Competition Markets Authority
Introduction
Thank you for having me here at the Social Market Foundation. For over 30 years you have been thinking about how to achieve positive outcomes for society through fair markets and I very much look forward to our discussion and Q&A after my remarks.
So, who am I? As of relatively recently Id answer that as Im Marcus, the new Chair of the U.K.s Competition and Markets Authority. Now the fact that I am still new to the role does beg the question, what could I possibly come to talk to you about so soon after being appointed? Shouldnt I spend a little longer on the job so that I have some reflections on competition and markets to share with you?
While relatively new to my role at the Competition and Markets Authority, I am far from new to the experience of competition, of looking out for the customer, and what that pushes businesses to achieve. Over the past 30 years, Ive had the privilege of working with over a hundred businesses of all shapes and sizes. This has allowed me to get under the skin of what makes a company tick, how their industry works, what innovation and competing to win looks like in their fields of play. It has allowed me to work with long-established multinationals and scrappy start-ups alike on their customer propositions, their business models, their competitive strategies and how they can build competitive advantage.
So, I look at competition not from the perspective of an economist or a politician or a lawyer but as a businessperson, and it is that perspective that I want to share today.
And I feel very lucky it has been a tremendous learning experience, across those different, highly varied businesses, to be able to focus again and again on the fundamental questions that all businesses ask themselves: who are our customers, who are our competitors? Where will growth come from? Where should we play, and how will we compete to win? Whats our competitive strategy to grow and create value - how do we innovate our customer proposition? How do we innovate our business model and make it stronger? How do we build, sustain, protect, renew our competitive advantage?
What did I learn about competition across that career? The headline would be that competition and truly contested markets can be an astonishing force for good outcomes. Thats good outcomes for people who get genuine choice at high quality and low prices. Good outcomes for businesses who are free to innovate and grow and reap the rewards of innovating, of building differentiated customer propositions and competitive business models. And good outcomes for the economy through higher productivity, more business investment, and as a result higher job creation and real wage growth.
Now that view is not unique to me. What is perhaps more unique to me are the experiences Ive had working alongside all these different businesses that have shaped my views and shaped the lens through which I personally understand the world.
And so in these opening remarks, Id like to take you through 3 a-ha-like realisations, 3 quite simple insights that really clicked with me, that have shaped my views on competition. Then Id like to use those insights to address some of the misconceptions about competition that I have seen crop-up in varying forms across my career and as the Chair of the CMA; and Ill finish by offering some initial thoughts on what that could mean for how the CMA goes about its work and, perhaps also of interest to this audience, by starting a conversation on how policy and regulation can be used to enhance competition.
Realisations about competition
The 3 realisations Im going to share are:
- in a truly contested market, there is a staggering spectrum of performance and returns achieved across competing businesses;
- the existence or threat of competition is the single most powerful motivator to action for a business; and,
- achieving and sustaining competitive advantage is really hard work and vulnerable to shortcuts that skip the hard work of competing.
1 . In a truly contested market, there is a staggering spectrum of performance and returns achieved across competing businesses.
The first realisation came from looking across all that variety of businesses and markets over time. In any given industry, in any given external environment, there is a truly staggering spectrum of performance and returns achieved by businesses competing in that same industry, facing that same environment.
We often hear things like its been a bad year for airlines or its been a good year for the grocery retailers or its great to be a software subscription business. But it struck me, working on the ground across these companies, that within any of these industries you will see a vast range of performance returns. In a bad year for x market or a good year for y market, you will see companies that do much better than the average and see companies that do far worse, especially when you take the longer time horizon that businesses and investors use to set strategies and make decisions.
And why is that interesting? Well for me, it perfectly encapsulates the magic of competitive dynamism, caused by something equally magic, the search by each and every firm for competitive advantage. It shows that businesses who compete in the same broad space, facing the same external challenges and opportunities, are making very different decisions, following very different strategies, and seeing vastly differing levels of success as a result. Fundamentally, these differences in strategies and performance exist because markets that are contested by multiple competitors are never static. Each player has to deal with the unpredictability of their competitors actions. And in the face of that uncertainty, some businesses mobilise their resources, adapt and innovate their offerings to customers better than others, and are rightly, deservedly rewarded.
In short, the search for competitive advantage drives incredible competitive dynamism. And it becomes self-reinforcing that dynamism manifests in more experimentation and innovation and investment, which adds to the competitive uncertainty which fuels that competitive dynamism.
2 . The existence or threat of competition is the single most powerful motivator to action for a business
This takes me to my second realisation. This second realisation emerged bottom up, company by company.
That vast spectrum of performance reflects just how powerful a motivator the existence or threat of competition can be. In fact, it is the single most powerful motivator to sustained action, period. More powerful than moral exhortation to do the right thing, more powerful than subsidies, more powerful than prescribed rules.
Let me give 2 examples from my career. Ive had the good fortune to work with 2 different corporations, operating in different sectors, each in highly contested competitive environments, who kept outperforming their respective rivals. How did they do this? By adopting a mindset that turned out to be 2 sides of the same coin.
The first of those firms was obsessed with the customer. Genuinely obsessed. Every meeting would start with questions about their customers. What alternatives are our customers choosing between? How are they making those choices? What compromises are they making? Why are they having to compromise? How can we differentiate ourselves in their eyes? How can we solve their problems better than any of their alternatives? This company was completely centred on the idea that the customer is making a choice between them and competing alternatives and that therefore, as a company, they needed to keep innovating and improving in order to keep winning that choice.
The second business was equally obsessed but was instead obsessed with its strongest competitors. Every meeting they would be looking at their competitors and questioning how they could be better than them. Always thinking about how to make their products better, how to get their costs lower, how to make their supply chain more efficient, how to make the customer journey faster and cheaper for their customers than what their competitors could achieve. They were incredibly focussed on being better than the competition on anything and everything that mattered.
These 2 complementary mindsets, created by the need to compete in a highly contested environment, motivated each of those 2 companies to keep getting better, continuously. Relentlessly. They kept doing the hard work to try and stay ahead of the pack and build and renew their own competitive advantages. And they their investors, their employees, their suppliers were rewarded for it. They kept creating more value and both remain major, successful enterprises today.
Those 2 examples brought home to me how powerful a motivator to action that existence of competition, that threat of competitor action, is for businesses, large and small. And that it takes a huge amount of effort to keep competitors at bay. These businesses had to work really hard to keep innovating, to keep improving their customer proposition, to keep adapting and strengthening their business model, to keep building and renewing their competitive advantage. When they succeed, the rewards are high, and deservedly so.
That potential for reward, for financial returns, is important. For private enterprise that is the carrot; that is one of the main