School of Fish or Shoaling as Effective Competitive Strategy
With the advent of new millennium, knowledge economy has taken stronger roots across many industries gradually replacing the scale economy firms. As markets have become quite dynamic and technologies are changing radically, it is inexorable for companies to continually innovate and adapt to change. In this new context, established firms as well as emerging industry-challengers continually search for strategies that can ensure better returns with minimal risk.
While incumbent industry leaders - with their size built to secure scale-economy advantages - struggle to sustain the pace of innovations and market responsiveness, whereas emerging industry challengers search for innovations to break the industry barriers. Observing a variety of companies from several industries in their recent study, Senthil Kumar and Parshotam challenge the traditional logic behind scale-integration based strategies, and argue that companies that operate in a dispersed but synchronized manner are able to concurrently achieve scale economies as well as market responsiveness.
From their research spanning topics such as alliances, teams, sustainability, corporate structure and governance, Senthil and Parshotam develop a synthesis which contends that “School of fish or Shoaling Strategy” (SOFS) reduces the opportunity cost of not exploiting emerging market opportunities as well as reduces investment risk that accrues due to large-scale integration. As firms are witnessing uncertain business conditions and more thrust is being given to agility, speed and market responsiveness rather than scale and size, operating in a shoaling form is recommended as de rigueur strategy for firms across many industries.
Shoaling (SOFS) can be considered a unique business strategy because it allows small firms to effectively rally their resources against large rivals or can enable a large firm to operate with the nimbleness of small entrepreneurial firm. Shoaling formation enables dynamic competitive strategies permitting the firm to develop unique or optimal strategy for each rival it encounters in the respective market or region.
With School of Fish strategy, "quick fish - albeit smaller - can eat large fish" defying the notion "big fish eats slow fish". With shoaling formation small firms will have agility and speed as advantage to challenge larger rivals. Shoaling can also enable high-growth with lesser asset concentration and investment. Uber and Airbnb are excellent examples of 'orchestration of shoaling strategy' from ground-up without incurring large scale investments. Uber and Airbnb have built global enterprises in the most capital intensive industries (Hotels and Transportation) in the shortest time one can think about in the history of business corporations.
“Disaggregation of assets, dispersed value chain, kaleidoscopic structure (modular organization and products), franchised production, multi-pronged competitive strategy, dynamic reconfiguration of product and markets” are distinguishing features of school of fish strategy. Recently, Google, Alcoa, and HP are some companies that have successfully restructured into shoaling formation by splitting their organizations and listing multiple public companies. The value of split units of HP have risen more than they were together within one organization.
With a common brand name, holding company or interlocking board of directors, and/or transfer pricing mechanism, split-organization will add more value to management and shareholders than one large integrated firm. Samsung and Tata are some corporate groups that traditionally operate in shoaling formation. Shoaling strategy framework emphasizes slicing and re-configuring the firm's assets for synergy, resource heterogeneity, and value creation before deciding on new mergers and acquisitions for quick growth.
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