A Critical of Competitor Analysis Concepts - Literature review Example

 Competitor analysis 1 Competitor Analysis – A Critical Review Introduction Creating new opportunities for new products and / or services is posing threats to organisations. The marketing environment is continuously undergoing rapid changes and has become dynamic, mainly as a result of the constant changes in technology. Technology being a lot more sophisticated and advanced today has “increased the diversity of a rival’s strategic action” (Ho and Chung Shing, 2008). Organisations find it difficult to predict trends within the marketing environment. Therefore, they have to have short and long-term strategic plans in place that would enable them to turn the changes they face into opportunities and gain competitive edge over competitors. A way in which this can be done is through competitor analysis. This paper conducts a critical review of competitor analysis concepts based on the following two sources: 1. Bruner et al. (2003). The Portable MBA, Ch.11: Strategy: Defining and developing competitive advantage; Competitor analysis: Past and predicted, John Wiley & Sons. 2. Fahey L. (2002). Invented competitors: A new competitor analysis methodology, Strategy & Leadership, Vol.30, No.6, pp.5 -12. This review attempts to find the common ground or differences in approach between the authors and checks them against the background of the strategic needs of organisations for sustaining competitive advantage. Competition, strategy & competitor analysis in context Competition, as the word suggests, is about rivaling somebody in the market place so that a firm’s current market share is sustained and future growth plans are achieved. This also implies Competitor analysis 2 maintaining and improving profitability targets. In the face of fierce competition, the market place is merciless in changing the fortunes of companies. If firms ignore or neglect strategic moves by competitors, they can find their market share and profitability disappear in quick time. Competition can be in many forms such as new entrants, new products / services, more economical processes that offer cheaper alternatives to customers, new marketing or distribution channels, newer strategic associations or markets, etc. While the challenge of keeping track of so many variables may be daunting, it is comforting to remember that generally each business has its own limited set of rivals. Largely, this depends upon its own profile of size & operations. It is this universe of potential rivals that is important to a firm’s competitive position. According to Porter, “Strategy is an internally consistent configuration of activities that distinguishes a firm from its rivals” (Porter, M E. 2004, p.vi). Porter’s theory identifies a firm as one based on activities and points out that it is these activities that create opportunities for a firm to offer value to a customer (Porter, M E. 2004). To this extent, analysis of a firm’s own or its rival’s activities can be considered as essential as strategic to a firm’s competitive advantage. The question then is ‘when or how often should one conduct such an analysis?’ and the answer should be that it must be an on-going process in view of the constantly emerging competitors’ challenges. Competitor analysis is the management strategy that helps a firm to continuously keep track of existing and potential competitors, their strategies and their products, and to apply the knowledge to its own business interests. This is achieved through systematic information gathering, forecasting and initiating appropriate actions so as not to be taken by surprise by the competitors’ moves. Several authorities confirm this view of competitor analysis. According to Competitor analysis 3 Grant, competitor analysis is the act of obtaining “information about competitors and using this information to predict their behaviour” (Grant, 2005). Paley states that competitor analysis enables firms to see their rival’s position in the market place (Paley, N. 2006). According to Whittington and Delaney, competitor analysis is vital in understanding competitors’ current and future strategies, strengths, weaknesses, assumptions and capabilities, thereby enabling firms to identify, anticipate or influence possible actions that rivals may take to the firm’s advantage (Whittington and Delaney, 2007). Thus, competitor analysis is about internal analysis of own business vis-à-vis competitors, keeping track of the competitors’ moves / potential moves, and acting strategically. In many cases, it may even be dropping of new ideas or products just to maintain existing products / market share, and not to tempt competitors to introduce challenging products that can threaten existing business. Bruner et al.’s views Bruner et al. state that marketing managers often neglect to conduct rigorous analysis of competitors’ moves in real life situations. They stress the importance of analysing competitors and provide example of two reputed firms (Clorox and Epson) which failed to do so and paid the price (Bruner et al., 2003. pp.220-221). In one case, the firm introduced a new product without analysing the challenging move that can be anticipated from the market leader. When the market leader made his own counter move, the firm not only did not succeed in its new product but also lost the market share of its existing product. In the second case also, the firm experienced similar situation i.e., losing the existing market share when it introduced a new product, in which the rival already had high competitive strengths. The reason for these failures is the inability to gauge into the minds of the competitors or naively assuming that the competitors are too Competitor analysis 4 lethargic to challenge, say the authors. They recommend that avoiding such mistakes by contrarian thinking and assuming that the competitors are always moving fast and strategically, as the only way to protect one’s own turf. In the authors’ opinion, marketing managers must pay critical attention to the most important competitors and expect them to offer challenge all the time. They suggest a systematic approach to such analysis based on themes like current strategy, leadership, capabilities, future goals, stakes and signals etc. All these areas can be anticipated / predicted from a variety of sources such as customer / supplier comments, public statements and the like. Such an analysis would bring out the profile of competition from time to time and that should be used to strategise one’s own operations. The authors caution against the common mistake of gathering too much information and taking too little follow up action. Finally, the authors offer a typical set of ‘good moves’ to neutralize or overwhelm competition instead of resorting to what are called ‘poor tactics’ which can easily be countered. Thus, Bruner et al. confirm the theoretical concepts of competitor analysis as mentioned earlier, with particular emphasis on existing competitors. Fahey’s views The second article by Liam Fahey is more thought provoking and challenges managers to look into the future rather than the present or the past while predicting competitor behaviour. In the process, marketing managers are to face what is called the ‘invented competitor’ meaning the one who does not exist today but who is most likely to emerge with new marketplace scope, and organisational configuration. Inventing a competitor and writing down his potential moves would force the managers to think deeply about many aspects of competition such as, strategies, Competitor analysis 5 actions needed to put strategies in place, new customer needs, solutions required to satisfy them, etc. Further, all these aspects must be radically different from any of the current rivals’ activities. It means that there is no easy way to invent a competitor but to conduct a rigorous exercise into the completely unknown. Fahey states that many firms confirmed having done ‘bold and innovative thinking’ that helped their current operations and brought out vulnerabilities into the open (Fahey, L. 2002). Fahey recommends this invented competitor approach for competitor analysis. He suggests that such analysis could be in areas such as i) new form of strategy ii) e-business iii) entering a related product segment iv) search for a new product v) substitute product and vi) challenging the current strategy. In other words, in each of the above areas, the invented competitor can pose challenge to the existing operations and force managers to evaluate the future potential threats rather than threats from existing competitors. This is the significant difference between Barney et al. and Fahey. Fahey elaborates on the techniques of inventing the competitor by emphasising on the unique features namely, market place strategy and organisational configuration. The process is akin to brainstorming, inviting ideas (even completely ridiculous ideas) and testing them against current practices. Marketplace strategy in turn encompasses areas such as marketplace scope, marketplace goals, and competitive posture and asks questions like how or why the invented competitor would act in a manner. Once the new marketplace strategy is ‘invented’, the next stage analysis of how this strategy might be implemented to achieve the goals takes place i.e., unique organisational set up that meets this new strategy. This could mean new associations, new geographic operations, etc. While affirming that it is not easy to invent a competitor, Fahey Competitor analysis 6 suggests through an example how this can be achieved by: a) identifying a potentially new customer solution b) visualising how technologies might evolve in future c) what functionalities might the customers want that do not exist today etc. Once these ideas are invented, the next stage can be strategising them, again by a similar process of creating rival teams to come up with radically new ideas. The process goes on until a new competitor is invented with his own marketplace scope and orgnisational configuration. These two attributes can then be refashioned into two categories of competitive advantage: customer-based advantage and competitor-based advantage, with relevant questions on each. Answers to the questions would reveal the invented competitor’s marketplace scope and organisational configuration, which can then be adopted as the firm’s own attributes. Value of this exercise becomes startlingly apparent, according to Fahey, when a firm’s current strategy is tested against the value proposition that the invented competitor offers to a customer. Thus, both writings (by Barney et al. and Fahey) lay emphasis on competitor analysis as integral to strategic management. Barney et al. emphasise a structured approach to such an analysis and point out the benefits of conducting the same in an on-going manner so as to keep competition at bay. The essential difference that is noticed is that while Barney et al. lay greater emphasis on analysing the resources, pronouncements and operations of the existing competitors to predict their future strategies, Fahey recommends a totally revolutionary concept in conducting competitor analysis – conduct it on a non-existing competitor. This latter approach is certainly more challenging and more rewarding in as much as it throws up completely new ideas for fine tuning the current operations to successfully foray into the future. Competitor analysis 7 Conclusion Competition is about facing challenges in the market place for new products / services / and customers so as to sustain and improve current business. Technological revolution has created greatly enhanced opportunities as well as threats. In order to survive in business, a firm has to find ways to face these new challenges, by resorting to critical analysis of competitors’ moves, in the backdrop of its own operations. Thus, competitor analysis is an essential part of strategic management. Analysis of internal operations / strategies is as important as analysis of potential rivals. Barney et al. and Fahey agree on the need for competitor analysis but their approach is different in respect of methodology and scope. While Barney et al. restrict themselves to lateral thinking by confining their recommendation for analysis of the past or present actions of rival firms, Fahey approach reflects completely-out-of-the-box thinking. Challenging the traditional approach either in the ‘marketplace scope’ or ‘organisational set up’ and developing the most relevant questions for customer-based advantage or competitor-based advantage, are the hallmarks of the concept of ‘invented competitor’ in Fahey’s competitor analysis. Competitor analysis 8 References Bruner et al. (2003). The Portable MBA, Ch.11: Strategy: Defining and developing competitive advantage; Competitor analysis: Past and predicted, John Wiley & Sons. Fahey L. (2002). Invented competitors: A new competitor analysis methodology, Strategy & Leadership, Vol.30, No.6, pp.5 -12. Grant, R M., 2005, Cotemporary strategy analysis, Blackwell publishers. Ho, Jonathan C., Lee C S., 2008. The DNA of industrial competitors: Research-Technology Management, Volume 51, Number 4. Paley, N. 2006. The managers guide to competitive marketing strategies, Thorogood publishers. Porter, M E., 2004. Competitive advantage, Free Press, New york. Whitington O R. and Delaney P R. 2007. Wiley CPA Exam Review, Business environment and concepts. About the authors in brief Bruner et al. are faculty members of the prestigious Darden School at the University of Virginia. Robert F. Bruner, DBA, is winner of many awards of excellence in case-teaching and case studies, focusing on capital structure management. Mark R. Eaker, PhD, is a founding partner of Sir Management Corporation, an investment firm in New York, Tough at Duke SMU, The University of North Carolina and The Institute Thesis, France. R. Edward Freeman, PhD, is author of several well known books on business ethics and strategic susiness. Robert E. Spekman, PhD, is a leading contributor in the field of business-to-business marketing and strategic alliances and also, an editor and author of over eighty articles and papers. Elizabeth Olmsted Tiesberg, PhD, is an economist, with expertise in innovation, new product development & strategy in the high-tech and healthcare industries. Finally S. Venkataraman, a Director of research in The Darden School, and a consultant in entrepreneurship and competitive strategy. Liam Fahey is a professor of strategic management and a leading thinker in the fields of competitor analysis, competitive strategy, strategic marketing, and scenario learning. Read More