Recently, I was involved in a discussion with another consultant over non-competition agreements and the question of “who owns the client”. As you can well imagine, this was an interesting and spirited debate, but it forced me to look closely at my belief that competition is vital for performance, and that a lack of competition weakens the players rather than providing the sought after long term competitive advantage.
I’m against non-competition agreements in general terms for the same reason that I’m down on monopolies: because they allow complacent companies to benefit from a relationship with a client without worrying about the value they provide. My belief is that the company that keeps a customer does so because they continue to improve the overall value they provide that client. And that value is defined by the customer, in their terms.
The main driver of business performance is a gut-level understanding by the people in an organization that their survival is dependent upon competitors, and the better the competition the higher their performance must be. Intrinsically we know this, because we are all consumers ourselves. Yet for some reason we seem to forget the value of competition when we are running our own businesses.
Where there is no competition, there is no need to improve value… take a look at Air Canada for an example of a company that forgot that it existed to serve customers. When a competitive force emerges (to stick with our example, Westjet), that provides better value in the eyes of the consumer, then a shift in customer allegiance inevitably results and customers vote with their wallets. Low performing companies that resist competition will find any number of excuses why they are losing market share, rather than focusing on the real reason: the value proposition of the competitor is better than theirs. And if the new competitor hopes to retain these newly acquired customers, then it is up to them to continue to provide superior value.
Another example is long-distance service. Competition has forced the old telephone monopolies to lean out, to improve customer service and overall value. Those that have done so have survived. Those that haven’t, well…
Closer to home, it is common in the consulting business to impose very restrictive non-compete agreements on sub-contractors and referrals. I really believe that these non-competition agreements breed complacency. In my practice, I have a pretty clearly defined market space and area of specialization, and I’m pretty good at what I do. If I’m approached by a client to do work that is outside of what I’ve defined my market space to be, I refer them to a competitor that has the capability and expertise they are looking for. I don’t on principle sub-contract work to another firm and pretend that their expertise is mine. Rather, I provide contact information to the client and let them make whatever arrangements suit them.
Now, it may be that the competing firm also operates in my marketspace, and could conceivably offer to take over the work that I’m doing for that client. In my worldview, that’s the nature of competition: it is absolutely vital that I continuously improve the value and service to my customers so that they have no need or want to look elsewhere. If I lose a client (as happens from time to time), it isn’t because someone else “stole” them, it is because I failed to adequately serve the client and improve the value I provide them. In essence, I lose a client because I didn’t deserve to keep them.
Competition and a keen eye for providing and improving value are the keys to business performance, regardless of your sphere of work. Competition forces innovation and improvement. Competition forces us to constantly reassess the value we provide our customers. Competition keeps us lean and hungry. It keeps us flexible. And it forces us to pull our heads up from our work every now and again and look at what everyone else is up to.
At another client firm, a change in top leadership brought with it a renewed understanding that the organization needed to focus on creating, manufacturing and marketing products that didn’t just match the competition, but buried them. Once the people bought in and began seeing their day-to-day performance as a battle against their market competitors, innovation soared, productivity increased, quality and safety improved and market gains were the ultimate result.
As performance consultants, competition (or lack of it) is a major external environmental factor that must be considered when diagnosing an organization’s performance gaps and looking for causal relationships. I think the link between competition and performance is best summed up in words I’ll paraphrase from Willie G. Davidson, vice president of Harley Davidson and grandson of one of the company’s founders:
‘We look at the Japanese and we’re grateful to them, because they’ve forced us to build a better, more reliable bike that actually does what our customers expect. Competition saved us from extinction.’
Amen to that.