Flip Your Competition

Harvard Business School professor David B. Yoffie takes the martial arts into the executive suite. Your rivals will flip over his ideas (if you apply them right).

Book: Judo Strategy: Turning Your Competitors' Strength to Your Advantage
Author: David B. Yoffie
Publisher: Harvard Business School Press
Price: $29.95

Even before you read a word of Harvard Business School professor David B. Yoffie's latest book, Judo Strategy: Turning Your Competitors' Strength to Your Advantage, a picture opposite the title page offers a preview of coming attractions. It shows a 10-year-old Japanese girl standing triumphantly above a shocked -- and prone -- Russian president Vladimir Putin. Seconds before, Putin, a black belt in judo, had been flipped by the small child, despite outweighing her by at least 100 pounds. There's no question who's in charge -- and it's not Putin.

Judo's recurrent theme -- that if strength is properly channeled, the weak can defeat the strong -- is what fascinates Yoffie, the Max and Doris Starr Professor of International Business Administration at HBS, and his coauthor Mary Kwak, a research associate there. "The original insight came when I was doing research for my last book [ Competing on Internet Time: Lessons From Netscape and Its Battle With Microsoft ] and interviewing the head of engineering at Netscape," says Yoffie, a scholarly sort who has never actually tried judo and has no intention of ever being flipped. When he asked a question about Microsoft's operating system, the engineer gave a judo-like answer: "You can either look at Microsoft's operating system as a great asset, or you can think of Windows as a liability that slows Microsoft down." Yoffie says, "It got me thinking about a field called judo economics that went way back, almost 20 years, with basic ideas about using an incumbent's strength to your advantage."

Netscape wasn't the only example. Everywhere Yoffie looked, he saw tiny companies rising from nowhere to confront huge, lumbering, powerful companies. They were making moves that seemed completely counter to conventional management wisdom. So Yoffie decided to use judo as a way of explaining the phenomenon, profiling companies, such as eBay and RealNetworks, that he called "black belts." He and Kwak visited judo clubs and interviewed judo masters in Boston and Tokyo to make sure that the metaphor worked.

Although much of the book was written before the recent downturn, most of the examples the authors chose hold up nicely. Judo Strategy is a good read, with lots of salient business lessons for small and large companies alike seeking to "gain a grip" in this shaky economy. Here, Yoffie sums up some of the main principles.

Movement Is Power (If You Can Be a Puppy Dog)

The first principle of judo is movement. But that doesn't mean launching an overt attack. Rather, it means using movement to get a competitor off balance and set the terms of the competition, says Yoffie. And the best way to do that? By making the rival think that you're not much of a threat until you're ready to make your move -- on your terms. Yoffie calls it "the puppy dog ploy." He says, "It's powerful and counterintuitive. You try to stay largely out of the radar of competitors. If you moon the giant, you're much more likely to see retaliation."

Capital One Financial Corp. executed the puppy dog ploy perfectly when it first began to market niche credit cards, Yoffie says. "Capital One wasn't advertising what it was doing. It wasn't establishing a consumer brand, and it wasn't telling people the methodology," he says. Because the company focused on tiny niches of the market (Buffalo Bills-affiliated credit cards, for example) and moved quickly, it eluded big rivals like Citibank until it had become a huge player in the market. "The strategy would have failed if Capital One had been open," says Yoffie. The strategy works best for a new company, but it can also be used by large companies that would like to redefine their industry, he says.

Keep Your Balance

In judo, balance is critical. Not only should you keep your balance so that you can respond to an attack, but you should force your competitor off balance. Remember the old saw: The bigger they are, the harder they fall. And that's your objective. "Balance is both offensive and defensive at the same time," says Yoffie. "Judo is about the art of continuous attack, but at the same time, you've got to retain your balance. If you're playing your competitor's game, you're going to lose."

There are several ways to achieve balance, starting with a proper grip. "You always want to get a good grip, because it helps you define the nature of the battle," says Yoffie. "You never want to go force against force." That, indeed, is the exact strategy eBay followed with AOL, a potential rival in the online-auction space. Over an 18-month period, eBay signed a series of deals that gave AOL incentive to cooperate rather than to start a competing business, which could have killed the fledgling company. As eBay became more and more popular, AOL -- which was paid to promote the site -- started to make a lot of money. Finally, eBay was able to get AOL to sign a noncompete clause. By binding itself tightly to AOL, eBay was able to hold on until it was too costly for AOL to enter the business.

Don't Always Rise to the Bait

EBay acted like a judo master in another way, says Yoffie: It responded indirectly rather than directly when much larger rivals Yahoo! and Amazon.com decided to start their own online auctions. Both companies advertised extensively on their own sites and charged significantly less than eBay to post items (Yahoo! offered free posting; Amazon's price was 60% lower than eBay's). But eBay ignored the challenge. That was a good move, Yoffie says. "EBay did things its competitors didn't do. The site realized that price wasn't the critical factor, since prices were already low. Free was not necessarily good in this business." At Yahoo!, the free factor meant that people never removed their unsalable items from the site; junk postings piled up. EBay's customers weren't impressed. Today, neither company has gained any significant traction against eBay.

Push When Pulled

"The most important idea of balance is clearly to push when pulled, using competitors' momentum and pulling them off balance," Yoffie says. In judo, if someone pushes you and you're weaker than he is, you will probably fall -- unless you are able to pull him until the he loses his balance. Again, it's counterintuitive -- most people would try to match strength for strength -- but it works.

One of the most engaging examples in the book concerns disposable diaper maker Drypers and its use of that tactic against Procter & Gamble. Drypers came to the attention of P&G in Texas, where it was gaining share. P&G simply decided to bury the company with aggressive couponing. The strategy probably would have been the death knell for Drypers if the company's CEO hadn't recently read a book on judo. Knowing that Drypers couldn't afford to match P&G's advertising and distribution, he simply decided to accept the P&G coupons for Drypers's own diapers. "The more couponing P&G did, the more demand it generated for Drypers. It turned out to be a windfall," says Yoffie. P&G eventually gave up, and Drypers is still around today.

Use Your Leverage

"Leverage is, in many ways, the most powerful technique in judo," says Yoffie. Unlike the push-when-pulled concept, which is used to respond to a direct attack, leverage is all about figuring out which of a competitor's strengths can be used against it -- especially if the company doesn't know what's coming. In this case, the size and reach of a competitor suddenly becomes a millstone rather than an edge.

Yoffie's favorite example of leverage isn't recent. It happened in the 1930s when Pepsi, which had already gone bankrupt twice in its fight with giant Coca-Cola, finally decided to offer a 12-ounce bottle of soda for the same price as Coke's 6-ounce bottle. Coke had made a huge investment in its bottling network and in branding its patented shape. For Pepsi, the variable cost of adding more soda was close to nothing. But for Coke, the tactic posed a real dilemma. Since Coke was committed to the bottle itself, the company either had to charge an additional 2.5 cents -- which would mean real losses to the bottlers -- or do a two-for-one offer, which would really hit the company's bottom line. Suddenly, Coke's power had become a weakness. And that allowed Pepsi to finally establish itself in the marketplace. Amazingly, Coke did not respond until 17 years later. "The only answer for Coke was to cannibalize its existing investment," says Yoffie. "In the long run, that probably would have been the right strategy. But it was so costly and so painful that the company didn't do it."

Outmaneuver the Master

So what if you find yourself on the other side of this management martial art? Yoffie ends the book by turning the tables yet again -- and bringing in yet another sports metaphor, that of the sumo wrestler. Sumo is about using your weight and strength to your advantage -- but it is also about technique and finesse. If you're being blindsided by a judo master -- and you're bigger and stronger -- your strategy should be to turn the battle into head-to-head competition once again. That's what Microsoft did by taking on Netscape directly. While Netscape used a lot of smart judo techniques, says Yoffie, it still woke up the sleeping giant -- and paid the consequences.

Today, with large companies reasserting themselves, it seems that judo would lose to sumo. Not so, says Yoffie. "In judo, you can fall down and get back up," he says. In sumo, if you fall, it's over. "The companies that really figured out how to use these techniques have survived the havoc."

Jennifer Reingold is a Fast Company senior writer. Contact David B. Yoffie by email (dyoffie@hbs.edu).

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