One of the central tenets of modern economic theory is that open competition is good for consumers and creates greater overall value. Our feature for this week, LG, has embraced this concept and as if competition in the cellphone market was not fierce enough, it has created and channeled forces of internal competition within its own walls. The article in the WSJ on July 21st, Korea's LG Dials Up Cellphone Growth, Gaining Market Share on Rivals, explains how LG appoints a Product Business Leader (PBL) who is responsible for every cellphone product from the moment it leaves the labs. Given that there are 50 product releases a year from LG, of which only a few succeed, the competition for success is intense. Fostering the individual responsibility and pride in bringing great products to market, has allowed LG to post impressive growth numbers with predicted growth of 10 to 12% in a market declining by about 10% and a gain in share while larger competitors such as Nokia and Samsung are either losing share or barely able to keep volume steady.
What we like about this example is that the driver for higher shares is not just the better products but the results-oriented culture, which is far harder to replicate. We have started to see this form of internal competition being fostered in more firms, especially the Asian ones. One of our clients has an annual competition between its manufacturing plants in areas of productivity, innovation, safety and environmental impact. Teams take great pride in their plant’s efforts and results with a great sense of camaraderie amongst cross-functional teams from each plant.
The concept is not new. Most armies have war games and other forms of competition during peace time to keep their forces sharp and motivated. McKinsey has a Practice Olympics in which teams of consultants compete against each other in front of a panel of clients and partners.
As traditional market leaders grapple with new entrants from Asia or smaller home-grown companies, they will have to contend with intrinsically more competitive cultures. Winning, or even retaining share, will be as much a matter of culture and attitude as it will be about strategy and innovation.