Satisfactory Essays

Nowadays, analysing competition is crucial for managers in order to

understand the environment in which the business evolves, its

competitors (their goals, plans etc) as well as implement strategies

and position their companies. They can use a wide variety of

techniques, each having its strengths and weaknesses. According to

Prescott and Grant (1988), to select the appropriate techniques,

managers have to know the different techniques available, how they are

related to each other, the focus and scope of the area and the

constraints limiting the extent of analysis. To analyse competition

efficiently, they have to combine some of the different techniques

available as they all have a specific aim. However, there are

limitations that managers have to take into consideration in order to

provide a clear and effective work.

This essay outlines and evaluates the main weaknesses when

understanding the business environment. They vary by nature. They can

come from the interpretation of the managers and from the models

themselves. However, they are in relation to each other, one flaw

leading to another one.

When analysing competition, the starting point is to precisely define

the industry the firm belongs to and its boundaries. Managers may

focus on the market of their company, narrowing their definition of

the industry. They then forget or less consider other segments that

can change quickly and have impact on the whole industry. According to

Zahra and Chaples( 1993) “an effective definition of industry

boundaries requires consideration of four interrelated issues: domain

(where does the industry begin and end), customer group (sector to be

served and their specific needs), customer functions (customer need

and specific patterns) and critical technology (production, marketing

and administrative system)”. Each point enables to define the

competition more and more precisely. In addition to these issues,

managers have to take time into consideration. Reviewing their

business’ definition, the shape of the industry and the market over

the time is crucial as industries change. Prahalad (1995) states that

“many industries are undergoing massive transformation. Deregulation,

global excess capacity, global competition, mergers and acquisitions,

changing customer expectations, technological discontinuities […] are

changing industries, creating new industries and opening up new and

large growth markets for existing businesses.” For instance, chemical

companies enter the pharmaceutical industry by making alliances with

young biotechnology companies, not considered as a threat by the

pharmaceutical companies. This change in the industry led the

pharmaceutical companies to redefine the industry and its boundaries

as well as their strategy.

Managers need to be vigilant in identifying its competitors. A poor

identification leads to a wrong positioning and a possible long time

response to the different actions coming from those undetected rivals.

This identification is dependent on the managers’ perceptions and how
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