Competitor analysis is the key to unlock...

Part 29

Casual knowledge about competitors usually is insufficient in competitor analysis. Rather, competitors should be analysed systematically, using organised competitor intelligencegathering to compile a wide array of information so that well-informed strategy decisions can be made

The extent of rivalry in an industry is subject to the number, size and intention of the various players. The competition is aggravated when the market is not growing and when costs are escalating. Firms in such an industry find it difficult to make decent returns or even to survive. This is where assessing the competitors becomes a crucial process in business planning. Satisfying customers at a loss is not the goal of any organisation.

Some businesses think it is best to get on with their own plans and ignore the competition. Some become obsessed with tracking the actions of competitors - often using underhand or illegal methods. Other businesses are happy simply to track the competition, copying their moves and reacting to changes.

Competitor analysis has several important roles in strategic planning: It helps the management understand their competitive advantages/disadvantages relative to competitors. It generates understanding of competitors’ past, present (and most importantly) future strategies. It provides an informed basis to develop strategies to achieve competitive advantage in future. It forecasts the returns that may be made from future investments (e.g. how will competitors respond to a new product or pricing strategy?) Casual knowledge about competitors usually is insufficient in competitor analysis. Rather, competitors should be analysed systematically, using organised competitor intelligence-gathering to compile a wide array of information so that wellinformed strategy decisions can be made.

Framework

Michael Porter presented a framework for analysing competitors. This framework is based on the following four key aspects of a competitor: Competitor’s objectives Competitor’s assumptions Competitor’s strategy Competitor’s capabilities Objectives and assumptions are what drive the competitor and strategy and capabilities are what the competitor is doing or is capable of doing.

There are a number of sources of information for competitor analysis. Hugh Davidson in his book – ‘Offensive Marketing’ – describes how the sources of competitor information can be neatly grouped into three categories: Recorded data: This is easily available in published form either internally or externally. Good examples include competitor annual reports, press releases, newspaper or magazine articles, government reports, presentations and product brochures Observable data: This has to be actively sought and often assembled from several sources. A good example is competitor pricing, advertising campaigns, tenders Opportunistic data: To get hold of this kind of data requires a lot of planning and organisation. Much of it is ‘anecdotal’, coming from discussions with suppliers, customers and perhaps previous management of competitors, trade shows, seminars and conferences and recruiting ex-employees. The process of gathering competitive data is similar to a jigsaw puzzle. Each individual piece of data does not have much value. The important skill is to collect all pieces and to assemble them into an overall picture of the competitor. This enables you to identify any missing pieces and to take the necessary steps to collect them.

Worthwhile?

Competitive analysis can be an extremely effective way to make your corporate strategy that much more versatile and successful – right from the start. You can apply all that you found out to your own marketing campaign and have a much more constructive grounding to jump off of if you do.

Businesses both large and small in all sorts of different markets are taking advantage of all that competitive analysis has to offer because, believe it or not, espionage does have its benefits – and if your competitors are already spying on you (or will be), why not join the game or even beat them to the punch?

Business objectives

To predict your competitor’s future moves you should first have a good understanding of their business objectives. Where and how they want to grow their business and how are they different to your own.

Do any of your competitors have fundamentally different objectives to your own organisation? You should be able to determine why they are so different. Are they successful? Should you be interested in adopting them as your own? These fundamentally different objectives need to be monitored and analysed as they tend to have the ability to shift the market dramatically one way or another. Examine your main rivals’ past actions and objectives. What were the drivers for these? Are there indicators of failure with the objectives/evidence of past capital expenditure, trademark or research activity? If so, has this made the firms’ risk adverse and is this reflected in the scope of their objectives? What are the ‘implicit’ objectives of your rival firms down the street? What are the directors saying to their clients and to the press? Are they different to the objectives you understand to be true? If they are not known to be true, what else are they exaggerating the truth with? Monitor on an on-going basis what the directors and management are saying. What are they not saying? Do they indicate any current objectives? Monitor your own firm’s press coverage. What are you giving away to your rivals? What are the industry experts saying about you and your rivals’ future position? Where do your rival organisations want to go? What are their plans? Will these plans distract them from their core activities or will they be forced to drop non-core sectors? Are there opportunities for you? Do they have the capability and expertise to achieve these objectives? Will any of your experts or clients be targeted by them? It is likely that your objectives as well as those of your rivals will probably have a number of strategies. You would like to – sell more of the same products/services in existing markets, develop more business in new markets, introduce new products/services into current markets, acquire or move into suppliers’ or customers’ areas of expertise to ensure continued supply of own services, achieve increased sales, profits, return on assets or investment, etc. These are critical objectives upon which your organisation’s future development rests. Determine carefully what your rivals’ strategies are in these fields.

Strategies

The purpose of competitive strategy is to build a sustainable competitive advantage over the organisation’s rivals. It defines the fundamental decisions that guide the organisation’s marketing, financial management and operating strategies.

Three basic strategic approaches are possible:

Offensive strategy – This strat- egy often requires significant capital investment and includes radical options. (a) Changing or altering the competitive structure or environment in your industry (forward or backward integration, acquiring competitors, etc.). (b) Anticipating industry competitive structural change and positioning your organisation to exploit this change before others recognize it (developing substitute products, changing the mode of sale or distribution, etc.). (c) Diversifying into more attractive markets.

Defensive strategy – This strategy accepts the industry competitive forces as a given and positions your organisation to best defend against them. As a last resort, this could include harvesting and selling the business before competitive conditions cause its value to drop.

Guerilla or niche strategy – This includes minimizing or neutralizing barriers by reducing the size of the playing field and taking an offensive or defensive position in a smaller, more attractive market segment.

Every business has some sort of a competitive strategy. However, many strategies are implicit, having evolved over time, rather than explicitly formulated from a thinking and planning process. Implicit strategies lack focus, produce inconsistent decisions and unknowingly become obsolete. Without a well-defined strategy, organisations will be driven by current operational issues rather than by a planned future vision.

(Lionel Wijesiri, a corporate director with over 25 years’ senior managerial experience, can be contacted at lionwije@live.com)