Leg 2 from Lisbon to Cape Town (V). Competitor Analysis .
Competitor Analysis is nothing else than what is called Competitive Intelligence. The purpose of Competitor Analysis is to predict, forecast and determine the influence of the behavior of our closest rivals. In highly concentrated industries, the dominant feature of a company’s competitive environment is likely to be the behavior of its closest rivals.
Each industry has dominant competitors. For example: In household detergents, the industry environment is dominated by the competitive interaction of Procter & Gamble and Unilever. The same is true in soft drinks (Coca-Cola and Pepsi), jet engines (CFM International, GE Aviation, United Technologies, and Rolls-Royce), and business news periodical magazines (Business Week, Fortune, and Forbes). Similar circumstances exist in non-profit organizations. The competitive environment of Salvadoran local cafés such as the Coffee Cup and Viva Espresso is now dominated by the presence of Starbucks and Colombian Juan Valdez just 50 meters away from their current stores. Let us examine how information about competitors can help us to do our competitors analysis better.
Competitive intelligence has anything to do with espionage OK. It is simply the art, which involves the systematic collection and analysis of public information about rivals for informing decision making. It is an art because in order to do excellent competitive intelligence criteria and discernment is needed. Competitive Intelligence has three main purposes:
- to forecast competitors’ future strategies and decisions;
- to predict competitors’ likely reactions to a firm’s strategic initiatives;
- to determine how competitors’ behavior can be influenced to make it more favorable.
For all three purposes, the key requirement is to understand competitors in order to predict their choices or responses to the industry atmosphere changes and our own competitive moves.
Professor Robert Grant stated that competitive intelligence has been a growing field since many years ago. Many good dedicated journalists, over the top specialist consulting firms, industry bureaus, and professional associations are doing it more and more. There are many firms who offer competitive intelligence services too. Just in the USA, more than 30% of large U.S. corporations have set up competitive intelligence units or divisions. These entities have a team, which monitors the industry movements and the company´s competitors.
To understand competitors, it is important to be informed about them. The competitive intelligence activities are based on ethical information gathering and appraisals, and there is nothing wrong with doing it. A legitimate and ethical competitive intelligence is legal and appropriate only when the information is public. There is enough flood of information on the Internet. An illegal industrial espionage happens when the action to get the information is non-ethical. Espionage happens when companies steal private information by acquiring private documents or removing information from dumpsters or paying to get confidential technical information from your competitors.
Well-publicized cases of information theft include Procter & Gamble’s acquisition of documents concerning Unilever’s hair care business that had been removed from Unilever dumpsters; and the $100 million fine levied on the McLaren-Mercedes Formula One team for possessing confidential technical information belonging to Ferrari. I encourage you to read the following article in relation to industrial espionage: 10 Of The Most Infamous Cases Of Industrial Espionage.
For the purposes of this blog, we are talking about “competitive intelligence” realized with ethics, using public information available “ONLY”. Competitive intelligence is not simply about collecting information. The problem is likely to be too much information rather than too little information. The key to competitive intelligence is the systematic approach that makes clear what information is required and for what purposes it will be used. The objective is to understand one’s competitors. Michael Porter proposed a four-part framework for predicting competitor behavior:
If you wish to download the slides shown above, click here: Eliescalante Segmentation Theme 2. Competitive Intelligence
- Competitor’s current strategy. The starting point is an identification of the competitor´s current strategy. A competitor´s strategy may be identified on the basis of what the firm says and what it does.
Mintzberg has already pointed it out: there is a complete difference between intended strategy and realized strategy. “Intended strategy is what the organization wants to happen; it is the organization’s planned strategic choice. A realized strategy is the strategy that actually takes place.”. In addition, in order to predict how a competitor will behave in the future, we must understand how that competitor is doing at present. The key is to link the content of top management communication (get information from investors relations input, the media, academic journals and financial analysts) with the evidence of strategic actions—particularly those that involve a commitment of resources. For both sources of information, company websites and “digital tools” are valuable.
- Competitor’s objectives. To forecast how a competitor might change its strategy, we must identify its goals. A key issue is whether a company is driven by financial goals, market goals, or a mix of both. A company whose primary goal is attaining market share is likely to be much more aggressive a competitor than one that is mainly interested in profitability (ROE, or ROI). The willingness of the U.S. automobile and consumer electronics producers to cede market share to Japanese competitors was partly a result of their preoccupation with short-term profitability. By comparison, companies like Procter & Gamble and Coca-Cola are obsessed with market share and tend to react aggressively when rivals step on their turf. The level of current performance in relation to the competitor’s objectives determines the likelihood of strategy change. The more a company is satisfied with the present performance, the more likely it is to continue with its present strategy. However, if performance is falling well short of the target, radical strategic change, possibly accompanied by a change in top management, is likely. The most difficult competitors can be those that are not subject to profit disciplines at all—state-owned enterprises in particular. When a competitor is not subject to commercial objectives at all, or it has government subsidies, this can give rise to destructive price competition that drives the industry into sustained losses.
- Competitor’s assumptions about the industry. A competitor’s strategic decisions are conditioned by its perceptions of itself and its environment. Do you remember what we saw about the concept of perception in the decision buying process?. Well, here we are again: perceptions matters. These perceptions are guided by the beliefs that senior managers hold about their industry and the success factors within it. Evidence suggests that not only do these systems of belief tend to be stable over time, they also tend to converge among the firms within an industry. Industry Recipes (Spender) are the industrywide beliefs about the determinants of success within it. A group of firms in the same industry may be blind to respond to external threats. Industry recipes may engender “blind spots” that limit the capacity of a firm—even an entire industry—to respond to an external threat. This is also called “group think”.
- Competitor’s resources and capabilities. This is the topic for Leg 3. Evaluating the likelihood and seriousness of a competitor’s potential challenge requires assessing the strength of that competitor’s resources and capabilities. If our rival has a massive cash pile, it would be unwise for our company to unleash a price war by initiating price cuts. Conversely, if we direct our competitive initiative towards our rivals’ weaknesses, it may be difficult for them to respond.
“Suffice it to say that the key elements are an examination of the firm´s principal categories of resources including people, financial reserves, capital equipment, workforce, brand loyalty and management skills together with an appraisal of capabilities within each of the major functions: R&D, production, marketing distribution and so on. Richard Branson’s Virgin Group has launched a host of entrepreneurial new Ventures, typically in markets dominated by a powerful incumbent—British Airways in airlines, EMI in music, Vodafone in wireless telecommunications. Branson’s strategy has been to adopt innovative forms of differentiation that are difficult for established incumbents to respond to”. Richard Branson has adopted digital technologies a lot.
Tomorrow we will continue with the next topic: Business Markets and Government Entities Segmentation. Blessings.
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