Friday, April 7, 2017

Gourmet Food Truck Strategy: How Strategic Groups Compete

Let’s start with a fact known by some fortunate people, but far from everyone.  There are gourmet food trucks that serve food of a quality found in good restaurants, but on four wheels and in either fixed or varying locations. Nice, right? In the world of strategy, gourmet food trucks would be a strategic group, distinct from other kinds of food services (such as regular food trucks, fast food retail, or brick-and-mortar gourmet restaurants). The way we normally teach strategy, firms in a strategic group compete little with firms outside and a lot with firms within.

Many things we teach are not quite true because they come from early research. For strategic groups, a paper in Administrative Science Quarterly by Scott Sonenshein, KristenNault, and Otilia Obodaru offers some very interesting new insights. Let’s start with competition.  Gourmet food truck operators lend each other supplies, help each other make repairs, volunteer to work for each other, share locations, promote each other, and make a wide range of helpful suggestions to each other.  Oh wait, that was the list of cooperative behaviors. What they do to compete is... practically nothing. They aim for excellence in the product, but also for uniqueness. For gourmet chefs, excellence is not competition, it is their calling in life. Aiming for uniqueness and promoting it is not competition, it is avoidance of competition.

In fact, they do more to maintain the integrity of the strategic group than to compete with each other. Breaking municipal rules, copying from other chefs, and intruding on parking spots are all actions that weaken the community of gourmet food trucks by exposing them to authorities or creating internal conflict. And now I used the word that they often use: community. The strategic group of gourmet food trucks is held together by a shared identity and feeling of community, and the actions of each come from them wanting to build the community and belong to it. They literally build the community through actions that make it easier for others to join – another no-no in strategy, where you are supposed to stay as isolated as possible in order to maintain pricing power.

So are the gourmet food trucks unusual, or is there something wrong about strategic groups theory? Probably both. The unusual part of gourmet food trucks is that they are a high-end product, and uniqueness is such a strong part of the sales pitch – and identity – that ordinary competitive moves are slow to materialize. The incorrect part of strategic groups theory is overlooking how individual firm owners think about their work in ways that are shaped by other members. This shaping of their thinking takes place through creation of an idea of what a proper firm looks like, and it is easily maintained through community-building actions. Although some of the helping seems excessive and possibly costly for the helping firm, it is actually not easy to tell whether that is true or not. Especially for a young strategic group, building a community also establishes the group as a well-defined entity in the minds of customers, regulators, and suppliers. Less competition, more cooperation – possibly giving a stronger position overall, at the cost of less individual jockeying for a better position.

Interesting insights about strategy from a strategic group that we would all like to have nearby.