Judo Strategy

Faculty Seminar Series
Judo Strategy: Turning Your Competitors Strength to Your Advantage
Professor David B. Yoffie Harvard Business School
Copyright 2001-2002
Judo Strategy
Turning Your Competitors Strength to Your Advantage
Harvard Business School
David B. Yoffie
David B. Yoffie, not for reproduction without permission
In the midst of a revolution...

But prediction is dangerous
Wall Street Journal series on the year 2000, published 1966-67

By the Year 2000

Man landing on Mars Cities under huge, climatecontrolled domes NYC to Tokyo in under 2 hours Rocket packs & flying automobiles 200,000 computers in the U.S.
Favorite Prediction
In 1965, The Commission on the Year 2000 foresaw the Internet:
A national information computer-utility would take form, with tens of thousands of terminals in homes and offices providing library and information services, retailing, ordering, billing services, and the like.
Favorite Prediction
But they also predicted:
Professors and intellectuals will become more powerful than corporate CEOs.
Rapidly Changing Marketplace Leaders

The Browser Wars, 1994-99
NETSCAPE MICROSOFT
60% 60% 40% 40% 100% 100% 80% 80%
OTHERS
20% 20% 0% 0% DecDec94 94
JunJun95 95
DecDec95 95
JunJun96 96
DecDec96 96
JunJun97 97
DecDec97 97
JunJun98 98
DecDec98 98
JunJun99 99
Source: Dataquest, Zona Research, ZD Market Intelligence, AdKnowledge, and authors estimates.
David vs. Goliath Confrontations

Palm
Microsoft
Intuit
Netscape
Juniper Networks
Cisco

Ziff Davis
CNET
IDG
Freeserve
AOL
The Internet has made these types of David-andGoliath struggles more common and more intense than ever before.
Impact of Network Effects

Definition: as more people use a product, it becomes more valuable. Market with network effects tip. Market share races become life-ordeath struggles. Increasing returns further intensify the competition, as companies rush to get down the cost curve.
Judo Strategy
What Is Judo Strategy? A Metaphor

Judo is an art of hand-to-hand fighting in which the weight and efforts of the opponent are used to bring about his defeat.
Yerkow, Modern Judo, 1942
Courtesy: U.S. Judo Association

In judo, before an opponent can be thrown there must be movement. Through movement the opponent is led into an unbalanced position. Then he is thrown...by some form of leverage...

Size, weight, and power mean nothing in judo because you employ the efforts of the opponent to defeat him.
Russian President Vladimir Putin, a black belt in judo, is thrown to the floor by a 10year-old school girl in Tokyo.
Source: Kyodo News International.

Judo Strategy as a Mindset

Dont go head-to-head against a stronger competitor. Find areas to attack where your competitor cannot and will not respond.
Principle #1: Movement
Reduce the threat of attack by taking your opponent out of his game.
Principle #2: Balance
Minimize the impact of an attack by avoiding tit-for-tat and exploiting your competitors momentum.
Principle #3: Leverage
Use your competitors strength and weight to bring them down.
Judo Economics
J. Gelman and S. Salop, Judo economics: capacity limitation and coupon competition, Bell J Ec 14:2 (1983): 315-325. The basic model: The entrant chooses its price and capacity. The incumbent chooses its price. If the entrants capacity is unlimited, the incumbent maximizes its profits by matching the entrants price. If the entrant can credibly commit to limit its capacity, it can choose a capacity/price pair such that the incumbent finds it more profitable to accommodate entry (i.e., cede some consumers and serve the rest at a higher price). To capture the image of a small firm using its rivals large size to its own advantage, we call this a strategy of judo economics. David B. Yoffie, not for reproduction without permission
Judo Strategy: Pepsi-Style

Pepsi-Cola Coca-Cola
In 1934, Pepsi introduced a 12-oz bottle at the same price as a 6-oz bottle of Coke.
Judo Strategy: Pepsi-Style

Pepsi-Cola Coca-Cola
Pepsi-Cola hits the spot. Twelve full ounces, thats a lot. Twice as much for a nickel too. Pepsi-Cola is the drink for you!
Companies We Studied
Big & small Domestic & international Service & manufacturing High tech & low tech
Companies We Studied
In-depth case studies:
Palm, RealNetworks, CNET, Microsoft
Caselets:
Pepsi, Intuit, Ariba, Juniper, Inktomi, Frontier Airlines, eBay, Handspring, eToys, Amazon, Sony, Charles Schwab, Capital One, Freeserve, Southwest Airlines, Intel, Cisco,
Principle #1: Movement
Mindset:
To defeat a master, you have to take him out of his game.
Principle #1: Movement In the fight between the bear and the alligator, the outcome is determined by the terrain.
Jim Barksdale, former President and CEO, Netscape
The Puppy Dog Ploy Look weak and inoffensive so your competitor doesnt feel compelled to attack.
The Puppy Dog Ploy Position yourself alongside your competitors.

Palm Computing
We didnt call it a computer; we didnt call it a PDA. We said, This is just a little organizer that happens to connect to your PC. Donna Dubinsky
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The Puppy Dog Ploy Dont go for the jugular at least not at first.
Palm Computing
We always said, Look, if Microsoft had a decent platform we would consider it. We are first and foremost a device company. Donna Dubinsky
The Puppy Dog Ploy

They must have been on my radar screen by early 98, but not at the top of my radar screen.
Steve Ballmer, CEO, Microsoft
Define the Space Change the paradigm

Intuit
Personal financial software battles were fought over features: More was better. Quicken was the absolute opposite of the then-existing software paradigmwe didnt do most of what the other products did. But what we did do happened to be the things that people actually did all the time, like write checksAnd we did that stuff very fast and very intuitively. Scott Cook
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Define the Space Segment the Market

Juniper Networks
Everyone who attacked Cisco in routers failed by going head-to-head. Junipers Scott Kriens found a different answer: We had one chance, which was to enter at the top. Juniper grabbed 40% of the high-end market, where Ciscos technological advantages were the weakest.
Follow Through Fast Build a strong lead before your competitors learn how to respond.
Follow Through Fast

Master speed to market, speed to market share.
Palm Computing
3COM kept saying, Why are you lowering prices? You own this market. And we just kept saying because we should and we want to be aggressive and weve got to keep going to market.Ed Colligan
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Follow Through Fast

Focus, focus, focus.
Palm Computing
We declined most of our licensing opportunities Its very hard to say no, but I think those were decisions that we were very good at making.Donna Dubinsky
Principle #2: Balance
Mindset: The Weebles Principle

Weebles wobble, but they dont fall down.
Aesops Fable of the Oak & the Reeds

An oak hanging over a river was uprooted by a violent wind storm and carried downstream. As it floated along it noticed some reeds growing by the bank, and cried out to them, How do such slight, frail things as yourselves manage to stand safely in a storm which can tear me up by the roots?
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Aesops Fable of the Oak & the Reeds

It was easy enough, answered the reeds. Instead of standing stubbornly and stiffly against it as you did, we yielded and bowed before every wind that blew, and so it went over us and left us unharmed. It is better to bend than to break.
Grip Your Opponent

Get in close to make it harder for your competitor to attack.
Use your opponents capabilities to strengthen your position, while retaining your flexibility.
eBay
If they had done an AOL Auctions button, it could have been very bad for us. Meg Whitman eBay signed its first big distribution deal with AOL, turning its potential rival into a partner
Grip Your Opponent
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Preempt future combat, giving potential competitors a stake in your success.

eBay
In 1999, eBay agreed to pay AOL $75 million over four years; AOL agreed not to enter C2C auctions for two years.
Grip Your Opponent
Avoid Tit-for-Tat
Avoid getting dragged into competing head-to-head.
Study the competition and match only their best ideas.

eBay
Yahoo! enters auctions with a free service and superior tutorial. eBay matches the tutorialnot the price. People wouldnt put their junk up for auction if they had to pay even twenty-five cents.Meg Whitman
Avoid Tit-for-Tat
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Remain on the offensive even when responding to attack.

eBay
Yahoo! advertises Yahoo! auctions on its site. eBay re-invests in grassroots marketing (tradeshows), where Yahoo! has no strength.
Avoid Tit-for-Tat
Push When Pulled Use your competitors momentum to your advantage.
Push When Pulled

Company Wal*Mart Threat Kmart circular Response Post Kmart circular & guarantee equal or better price Accept P&Gs coupons
Drypers
Procter & Gamble
Handspring Palm OS Embrace & extend installed base Palm through Springboard
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Mindset:
Give me where to stand, and I will move the earth. Archimedes

Turn your opponents strength and size to your advantage.
The key to leverage is attacking where your competitors have problems responding.
Turn Your Competitors Assets Into Liabilities

CNET vs. Ziff Davis & IDG
CNETs problem: ZD & IDG control the tech publishing market. CNETs solution: Launch initiatives, such as real-time news, that the incumbents find hard to match. The problem for Ziff Davis & IDG: classic cannibalization dilemma.
17
Turn Your Competitors Assets Into Liabilities

Sega vs. Nintendo Segas problem: Nintendos family-oriented brand dominates the market. Segas solution: Shake up the competition by launching video games aimed at an older audience (Mortal Kombat, e.g.). Nintendos problem: Destroy its brand equity or lose share.
Turn Your Competitors Partners Into Liabilities

Dell vs. Compaq
Dells problem: Compaqs distribution network dominates the market. Dells solution: Create a superior business model based on direct sales. Compaqs problem: Match Dell and alienate its distributors or share and profitability.
Turn Your Competitors Competitors Into Your Friends

Charles Schwab vs. Fidelity
Schwabs problem: Fidelity dominates the mutual fund market. Schwabs solution: Partner with Fidelitys competitors by creating OneSource & Select List. Fidelitys problem: Cant match Schwab without undermining its proprietary funds.
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How do you defeat a judo master?
Responding to Judo Strategy Superior Technique or Sumo Strategy
In contrast to judo, sumo is a feat of physical strength where weight is a weapon that is essential to winning. Hikoyama, SUMO, 1940, and
Schilling, Sumo, 1994
The Sumo Mindset

Top Dog Ploy
Look tough and aggressive to deter entry and imitation. If entry occurs, the strategic imperative is to turn every battle into a test of strength and change the match from judo to sumo.
In sumo, you use your strength to force your opponent from the ring.
Unnerve the competition
Signal price, signal capacity, use FUD
Sumo Techniques
Lock em up
Outspend your opponent, lock up distribution, segment your offering and target retaliation
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Sumo Strategy at Work:

Microsoft
October 1996 January 1997 March 1996 August 1995 March 1996 November 1994 November 1995 August 1996 August 1995 October 1995 November 1996 Deal with Netscape Intranet customers Chevron KPMG ISPs and OLSs America Online AT&T WorldNet CompuServe MCI Prodigy Sprint OEMs and ISVs Apple Intuit Lotus/IBM
Deal with Microsoft March 1997 August 1997 March 1996 July 1996 June 1996 March 1996 October 1996 December 1996 August 1997 July 1997 July 1997
Barnes & Nobles Failure

1995-97 Amazons weakness:
Depended on fast-growing revenues to fuel stock Weak balance sheet and cash flow
Barnes & Noble (.com):

B&N could have launched a big price war (early) and perhaps stopped Amazon
By late 1998, its too late:

Amazon has bigger valuation and more cash than B&N, even though B&N is 5x Amazons size
In sumo, you use your strength to force your opponent from the ring.
But at the same time, sumo players must always Remember the Rules As companies get bigger, different rules apply
Sumo Techniques
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Remember the Rules:

Intel
The problem, according to Andy Grove: We pay marketing, business development, and sales people to be aggressive. How do you impose this new guard band behavior on a group of people for whom antitrust is antithetical?
Remember the Rules:

Intel
Provide live antitrust training, annually. Basic dos and donts: no price fixing, no exclusives. Random audits of employees files: lawyers seize a managers papers, disks, and e-mail. Stage intensive mock depositions with outside attorney.
Concluding Thoughts
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The Importance of Movement
Dont Moon The Giant

A Cautionary Tale: Netscape
The Importance of Movement
Microsoft = the Death Star Windows = a mundane collection of not entirely debugged device drivers
The Importance of Balance

Dont stand stiffly in the wind. Dont go head-to-head with a giant.
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The Importance of Balance

Two Cautionary Tales: Novell and Microsoft
Novell: When Microsoft attacked Novell in networks, Novell went tit-for-tat bought WordPerfect, Borland, & UNIX. Microsoft vs. Department of Justice missed opportunities to settle.
The Importance of Responding to Leverage

A Cautionary Tale: Netscape and the Free Browser Decision
This whole browser fight is going to be interesting. Their ambition to make money on browsers will hurt themits just a case of getting greedythey are the one who made the rules that browsers are free. Bill Gates e-mail, June 1995
If you dont cannibalize yourself, your competitor will!!
Lessons for Great Judo Strategists

Maintain a deep focus on your core
Singularity of focus was most important Our strategy is as much the art of exclusion as it is the art of inclusion, or what youre going to do.Meg Whitman
23

Stay on the offensive, but avoid frontal assaults
Play offense and play to win [But] try to avoid a frontal assault into an established competitor. Life is too short.Scott Cook

Look for leverage in the strangest places
The big asset of younger, smaller organizations is they can think outside the box.... When you do that, the big competitor often will never respond. They will never get it. Theyll never see it. Or by the time they do it doesnt matter.Scott Cook

Face the music
Nothing good comes from waiting. If youre going to change your business model, face the music.Dave Pottruck
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Final Thoughts: Metaphors & Strategy

The companies that succeed will be the ones thatemploy great metaphors and analogies to define their business and tell their stories.
Scott McNealy, Its Like Forbes ASAP, 2 October 2000
Final Thoughts: Metaphors & Strategy

Metaphors also have risks.
Metaphors abstract away from the real world
E.g., in judo, you can focus solely on your opponent
Implications:
Pick your metaphor wisely Carefully trace its implications Observe where it fits and where it fails
If Judo Strategy fitsit can be a powerful tool

The Key to Beating a Giant

A willingness to take risks!
To laugh is to risk appearing a fool. To weep is to risk appearing sentimental. To reach out for another is to risk involvement. To expose your feelings is to risk rejection. To place your dreams before the crowd is to risk ridicule. To love is to risk not being loved in return. To go forward in the face of overwhelming odds is to risk failure.
Source: Anonymous, WWW
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The Key to Beating a Giant A willingness to take risks!

But risk must be taken because the greatest hazard in life is to risk nothing. The person who risks nothing does nothing, has nothing, is nothing. He may avoid suffering and sorrow, but he cannot learn, feel, change, grow, or love. Chained by his certitudes, he is a slave. He has forfeited his freedom. Only a person who takes risks is free.
The Key to Beating a Giant A willingness to take risks!
Only a person who takes risks is free.

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Faculty Seminar Series

Judo Strategy: Turning Your Competitors Strength to Your Advantage

Professor David B. Yoffie Harvard Business School

Harvard Business School

David B. Yoffie, not for reproduction without permission

In the midst of a revolution...

Wall Street Journal series on the year 2000, published 1966-67

By the Year 2000

Rapidly Changing Marketplace Leaders

David vs. Goliath Confrontations

David B. Yoffie, not for reproduction without permission

David vs. Goliath Confrontations

David B. Yoffie, not for reproduction without permission

David vs. Goliath Confrontations

David B. Yoffie, not for reproduction without permission

David vs. Goliath Confrontations

David B. Yoffie, not for reproduction without permission

David B. Yoffie, not for reproduction without permission

Impact of Network Effects

David B. Yoffie, not for reproduction without permission

What Is Judo Strategy? A Metaphor

David B. Yoffie, not for reproduction without permission

What Is Judo Strategy? A Metaphor

What Is Judo Strategy? A Metaphor

Source: Kyodo News International.

Judo Strategy as a Mindset

Principle #1: Movement

David B. Yoffie, not for reproduction without permission

Principle #2: Balance

Principle #3: Leverage

Use your competitors strength and weight to bring them down.

David B. Yoffie, not for reproduction without permission

Judo Strategy: Pepsi-Style

Judo Strategy: Pepsi-Style

David B. Yoffie, not for reproduction without permission

Principle #1: Movement

David B. Yoffie, not for reproduction without permission

The Puppy Dog Ploy Position yourself alongside your competitors.

The Puppy Dog Ploy

David B. Yoffie, not for reproduction without permission

Define the Space Change the paradigm

Define the Space Segment the Market

Follow Through Fast

Follow Through Fast

David B. Yoffie, not for reproduction without permission

Principle #2: Balance

Mindset: The Weebles Principle

Aesops Fable of the Oak & the Reeds

David B. Yoffie, not for reproduction without permission

Aesops Fable of the Oak & the Reeds

David B. Yoffie, not for reproduction without permission

Grip Your Opponent

David B. Yoffie, not for reproduction without permission

Grip Your Opponent

Preempt future combat, giving potential competitors a stake in your success.

Grip Your Opponent

David B. Yoffie, not for reproduction without permission

Study the competition and match only their best ideas.

Remain on the offensive even when responding to attack.

Push When Pulled Use your competitors momentum to your advantage.

David B. Yoffie, not for reproduction without permission

Push When Pulled

Procter & Gamble

Principle #3: Leverage