holland Sweetener to build a plant to compete with Monsanto.
Monsanto feared this new rival and negotiated a new contract with Coke and Pepsi at a lower price. Sadly, Holland Sweetener never got their business and faded away.
If you can change the players in your industry, you could make your company better off.
2. Boost your added value.
Think about what your industry would lose if your company went away. If you have a clear answer, then your company offers added value. What's more if you can increase your company's added value compared to rivals, you will win new customers.
Netflix offers a compelling example of how to boost your added value. Its DVD-by-Mail service contributed to the demise of Blockbuster Video. How so? Consumers loved the convenience of ordering online and taking delivery to their mailboxes -- with a wider selection and no late fees.
The takeaway -- find an industry leader, offer customers what Hungry Start-Up Strategy calls a quantum value leap, and reap the rewards of higher added value.
3. Alter the rules.
Industries operate according to regulations and widely accepted rules. If you can change those rules, you can make yourself better off and pave the way for a new industry.
Consider the case of GoGoVan -- about which I wrote in 2015. Steven Lam, a Hong Kong-based entrepreneur, was seeking a van to deliver a Chinese food box topped with his company's advertisements to a customer.
He called for a van and got no response so he went out in the street and could not hire than van sitting there with nothing to do. The driver's schedule and rates were controlled by a radio dispatcher.
Lam's response was to change the rules of the van dispatching game. He build an app that put van drivers and customers in direct contact which has replaced many radio dispatchers. In August GoGoVan -- renamed GoGoX -- filed for an IPO.
The lesson: change the rules of your industry to make everyone better off.
4. Try new tactics.
Tactics are short-term moves you can make to win a battle against rivals.
Consider what Boeing did in the 1990s when rival Airbus was hoping to deliver the coup de grace by winning in the market for super jumbo planes bigger than Boeing's 747. Boeing's tactic was a joint market research study to estimate the size of the super jumbo market.
Boeing CEO Jim McNerney expected that this study would give it an edge in the midrange market because it would give Airbus the ammunition to conclude that there was a huge opportunity in the super jumbo market.
Airbus invested some $12 billion in the A380 a much smaller market than it had anticipated. Meanwhile, Boeing built the 787 for the midrange market. Years later, Airbus realized the error of its ways and tried too late, to compete there with its A350.
Such a smokescreen may help you outmaneuver your rival.
5. Broaden or narrow your scope.
Finally, you can outsource business activities or vertically integrate. For example, Apple decided to outsource the manufacturing of its iPod, iPhone and so on. Amazon forward integrated from operating a website to owning warehouses and logistics networks to boost customer service.
Changing your scope can boost your growth.
The takeaway: use these five ways to change your company's game.