Competition as a Design Problem: Applying Lessons of Design to Strategic Thinking

By Keenan Yoho, PhD

The relative calm of the post-Cold War era is past. The geopolitical stability provided by the Pax Americana that facilitated a surging global economy since the 1990s is being eroded by the rise of contested regional spheres of influence. Global economic coordination is declining and being replaced by nationalistic policy agendas. The rules-based order and multilateral institutions and agreements backed by the United States and, collectively, the West, are being challenged and stressed. Hard power rivalries are resurging while terrorism, cyberwarfare, and nuclear proliferation are mounting without coordinated global responses. Meanwhile, technological advances are far outpacing rates of change in policy, business models, and security postures. Emerging technologies in hardware, software, and platforms are providing disruptive state and non-state actors, transnational criminal organizations, and militant groups asymmetric capabilities to disrupt and destabilize society while increasing the prevalence of violent conflict. Against this Boschian tapestry of Earthly Delights emerges a question for business: How can companies navigate this growing complexity to gain competitive advantage? As in his opening of The Divine Comedy, Dante Alighieri laments in Canto I:

Midway upon the journey of our life
I found myself within a forest dark,
For the straightforward pathway had been lost.

I would argue there is no cipher, no single charioteer that will guide an organization flawlessly forward but that some perspectives and approaches will initially convey advantage and subsequently dominate others. Drawing inspiration from Arquilla and Roberts in their 2017 monograph Design of Warfare, and believing economic competition is fundamentally a design problem, I propose a general model of competition to facilitate the development of capabilities and responsive systems that will convey advantage. Using four elements of design that consist of business network structure, information flows, innovation, and policy, leaders may devise competitive designs that are both formidable and resilient.

Four Elements of Design for Competition

Having identified the four elements of design for competition as business network structure, information flows, innovation, and policy let us describe them further. The business network structure refers to the firm’s organizational design, partnerships, degree of centralization, and modularity. Firms with flexible organizational structures can recombine internal teams and external partnerships to develop new offerings. And organizations that have a well-understood, centralized vision complemented by decentralized, empowered teams will have a superior posture for rapid coordination in the face of a sudden change in the competitive environment. Information flows refers to the extent that a firm enables rapid information sharing both internally and with partners and how quickly the firm can harness both historical and real-time data to generate intelligence on customers, supply chains, and markets to understand, decide, and act faster and more effectively than the competition. Innovation refers to the creative approaches of developing or reconfiguring resources and capabilities to create new game-changing offerings and business models that transform and redefine the basis of competition. Policy refers to the theories, strategies, operational concepts, tactics, and principles that guide how the organization operates to achieve its objectives. Policy is the operating system or code of the organization. Policy evolves as technology advances and the environment changes. The policies of the firm provide clarity, structure, and direction for its decisions and actions.

Applying the Model of Design for Competition: Apple versus Microsoft

Let us apply our model of design for competition to two well-known and successful firms in the consumer electronics space: Apple and Microsoft. Though each firm is different, historically they have competed in the same or similar spaces. Applying our model to Apple versus Microsoft we will start by addressing differences in business network structure. Apple has a relatively flat organizational structure with a chief design officer and senior vice presidents of hardware engineering, hardware technologies, and software engineering. There is no vice president of iPhone or laptops. Apple has also developed flexible and scalable manufacturing capacity through external partners like Foxconn and places a focus on tight control over its supply chain through exclusive partnerships that facilitate high quality and rapid innovation in its products. Apple also sells directly to consumers through its own branded retail stores that allow direct and impactful connections with consumers through elegant architecture and unique purchasing experiences. Additionally, Apple generates its own content through its studio operation distributing through Apple TV, further demonstrating its advantage in control and revenue capture through its vertically integrated structure. Alternatively, Microsoft has more siloed product-based divisions such as Windows, Office, Xbox, and Azure that function as semi-independent business units. Microsoft has a wide range of hardware partnerships that are flexible and broad in terms of their reach. However, the breadth and complexity of the Microsoft hardware supply chain has resulted in less control over the end-user experience compared to Apple’s integrated model, particularly in the personal computing market. Microsoft also lacks the power of vertical integration from the operating system to the device that Apple has achieved.

Considering the information flows of both Apple and Microsoft, we can note that Apple’s direct consumer data from its application ecosystem and retail stores provides user insights the firm uses to guide innovation resulting in superior devices that enjoy far greater customer enthusiasm than Microsoft. Through tight control over information and secrecy, Apple manages consumer and operational data effectively to not only improve its products but to also create anticipation for product launches. Overall, Apple’s use of data is more focused on enhancing user experience and product design. Microsoft, on the other hand, relies more on enterprise channel feedback to improve products and services. Microsoft has a strong emphasis on data, but it’s broader market base and large enterprise footprint along with a diverse range of products and services means it may not leverage consumer data as effectively as Apple to allow it to create a cohesive and compelling product ecosystem and strategy.

In terms of strategic innovation, Apple has created revolutionary consumer computing categories like smartphones, tablets, and smartwatches that have defined and redefined mobility. Apple’s approach to the development of new products is to disrupt markets, set new consumer expectations, and change the very meaning of products themselves. Apple’s iOS and App Store ecosystem strategically locks in users through a combination of hardware and software integration, a comprehensive and exclusive app marketplace, and a seamless user experience across all of its devices and services. Apple’s ecosystem encourages and fosters cross-device engagement and induces high switching costs for users. Alternatively, Microsoft has more recently been innovative in cloud and platform computing products such as Azure and Office 365 with a long-standing commitment to prioritize its Windows franchise. Microsoft has a vast, diverse, and strong enterprise ecosystem but nothing  comparable to Apple in the consumer space. Microsoft has been less successful in its hardware ventures and in setting new trends in consumer electronics and the customer experience. How memorable was the Windows Phone? And how differentiated is the purchase experience in the Microsoft Store?

Finally, Apple’s policies are carefully aligned with its business goal of delivering exceptional user experiences and guides decisions at all levels. The firm’s policies are reflected in its strategic approach to product design, privacy, and security that drive customer loyalty and constitute its brand. Microsoft balances more diffuse objectives across software, hardware, and cloud. Microsoft’s historical emphasis on software and enterprise solutions has resulted in less emphasis on controlling the user experience resulting in a less cohesive brand experience. While Apple and Microsoft are both successful firms, Apple has dominated Microsoft in the consumer space by developing a relatively nimble organizational design that leverages the flexibility and scale of a relatively few strategic external partners while supporting and sustaining its ecosystem of products. Apple has developed information flows that leverage direct consumer insights to drive new products and new experiences while creating market anticipation. Apple has developed capabilities in innovation that not only disrupts but redefines markets and the meaning of entire product categories. And through its policy of aligning all of its resources to deliver superior consumer experiences, Apple has developed an integrated ecosystem of complementary devices, services and experiences that lock in its consumers by reducing user friction and thereby resulting in continuous revenue streams. While Microsoft is a leader in software development and enterprise solutions, its success in consumer hardware and integrated experiences do not compare to those of Apple as its resources have not been deliberately aligned through its policies to achieve such an aim.

Conclusion

Adaptability and anticipation of disruptions will be key determinants of both survival and flourishing in future economic competition. Adopting a design approach allows leaders to focus on the alignment of the four elements of competition described above to grow and sustain a more robust, resilient, and formidable firm. Applying our model of design for competition to Apple and Microsoft allows us to break apart the principal elements of business network structure, information flows, innovation, and policies of each firm to see where and how each has developed superior resources and capabilities in consumer electronics. Applying this design perspective illuminates Apple’s strengths across all four elements in the consumer technology space and explains its dominant position driving profits through compelling integrated hardware and software experiences. Apple’s organizational design, characterized by a flat structure and strategic external partnerships, enables a high degree of control and flexibility in its operations. This, combined with a strong focus on direct consumer insights and a secretive approach to information management, allows Apple to innovate rapidly and effectively. Apple’s deliberate policy alignment to continuously redefine product categories and develop an immersive experience offered through its integrated ecosystem of products and services, has resulted in superior experiences for consumers and a competitive position that has distanced it from rivals. In contrast, Microsoft’s strengths in software and enterprise solutions have not translated as effectively into consumer hardware success, mainly due to its less integrated approach and broader market focus. Microsoft competes effectively in enterprise platforms but has been unable to match Apple’s tightly aligned approach targeting consumers. Apple’s dominance in the consumer space can thus be attributed to its strategic application of the four design elements, which have enabled it to create a compelling, integrated, and user-centric suite of products and services.

Author: Dr. Keenan Yoho, Professor of Operations, Crummer Graduate School of Business, Rollins College

Bio: Dr. Keenan Yoho is Professor of Operations Management at the Crummer School of Business where his research and applied work are focused on organizational transformation, design, and the analysis of strategic, tactical, and operational alternatives under conditions of uncertainty. Keenan was a visiting professor at both SDA Bocconi and Politecnico di Milano in Milan, Italy from 2022 until 2023 where he conducted research on adoption rates of technology in manufacturing, supply chain realignment, and competition as a design problem.

Dr. Yoho teaches courses in Crummer’s newly redesigned Executive MBA. Visit crummer.rollins.edu/emba to learn more. 

Further reading:

Arquilla, John and Roberts, Nancy.  (2017). Design of Warfare. Naval Postgraduate School.

Belting, Hans. (2016). Hieronymus Bosch: Garden of Earthly Delights. Prestel Press.

Dante, Alighieri. The Divine Comedy. Translated by Henry Wadsworth Longfellow, Houghton Mifflin Company, 1895.