Dynamics and Wave Riding
Capture competitive advantage by riding waves of industry change
Rumelt argues that the greatest opportunities for strategic advantage come during periods of significant change - what he calls 'waves' of disruption. These can be driven by technology, regulation, customer preferences, or other forces. The strategist who can identify these waves early and position to ride them gains enormous advantage.
The key guideposts for wave-riding strategy include: rising fixed costs (creating scale advantages), deregulation or regulation changes, predictable biases in incumbent responses, and attractor states (the likely eventual equilibrium of the industry). Understanding these guideposts helps strategists anticipate how an industry will evolve and position accordingly.
Rumelt distinguishes this from mere trend-following. Wave riding requires understanding the fundamental forces driving change and having a clear view of where the industry is likely to settle, not just which direction it's currently moving.
- The most powerful sources of competitive advantage emerge during periods of change
- Understanding attractor states helps predict where industries will settle
- Incumbents have predictable biases in how they respond to disruption
- Multiple waves can be ridden simultaneously if they're properly understood
- Identify the WaveLook for fundamental shifts in technology, regulation, demographics, or customer behavior that are creating new dynamics in your industry.Pro tipFocus on underlying forces, not surface trends. Ask what is causing the trend, not just what the trend is.
- Map the Attractor StateDetermine where the industry is likely to settle after the wave of change passes. What will the new equilibrium look like?Pro tipThe attractor state is not always obvious from current trends. Look at analogous industries that went through similar transitions.WarningDon't assume the current trajectory will continue indefinitely.
- Anticipate Incumbent ResponsePredict how existing players will respond to the change. Incumbents typically underestimate disruption and respond too slowly.Pro tipIncumbents are often trapped by their existing assets, relationships, and business models.
- Position for the New LandscapeBuild capabilities and positioning that will be valuable in the post-disruption landscape, not just the current one.Pro tipThe best time to position is before the wave crests, when assets needed for the new landscape are still cheap.
Cisco Systems identified and rode three interlinked waves: the shift from mainframes to client-server computing, the rise of the internet, and the convergence of voice and data networks. Each wave reinforced the others, and Cisco positioned itself at the nexus.
The microprocessor created a wave of change that disrupted the entire computer industry. Companies that understood this wave (Intel, Microsoft) captured enormous value. Those that didn't (DEC, IBM mainframes) lost it.
Rumelt developed these ideas by studying companies like Cisco Systems that achieved remarkable success by identifying and riding multiple waves of technological change. He found that the most successful companies in dynamic industries shared an ability to read the fundamental forces of change rather than just following surface trends.