"Times have changed!, Scale economy is waning! Knowledge-era has come to stay! It has become inevitable for companies to continually adapt to dynamic markets and technologies!"
In this new business context, small and medium size companies need not fear the market share advantages of large firms, if they can configure their strategy and value-chain organization in modular arrays. Whereas large companies cannot be complacent either about their size and scale advantages, because they are compelled to operate in nimble ways more than ever. As we are witnessing in recent restructuring of companies like GE, HP, Intel, and Google, firms are finding strength in dis-aggregation and reducing asset concentration.
A comparison of scale economy sharks and school of fish strategy is given in the following table. (Reference: www.schooloffishstrategy.com)
Shoaling strategy is a new framework for building smarter enterprises that are nimble, swift and that can challenge the large rivals. A “Shoaling Strategy” - also referred to as disaggregation here – that will enable firms to operate in a synchronized manner like the school of fish to concurrently achieve scale economies as well as market responsiveness is proposed in this article. Shoaling strategy, on the one hand reduces the opportunity cost of not exploiting emerging market opportunities, and on the other reduces investment risk that accrues due to large-scale integration. There is a traditional saying in business that “Big Fish Eats Small Fish” which suggests that a firm’s large scale will ensure higher returns and competitive advantage over rivals. A shoaling strategy, on the contrary, challenges this notion with a contention that “Quick Fish - albeit smaller - can eat Large Fish”. Main premise of the argument is that a shoaling strategy (school of fish) to organize value chain will be most effective way to accomplish competitive advantage without large scale investment commitment.
Shoaling can be considered a unique business strategy, because it enables a large firm to operate with the nimbleness of a smaller firm or it can allow small firms to effectively rally their resources against large rivals.
Shoaling strategy, on the one hand reduces the opportunity cost of not exploiting emerging market opportunities, and on the other reduces investment risk that accrues due to large-scale integration.
Shoaling form enables multi-pronged competitive strategies permitting a firm to develop unique or optimal strategy for each rival it encounters in the respective market or region.
Shoaling among small firms as a constellation will enable them to raise finance in the stock market and get listed as a portfolio of competences. This strategy will decrease organizational inertia and offer the resource heterogeneity to sustain innovations.
Following data are self-explanatory evidence for the failures of large corporations in knowledge economy. A comparison of beer firms pursuing shoaling vs integration strategy is provided. Also comparison of small cap, mid cap and large cap stocks is provided in support of how size dis-aggregation will be more effective than scale integration.
Please visit www.schooloffishstrategy.com for research articles and case studies on HP, Google, Nucor, ALCOA, and Kyocera Ceramics.
Reference: Senthil Kumar & Parshotam Dass. 2014. Toward a smarter enterprise: Disaggregation and dispersion for innovation and excellence. Competitiveness Review Vol. 24 No. 3, 2014: pages 211-239.