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Smart Rivals: How to Compete Against Tech Giants [Full Q&A]
An interview with Harvard Business School’s Feng Zhu and Bonnie Cao
It might feel like the digital age has already been won, but small-business Davids can still triumph over Silicon Valley’s Goliaths, according to Harvard Business School’s Feng Zhu and Bonnie Cao. In their new book, Smart Rivals: How Innovative Companies Play Games That Tech Giants Can’t Win, Zhu and Cao detail how startups can work harder and smarter to stand out.
The duo spoke with b. about what it takes to surge forward by tapping into your distinctive strengths.
b.: To start off, may you please give an overview of the concept of smart rivals in business?
Zhu: The concept of “smart rivals” centers around the idea of traditional businesses strategically positioning themselves to compete effectively against tech giants. Rather than trying to match tech giants in their areas of strength, smart rivals amplify their own unique strengths, often leveraging digital technologies to enhance their competitive advantages. This approach involves creating value in ways that tech giants find difficult to emulate. In other words, in the digital age, traditional companies not only need to play hard but also play smart against their tech rivals.
Cao: To build on what Feng said, the goal for smart rivals is not to completely defeat tech giants but to survive and thrive in the digital age.
b.: Why, according to your research, is emulating big tech companies usually ineffective?
Cao: Many companies are attracted to the remarkable success and market dominance of big tech companies. They want … recipes or formulas to copy and apply in their own businesses, hoping for similar returns.
Zhu: But this mindset is misguided. First, the business models of tech giants are usually significantly different from those of traditional businesses. Adopting these models requires substantial organizational changes, which many traditional businesses are not equipped to handle. This transition is costly in terms of both time and money.
Second, traditional businesses often lack the capabilities, such as advanced technical expertise and infrastructure, that tech giants have developed over many years. Attempting to develop such capabilities to the same level as tech giants is unrealistic for most traditional businesses …
[They] may fall into the trap of just copying the strategies of tech giants. This approach often leads traditional businesses into head-on battles with tech giants that are hard to win. Smart rivals need to continually challenge their conventional thinking, pushing themselves to become innovative leaders instead of merely following in the footsteps of tech giants.
b.: So, what advantages do traditional companies have?
Zhu: Many businesses have spent years developing their competitive advantages long before tech giants emerged, and many of these strengths are still relevant in the digital age. These businesses’ key task today is to recognize and amplify their existing strengths to a level that tech giants struggle to compete with. For instance, Domino’s has developed superior capabilities in pizza order fulfillment, and Sephora is well known for its personalization. As we detail in the book, both companies have leveraged technologies to amplify their strengths to a level that tech giants find difficult to match. In the case of Domino’s, it leveraged digital technologies to make the pizza preparation and delivery process transparent to consumers, while food delivery platforms can’t match them with this level of transparency.
Cao: Becoming a smart rival requires the right direction and creativity. This is uncharted territory for traditional businesses, with insights not readily available from data analytics or by observing tech giants. Our book aims to make this path more feasible for many businesses.
b.: You highlight several companies that are standing out and outsmarting the tech giants. While each example is unique, what are some common strategies?
Zhu: They have all created their own path to success instead of playing the catch-up game with tech giants. We identified six common strategies that they use to differentiate themselves: amplifying strengths, driving customer-centricity, finding a platform opportunity, establishing and growing an ecosystem, managing frenemies, and bouncing back from disruption …
For instance, we discuss how traditional businesses can build platforms that are highly differentiated from tech giants by connecting their customers. Take Powell’s Books, a bookstore founded in 1971 in Portland. In response to the rise of Amazon, Powell’s focused on connecting readers and building a community. They host over 500 author events each year, bringing readers together to meet and learn from their favorite authors in person, allowing them to connect over shared interests in the author or genre.
Technology used to be seen as a threat, but Powell’s has leveraged its website, social media presence, podcast and e-newsletter to enhance in-store experiences and build community rather than replace them. With these efforts, Powell’s evolved into a platform that fosters real-world interactions and relationships among readers. This brand positioning as an independent, knowledge-centered, and community-driven bookstore contrasts with Amazon’s more transactional experience, allowing Powell’s to survive and thrive.
Cao: Similarly, when we talk about how traditional businesses can manage their frenemy relationships with tech giants, we highlight how strategic partnerships can enhance their unique value propositions. For example, in 2018, Best Buy teamed up with longtime rival Amazon. Through this partnership, Best Buy sold smart TVs equipped with Amazon’s Fire TV software and Alexa in its physical stores. By selectively partnering with Amazon, Best Buy boosted its brand image as a company offering superior in-store experiences, solidifying its competitive advantages over Amazon. This partnership also reduced Amazon’s incentive to launch its own offline electronic stores.
b.: Is there any merit in trying to emulate some of the strategies tech companies use?
Zhu: Digital transformation is crucial for every business today. Learning from the success of tech giants can be incredibly valuable for business leaders, helping them recognize the power of digital technologies and understand how to become more customer-centric while building platforms and ecosystems. This knowledge can motivate leaders to accelerate their digital transformation efforts.
However, it’s essential for business leaders to view digital transformation as a toolkit, not the ultimate goal. The objective should be to build competitive advantages by offering unique product features and benefits that tech giants and other competitors can’t replicate. Therefore, the purpose of this learning isn’t to imitate tech giants but to understand how to leverage digital technologies in ways that enhance their own competitive strengths.
b.: What was the most surprising thing your research revealed?
Zhu: Digital technologies are often seen as a threat to traditional businesses, but we’ve found that they’re actually a blessing in disguise for smart rivals. These technologies open up new opportunities that can help traditional businesses reach levels of success they never thought possible.
Smart Rivals is now available.
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