Decision-making in business has some unlikely parallels in competitive sailing
Perched on the side of a racing yacht, Dr Jan-Michael Ross had a revelation: he’s been sailing since the age of five, and it struck him that there were clear parallels between some decisions made in both competitive sailing and in business
He and his colleague Dr Dmitry Sharapov have been investigating what businesses can learn from head-to-head sailing competitions, such as the prestigious and technologically advanced America’s Cup.
Decisions you make as a sailor racing in shifting and unpredictable conditions can help cast light on how businesses can deal with competition and uncertainty.
When you are winning in a head-to-head sailing race, you can choose your own path, regardless of what the other boat is doing. This may give you the chance to extend your lead, but it could allow your rival to catch up with you if he or she sails in a different direction and the wind changes in the rival’s favour. An alternative approach is to cover, or “imitate”, your opponent’s every move. Regardless of how the wind blows, you will then both benefit or suffer equally, and you will have a good chance to retain the lead.
Imitation as a strategy is often looked down upon in business, but our research shows that in certain situations, it can help to keep you ahead of your rivals. Sometimes it can pay to launch “copycat” features or match a rival’s moves into different product categories or geographical markets.
We try to challenge the common wisdom that it’s only the laggards, the also-rans, who imitate leaders, and show the conditions under which leaders can use imitation to their advantage.
So why sailing? Of course other sports such as Formula One offer some similar parallels. But sailing has the extra ingredient – pervasive, unpredictable changes in wind direction. Competitors have to sail through a number of gates in a given order without leaving the course boundaries, but they pick their own paths between the gates, based on their beliefs about how the wind may change and what their competitor is doing. The relative freedom of the racecourse matches the freedom of a business environment.
Just as sailors must deal with changes in the wind, businesses also have to cope with unknowns – unpredictable shifts in consumer preferences, governmental regulations, exchange rates and technologies.
We’ve studied the competitive interactions from head-to-head races in the 2011 to 2012 America’s Cup World Series – the contest that selects a challenger to take on the defender of the America’s Cup itself. Fine-grained data from the yachts, whose every move is measured many times a second, has allowed us to examine the performance implications of imitation strategies by the leader.
When a helmsman in the lead sees the opponent making a move, there’s no time to evaluate what the effect may be, and in any case, a change in wind direction may make any current evaluation irrelevant. He or she “follows” the follower in order to stay ahead, regardless of the outcome of the opponent’s move.
Likewise, the speed of decision-making in business is hotting up, as is the degree of uncertainty in our increasingly interdependent world. Decision makers in companies are using business analytics to get real-time updates about sales, customer reactions, and rivals’ moves through big data generated by smart, connected systems.
Business cycles are growing ever shorter and competition seems more intense. When an airline, say, introduces new routes, or cuts fares, rivals need to judge almost immediately whether to match this. While technological development requires some lead time, price or promotion reactions can occur in real time.
One big takeaway from our research is that there are certain conditions in which it’s useful for a leader to be a copycat. We want to remove the negative stigma from discussions of imitation in the boardroom, and show that in some circumstances, it’s the best option
Technology companies often make a big song and dance about innovation, but on many occasions, what they are really doing is imitating rather than innovating. When Samsung released a phone with a larger screen, Apple swiftly followed suit, even though Steve Jobs had previously stated that larger-screened phones would never sell.
So what conditions lend themselves to imitation – an undeniably defensive strategy? When there is uncertainty, it benefits a leading rival to watch a competitor just below, and match a move to retain the advantage. There’s always plenty of uncertainty in a sailing race – when the wind shifts direction or drops, for example.
Ultimately, it is a judgement call. You could say this has parallels in today’s business environment; there’s plenty of uncertainty about what Brexit will mean for businesses. But there are other uncertainties; think how regulatory change might affect financial or pharmaceutical sectors for instance.
Sometimes the timing of events might affect a need to imitate a rival. Look at a politician ahead in the polls just before an election. He or she won’t want to do anything risky to jeopardise the lead, but it certainly makes sense to keep track of a rival’s actions.
Or take Blockbuster. Disruptive digital technologies created a highly uncertain environment for the home entertainment industry. Would the company have gone bankrupt if it had embraced Netflix’ approach, or at least copied it sooner?
Of course imitation in a sailing race can only work if the leader is not significantly slower on the water. Likewise a company has to be able to execute the rival moves that it chooses to imitate if it is to stay ahead. So if a rival introduces a product into a new geographical market, a company could respond quickly, providing it has the right distribution networks in place.
But if, say, absolute, rather than relative, performance is the goal, or if there are reputational risks involved, imitation may not be an appropriate strategy. So far we’ve concentrated on one-to-one racing. But sailing races often involve a whole fleet of boats – where there’s not just one but a multitude of rivals. Our next steps are to try to understand whether imitation makes sense when many competitors are vying for leadership. Who then should a leader choose to imitate, and when will imitation be effective.