Nowadays

Nowadays

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Nowadays

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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they define the industry and its boundaries. Clark and Montgomery
(1999) say that “an understanding on how managers construe their
competitive environment is highly relevant to any understanding of
competitor interaction.” The problem with most competitive analysis is
that they tend to focus on well-established companies while ignoring
potential competition from other companies and thereby limiting the
scope of the analysis. Competitors are not only companies with same
goals, structure and/or resources. They can be smaller and ‘invisible’
but viable companies, possibly coming from abroad as well. With
globalisation and industry changes, the number of potential
competitors is consequently growing. An example illustrating this
weakness is Apple which did not consider IBM as a potential threat
when IBM made its entrance in the PC market. This was a fatal mistake
on the part of Apple as IBM went on to rule the market in the
forthcoming years.

Weaknesses coming from the models themselves can be related to those
two above. Managers have to keep in mind that the different models
used only provide a snapshot of the current state of the industry. It
means that models have to be reanalysed after a period of time as they
assume the environment to be relatively static. Flower (2004) states
that “these relatively static structure do not fit well with today’s
rapid changes in technology.”

Managers should not only lay emphasis on their competitors’ visible
functions. Ignoring the less visible aspects of their competitors
leads to an incomplete set of strengths and weaknesses. This would
result in the company underestimating the competences of its rivals
and this would eventually lead to a late realisation of the
competitors’ strategic moves. Data may not be easy to collect and
evaluate as the value of some competences is not easy to measure.
Indeed, it is difficult to analyse till which point they contribute to
the success of a company. Bagshaw (2000) states that “traditionally,
companies have been valued according to their tangible assets, such as
property and equipment. This is still important, but the intangible
assets such as knowledge, brand and relationship with the customer,
are coming into their own.” An example of this weakness is that IBM
and Merck laid importance on the advantage they could gain from their
“specialised skills and capability of their personnel.” (Zahra and
Chaples)

It is also important for a manager not only to focus on where the
other firms compete but how they compete as well. This issue deals
with how competitors use their skills to position themselves. This
point is closely linked with the one above as when a firm has outlined
and evaluated the visible and invisible functions of its rivals, it
has a more precise knowledge on its competences. Zahra and Chaples
(1993) underline the fact that forecasting rivals’ decisions and
intent is not easy, but managers have to focus on what their rivals
can do with their skills. An example is Motorola and Texas Instrument
which used new technology to compete on different market segments
whereas their competitors thought they would not extend further than
their initial market segment.

Related to the competences of the firms and on how they compete, some
prominent weaknesses that need to be addressed is that models are
often over simplified and can be applied to simple market structure,
with industries having single products. Nowadays with the dynamic
environment, companies diversify themselves, compete on more diverse
segments and can have different strategies according to the countries
in which they are implemented, the type of customers etc, which means
that models have to be applied to the different business units of the
rivals. The frameworks also do not directly underline why and how some
companies manage to sustain their position and others do not. They do
not also provide any precise advice at the end of the analysis.
According to Fleisher and Bensoussan (2003), “analysis will not give
the decision maker specific answers”, but provide simple advice such
as carrying on the activity, stopping it or diversifying it.

In analysing competition, managers can have faulty assumptions about
their competitors. It means that what they think about another one in
term of behaviour, actions etc can not reflect the reality (anymore).
However, assumptions are made because data about competitors are not
always available or up to date or because of the companies fail to see
the need to make constructive assumptions: for instance, Zahra and
Chaples (1993) underline the possible dogmatic belief of some managers
and/or the influence of the organisational culture and /or the way
companies are viewing competition. They give an example of the US
producers assuming that the only advantage their Japanese competitors
had over them was low wages. They then relocated part of their
production in order to gain this advantage. They ignored the
technological and production improvements which formed the actual
basis of their advantage.

Another factor that needs attention is the data collected, their
analysis and interpretation. Managers may focus on collecting too much
data, leading to the problem of identifying which are relevant for the
analysis and which are not. The result of this process is also a
problem in analysing and interpreting them. This leads to a confusing
and unclear analysis. Liu (1998) states that “the increased
availability of information threatens to exceed our abilities
(especially intuitive managing and understanding capabilities) to
quickly sort and choose, to find the right information, and more
importantly, to absorb and understand properly its implications.” This
weakness is a consequence of a poor definition of the industry
boundaries and rivals’ competences. Zahra and Chaples (1993) give the
example of Procter and Gamble that tested and retested over and over
their new cookies even when the initial tests were successful. They
then had to face stronger competition when they launched the products
because of the loss of time.

Keeping in mind the above flaw, it is essential that the focus and the
scope of the analysis should be in accordance to the different models,
taking into consideration constraints such as time, money and skill
that vary with different organisations and models. If not evaluated,
they can clearly limit the extent of the analysis (even if they
already do it as time and money are limited resources), which can have
a relevant impact on the work. Prescott and Grant (1988) in A
Managers’ Guide for Evaluating Competitive Analysis Technique evaluate
the different techniques a manager can use along several dimensions.
Their table sums up the different criteria among them the constraints
cited above. Resources required for the different models vary
depending on the requirements of the models and their decision
criteria. It is important to evaluate them in order to avoid
stagnation and obtain qualitative results.

As a conclusion, analysing competition is not a simple task. If well
orientated, its benefits are numerous as it enables a better
understanding of the business environment; however managers have to be
vigilant when doing so. Some weaknesses come from the definition of
the different variables and their interpretation of the data
collected. If they fail in precisely setting some basis, it will lead
to an incomplete and/or inaccurate analysis of the situation, their
industry and competitors, thus leading to incorrect decisions (some of
them can be disastrous for the future of the company) as well as loss
of time and money. Weaknesses also come from the models. They require
current and specific data which is not easily available.

Despite the advantages a company gains by analysing competition,
Harari (2004) states that competitive analysis must not hypnotize
managers. “The successful organisation conducts brief periodic scans
that include what today’s competitors are doing, but the primary
attention is on doing whatever it takes to lead the race.”

References and bibliography

E-journals

· Bagshaw M. (2000) Why knowledge management is here to stay in
Industrial and Commercial Training, volume 32, issue 5

· Clark B.H. and Montgomery D.B. (1999) Managerial Identification of
Competitors in Journal of Marketing, volume 63, issue 3

· Feurer R. and Chaharbaghi K. (1994) Defining Competitiveness: A
Holistic Approach in Management Decision, volume 32, issue 2

· Flower E. (2004) Competition, Technology and Planning: Preparing for
Tomorrow’s Library Environment in Information Technologies and
Libraries, volume 23, issue 2

· Harari O. (1994) The hypnotic danger of competitive analysis in
Management Review, volume 83, issue 8

· Liu S. (1998) Strategic scanning and interpretation revisiting: Part
1: understanding the concept and context of strategic scanning in
Industrial Management and Data Systems, volume 98, issue 7/8

· MacAvoy R.E. (1983) Corporate Strategy and the Power of Competitive
Analysis in Management Review, volume 72, issue 7

· Panagiotou G. (2003) Bringing SWOT into focus in Business Strategy
Review, volume 14, issue 2

· Prahalad C.K. (1995) Weak Signals Versus Strong Paradigms in Journal
of Marketing Research, volume 32, issue 3

· Prescott J. and Grant J (1988) A Manager’s Guide for Evaluating
Competitive Analysis Techniques in Interfaces, volume 18, issue 3

· Zahra S. and Chaples S. (1993) Blind spots in competitive analysis
in Academy of Management Executive, volume 7, issue 2

Books

· Fleisher C.S and Bensoussan B.E. (2003) Strategic and Competitive
Analysis, Prentice Hall, New Jersey
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