Clustering

By setting up in “industry centers” where similar businesses are clustered together, fi rms gain instant access to a large and varied range of benefi ts.

The idea
The idea of clustering seems counter-intuitive. It suggests that fi rms should pay high real estate prices to be positioned close to their competitors. Although there are many businesses that prefer
cheaper real estate further from the threat of competitors, clustering is surprisingly common in many industries. From the shops of Oxford Street in London to the technology companies of Silicon
Valley, clustering has a far-reaching appeal.
The benefi ts of clustering are particularly relevant to new businesses. It affords easy access to an already established network of customers, suppliers, and information. It can also help build reputation—it encourages customers to associate your organization with the other respected and long-established
businesses in the area.
Clustering is also a blessing for the fi rm in a highly competitive industry, like selling cars. While it remains easier for customers to choose your rival over you when it is positioned next-door, a company with a truly superior, competitive offering has little to fear from this.
One of the most famous examples of clustering is the entertainment industry of Hollywood, where freelancers and small fi rms prospered by locating near the studios. Further north there is the example of Silicon Valley—a cluster of technology companies benefi ting from the pool of talent in nearby universities.
Although clustering raises a number of challenges for any business to overcome, an innovative, effi cient, and dynamic company will be able to turn these challenges into unrivaled advantages.

In practice
• There are often a number of industry centers for a particular product; use careful research to decide which one best suits your business.
• Ensure your customer offering is truly competitive—the direct contrast with rival companies provided by clustering will only benefi t companies with genuinely superior products.
• Highlight where you are and emphasize how your products are superior.
• Take advantage of the increased access to cutting-edge industry information—this can range from regional publications to “neighborhood gossip.”
• Remember that clustering is not suitable for all companies— consider your overall business plan and the nature of your business before deciding where to locate.

Increasing Competitiveness

Competition requires a large amount of effort and business acumen: most businesses will, at some time, have to face circumstances that are exceptionally challenging and strenuous.
There are a number of tactics and techniques that can help guide an organization through troubled times.

The idea
Many organizations are familiar with the challenge of maintaining productivity and profi tability when the industry is threatened— whether that threat comes from global unrest, supplier shortages, or simply the presence of increasingly threatening competitors.
Among notorious examples of companies that have been unable to cope with such challenges, the case of Air France is a refreshing success story. The example of Air France is all the more impressive given the signifi cant, continuing pressures faced by the airline industry. In common with other established carriers in Europe
and North America, it found traditional markets threatened by increasing security concerns, the downturn in the airline industry,
and the rise of low-cost carriers. To remain competitive, Air France paid special attention to four techniques:
• Reacting rapidly: Air France’s main decisions following the 9/11 crisis were taken on September 18, 2001; they were later adjusted and developed, but the new strategy was developed and implemented quickly.
• Acting collectively: the board meets to react quickly, considering how best to respond to events and how to coordinate its response.
• Constantly looking at all competitors: this keeps the business lean and focused on what matters. In France, there has been an established lower-cost competitor since 1981—the TGV high-speed train. This has meant that many of the disciplines needed for competing with low-cost operators have been developed over many years.
• Using all available resources: competing has meant employing all of the assets and advantages that a big industrial carrier has in order to counter low-cost operators—including brand, market position, and operational strengths. Often a competitor’s strategy is to build market share with temporary low prices and then to raise them. An active and patient approach can help to reduce or remove the threat of competitors.

In practice
• Actively communicate your brand values—what it is that makesyour organization and product special and preferable.
• Benchmark your business against other organizations.
• Meet with customers and understand their perceptions and needs.
• Understand, strengthen, and preserve the causes of success in the business.
• Find out why customers prefer you to your competitors.
• Review competitors’ strengths and weaknesses regularly. Develop an action plan that, over time, will minimize these strengths and exploit weaknesses.
• Develop and refi ne products and the tactics used to sell, taking into account your understanding of the competition.