Competitive advantage: How market leaders react to disruption

We look at how the iPhone overtook Blackberry smartphones, how Google dislodged Yahoo, or how Equity Bank came to dominate the microfinance space turning into the largest commercial bank by client size.

The new entrant creates a different type of value proposition that appeals to customers while threatening the existing ecosystem.

However, not a lot of research or commentary goes into examining how the existing dominant player in a market reacts when a new threat enters in order to defend its competitive position.

Examples being how Safaricom reacted to Starlink or Bidco Africa defended its leadership in cooking oils against large multinationals.

So, in today’s Business Talk, let us examine how leaders react and try to sustain their advantage. A new study generating a lot of buzz from researchers around the world by Saeed Khanagha, Shaz Ansari, Violina Rindova, and Hakan Ozalp uses Ericsson and Intel as examples to investigate the market leader’s dilemma in responding to new entrants.

The scholars looked into how Ericsson and its fourth-generation mobile technology responded when Intel attempted to promote WiMAX as an alternative to LTE in the massive global telecommunications ecosystem.

Market leaders, or as the study calls them “orchestrators”, must balance cooperation expectations with other sector participants against the need to defend their own competitive position from the new threats.

The research delineates three distinct strategic responses that a current orchestrator leader can do while ecosystem and public support for the new rival fluctuates over time.

First, orchestrators may avoid competition by maintaining their existing investments all while also remaining publicly silent about the new threat. Thereby the silence prolongs uncertainty in the market around the new entrant’s viability.

Second, existing market leaders may engage in covert direct competition by intensifying their own internal resource commitments all while signalling that they are open to cooperation with the new threat through symbolic actions such as participating in sector forums, government events, or public endorsements.

Third, once ecosystem support shifts decisively, the orchestrators could shift toward overt direct outright fierce competition through direct signalling, lobbying efforts for the government to regulate, and leveraging their whole network of capabilities built up over time to undermine the rival. Such leader responses depend less on the technology or uniqueness of the new product or service alone but instead more on the social and political expectations inside the ecosystem.

One of the study’s most important contributions to knowledge to academics and CEOs alike lies in revealing just how firms can decouple signalling behaviour to the market from real investment in competitive advantage.

Interestingly, Ericsson publicly supported WiMAX at moments when it actually never really intended to ever adopt or seriously develop it or partner with it.

Such public relations signalling about being a cooperative partner bought valuable time for Ericsson to build an effective defence that would preserve its own legitimacy all while reassuring partners. Ericsson quietly accelerated its own LTE development so it could take the new threat head on.

The researchers demonstrate that ecosystem competition often unfolds as a political and symbolic process rather than a purely technical race for the best product or service.

In short, executives must remember that perception management combining marketing, organisation development, and political relations all shape outcomes just as powerfully as engineering excellence in whichever field. But engineering gets most of the press.