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So by friction we mean uh anything
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that's uh a feature in the environment
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that is making your customers less
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likely to make you compete very hard
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against a competitor.
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So it's anything that's making that that
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causes your your customers to find it
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harder to find a second source. Uh so
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there are many reasons why this may
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happen. It can be because they have an
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established relationship with you. It
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may be because it's hard to find someone
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else. It can be costly. Uh maybe it's
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not worth for them to to look for a
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second source. So think for instance of
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the the book retailing business before
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the internet. Uh there was quite a lot
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of friction because when you and I were
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going to uh to a bookstore, it was hard
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to find an alternative. You would have
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to drive to find a different bookstore.
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But now with the internet, you know
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exactly who's selling what. Uh it's very
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easy to find a second provider for for
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the for the book you want to buy or even
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different book from what you wanted to
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buy. Uh and then there are situations
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where uh actually there's quite a lot of
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friction. think of any new product. Uh
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when if you're a firm and you're trying
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to buy a new software for your company,
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you're very reluctant to uh to you want
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to do that piece of business with
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someone you trust, with someone who
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knows you if it's very important for
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you. You don't want them to screw that
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up. So that would make you less likely
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to to shop around to many different
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providers. So all these are examples of
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frictions uh that are I we think in this
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paper quite important for competition.
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Uh so uh this paper was uh written in
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collaboration with Peter Zamsky of
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Vinsat and I guess the the idea emerged
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when we we wanted to use u theoretical
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tools like mathematical tools such as
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game theory to address fundamental
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questions in strategy. And we wanted to
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find a way to be able to really speak
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about competition in a way that would be
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able to tie together different aspects
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of theories that we have in strategy and
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put that in one model and be able to
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talk about the interaction between all
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these elements. So friction is one one
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way for us to try to tie together ideas
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that are coming from for instance
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Michael Porter and the five forces about
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the environment and how competitive
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forces are affecting firm profitability
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on the one hand and in the other hand uh
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it was could use that to think about how
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firms develop their capabilities. So the
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idea of frictions was really coming from
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let's try to text a feature from the
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reality
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and put that into a mathematical model
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so that we can really think deeply about
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how different aspects of competition
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matter for managers.
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So let me talk about u two different
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situations in which these ideas can help
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think about what to do. Look at the
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current uh situation in the economy. Uh
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presumably customers are suddenly
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shopping around much more. Now the
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question for as a manager is to
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understand whether this is a threat of
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an opportunity. So what we we argue I
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think in this paper is that if you try
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to think in terms of the the current
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level of friction in your market and
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maybe this level of friction is going
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down uh it can help you understand
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whether it's a good or bad thing for
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you. So it may be a bad thing for you if
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frictions are quite low and it means
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that customers are even more likely to
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put you directly into competition
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against uh other suppliers in which case
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you're not losing sorry you're not
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gaining much but it can be good for you
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because maybe actually you will have a
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whole lot of new potential buyers who
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would come to you before they did not
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bother looking around because they were
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satisfied with what they had. Now that
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they're less satisfied, they're actually
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uh seeking to to have new suppliers and
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this represents an opportunity. So that
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would be one scenario where thinking in
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ter of frictions can be useful. Another
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one that that's a bit different is when
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if you're one firm in in a market and
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you suppose that you have a you have a
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weaker firm, there's there's another
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firm that's much better than you are and
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suddenly there's an innovation that's
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coming up that maybe allows you to to
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invest and to leaprog and to to suddenly
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become the better firm in the market. So
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here there's a complicated game and
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interaction that may happen and what we
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show in in in the paper is that you you
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have to understand uh to what extent the
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gap between
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your current abilities or current
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capabilities and your competitors is
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because if this gap is not too too too
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large then it may be possible for you
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actually to to leaprog that that
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competitor and become the better firm in
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the market.
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uh but if this gap is very far away so
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what we showed in the paper is that
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sometimes it's just not even worth
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trying should improve a bit but not that
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much so thinking in terms of frictions
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and their interaction with technology is
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also a way to to to to think about
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whether you want to to challenge an
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incumbent because there are cases where
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it's possible it's not sure you can make
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it but it's possible and there are other
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cases where we say that the analysis
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suggests more that it's not worth really
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trying.
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So in this paper what we are able to do
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and these are also things that we
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discovered for ourselves is that we are
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able to to understand a bit better the
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uh the relationship and between
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different concepts that we have in
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strategy. So
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I think most MBAs they learn about the
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five forces of Michael Porter which are
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very very important framework in
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strategy. This is something that we
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teach to all our students. And in this
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framework for instance we have several
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forces. We have like barriers to entry
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rivalry uh powers of buyers powers of
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suppliers
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u and whether there are substitutes.
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Uh the thing is that it's a great
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framework to for instance to understand
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how how to analyze the environment and
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organize the information but as such it
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doesn't tell us much about how these
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different forces are interrelated but in
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this paper we are able to understand
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much better how some of these elements
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are interacting with each other and
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we're finding things that are a bit
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counterintuitive that we actually
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discovered doing this paper that we felt
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that we we did not know before. So for
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instance, you have u I mean
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counterintuitively uh businesses want to
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have a certain level of friction. Even
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if you're a very good firm, you're
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better off having some friction in the
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market. And the reason is that uh if you
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start with a small level of friction,
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it's always better to reduce competition
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even though it is at the at the cost of
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losing a few few customers. But this
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also means that there's an optimal level
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of friction which is something that was
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not clear to us when we started this
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paper. So as a manager you want to
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monitor the friction that's in the
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market and maybe sometime it can if it
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goes up it can be good for you but
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sometime it can be bad.
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