Competitive Analysis: The Basic Building Block in Business
Article by Herb Rubenstein
Introduction
Everyone, including for-profit businesses, non-profit organizations, and educational institutions, has competitors. Organizations must be both intelligent (capable of learning) and knowledgeable (informed) about these competitors.
The goal of carrying out a competitive analysis is to identify your competitive advantages and disadvantages. The key is analyzing how to build on the advantages, and minimize the effects of the disadvantages. The practice of analyzing your competition on a regular basis is a key aspect of your company’s ability to create strong sustainability strategies.
Competitive Analyses: Where Do You Begin?
To begin a competitive analysis, your company needs to answer these key questions:
• Who are, and who have been, your competitors? Think very broadly
• What are they doing and how are they doing it? How does it compare to what they’ve done in the past?
• What do you think they will do in the next several years?
• How have they changed/improved
declined in the past several years?
• How do you think they will change/improve/decline in the next several years?
• How have they helped or hurt the organization in the past?
• How do you expect them to help or hurt your organization in the next several years?
The sources of this information are everywhere including the telephone, newspapers, public libraries, your board members. You can also simply ask your competitors these questions directly. Harvey McKay’s business books stress the importance of knowing your competition intimately.
Organizations are not islands. To know where you are in relation to your competitors is important, even critical, to understand your organization’s environment. This means knowing your competitors. It involves being aware of the entire economic landscape. It includes predicting how future events are likely to shape your organization and the organizations of your competitors.
Competitive Advantage
The ASTD (now “ATD:) competitive advantage is defined as “adding more value to your target customers/members/students than your competitors and at a competitive cost.”
Value is a tricky concept. First, value can be either real or perceived. An “increase in value” can be the result of increasing the quality or utility of a product or service, or by producing and delivering the same quality or utility at a lower cost, a faster rate or with greater convenience.
Second, value can never be separated completely from cost. Organizations must often undertake to keep their cost structure in line with an industry cost structure that is forever changing. For example, not only has the Internet cut costs of distributing products, but the “old line” automotive industry has also made great progress in cutting costs in manufacturing.
The result of a competitive analysis can be put in a diagram form, like an atom. At the core of the atom are the strongest, most sturdy competitive advantages that are the hardest to imitate. After identifying your organization’s strongest competitive advantages, list some of its less sturdy advantages. In the atom diagram shown below, these advantages are (and act like) electrons swirling around the core. These “advantages” could easily disappear since competitors can equal them in either a short time or without expending substantial resources. An organization’s relatively “weak” advantage could still represent an area where the company or non-profit is doing great work.
For example, one of MicroStrategy’s strongest competitive advantages is its recruiting of excellent employees (“stars”) and its employee retention ability. MicroStrategy has grown from 150 employees to 950 over a period of three years. It has developed and is successfully implementing a world-class human resource system. It includes a great hiring strategy (talent recruitment) and enormous spending allotments for training (called “boot camp”) and events like cruises and conferences. The focus is on developing a culture that makes it very comfortable for any employee to make any statement to any other employee, even the President.
MicroStrategy utilizes another tactic that we wouldn’t call a “core advantage,” but is still a great one worth noting. The company has approximately $40 million in the bank as the result of a very successful Initial Public Offering of stock in the company in the 90’s. By the end of the decade, its stock price was regularly 2–4 times its initial offering price. Given the ability of other high tech companies to raise substantial amounts of capital and to have strong stock price showings, this advantage is more like an electron rather than a core advantage, since other companies can duplicate it. We would, on the other hand, acknowledge that having $40 million in the bank is a significant advantage for a company over less capital rich competitors.
ASTD, on the other hand, has as its core strengths a longstanding, nationwide network of local chapters, a great publishing track record, highly successful conferences, and an excellent research department. Although it serves its members well with quick response and thorough support, other competitors could match ASTD on its general customer support functions. ASTD identified 88 competitors in its strategic planning book, “The Red Book.” In the ASTD strategic planning process each competitor is listed by name, address, phone number, number of employees, name of senior executive, and a description of what the organization does. This type of complete analysis allows ASTD to determine which competitors pose the greatest competitive threat, and the ones with which strategic alliances should be sought.
Intellectual Property As A Source of Competitive Advantage
Coca-Cola, or any other soft drink brand, has as one of its core competitive advantages is the symbol and packaging for its product. While in Brownsville, Texas the author observed what appeared to be a Coke can with the brand’s lettering and color scheme, but with the writing in Spanish. This can was not a “Coke” can and did not contain the Coke product. Rumor had it that sales of Coke declined significantly before these cans were taken off the market. We have heard estimates of tens of thousands of corporate logo violations annually and we are aware of strong organizational efforts to police intellectual property rights.
The entire body of intellectual property law is designed to allow trademarks, copyrights, and patented information to become core strengths and major assets of an organization. Without these laws, the advantage given by “branding” would be very small and would fly away from an organization as easily as electrons fly away from the nucleus of an atom.
One new strategy of organizations is to conduct an intellectual property audit and appoint a senior officer as “V.P. for Intellectual Property.” Identifying the intellectual property assets of an organization, maximizing their value, and policing the Internet and traditional venues of commerce for violations will certainly become a more heavily used high-growth strategy in the future. Intellectual property has the distinct advantages of distinguishing your organization and its products from all others. This creates loyalty within the organization (among employees and investors) and outside it (among customers, vendors, and the media). Intellectual property has a shelf life that can last hundreds of years with the value increasing over time rather than suffering from diminishing marginal returns. The best competitive analyses will discuss plans for promoting and exploiting the value of your intellectual property rights and will compare how their value stacks up to that of the competition’s.
Significant and longstanding competitive advantage generally comes from several sources (better price and service, for example). Also, an organization must have some large-scale advantage related to its core strengths or competencies. This type of advantage will serve as the key launchpad for development of successful high-growth strategies.
Securing intellectual property protection for logos, inventions and other intangible assets can be expensive. However, it is often this protection that heightens value just enough to catapult that growth strategy into a high-growth, sustainable strategy. A general rule of thumb regarding intellectual property is “If you do not want your competitor to use what you have, protect it with a copyright, trademark or patent in as many markets as you plan to compete in in the future.”
Limiting The Impact of Competitive Disadvantages
It is equally important to analyze an organization’s competitive disadvantages in order to avoid strategic disasters. An entire book could be written just on the topic of competitive disadvantages because they play a pivotal role in limiting or short-circuiting efforts to create high-growth strategies. A few sources of competitive disadvantage include:
• poor geographical location
• lack of market share
• high-cost relative to competitors
• less money, resources, talent, or intellectual capital than competitors
• weaker transportation and distribution systems
• outmoded manufacturing facilities
• less effective, insightful, productive research and development (R&D) programs
• weaker reputation and less publicity/brand name appeal
• less developed organizational infrastructures
• less skilled or trained workers
• inferior management or board of directors
• weaker supply chain management systems
• weaker use of technology
• weak CEO
• limited access to capital
While thinking about an organization’s competitive disadvantages, it is important to get beyond standard measures and categories and analyze why these disadvantages exist, and how to craft strategies that can either improve these issues or limit their adverse impact on growth potential. For example, you may find that your organization has several competitive disadvantages, including that it is less willing than its competitors to:
• take risks
• make good, quick decisions
• change and innovate
• invest in training, employee development and new technology
• modify business models
• seek strategic alliances or enter into joint ventures
• turn suppliers into partners
• get to know its customers by listening
• accept less profit per sale in order to expand total sales
All the areas listed above may be the root causes of your organization’s competitive disadvantages. They need to be dealt with to achieve strength in your organization’s ability to compete effectively. One CEO we interviewed informed us that an organization cannot be strong in any of the areas of marketing, employee recruitment and retention, finance, technology, administration, product development, public relations, or organizational development unless the CEO has been personally well trained in each of them. His view is that a thorough “competitive analysis” must include a careful study of the strengths and weaknesses of the competitor’s CEO. When this company identifies a competitor CEO’s weakness, the tendency is to assume that the entire organization will be fundamentally weak in that area of business. This company then develops its competitive strategy to focus on the area of weakness of the CEO of its competitor.
Prabhu Guptara, Group Director, Organizational Learning & Transformation, Union Bank of Switzerland and Chairman of Advance, Management Training, Ltd. has developed a similar theme over the past 20 years, arguing that no CEO today of any organization of any reasonable size can function properly without a clear understanding and proficiency in all related computer technology. The multi-faceted position of CEO today clearly requires a broad-based set of skills. Organizations whose CEO has a limited, specialized base of skills and knowledge often face a serious competitive disadvantage when competing with more broadly trained and skilled CEO’s.
Evidently, what one person believes is a competitive disadvantage, another person may see as an advantage. However, clarity must be sought in determining whether a particular fact is either advantageous or disadvantageous for the goal in mind. If after careful analysis, there is doubt, ambiguity, or disagreement regarding a particular item, put it in both categories and analyze it accordingly. Of course, whether the glass is half-full, or half empty often depends on whether one is pouring or drinking!
Conclusion
For those of you who think your organization or business does not have competitors, the authors strongly suggest to you that you do have competitors. The De Beers diamond company has an expansive view of its competitors. In a recent advertising campaign, diamonds are prominently displayed, and the caption reads, “New Kitchen… Next Year.” However, if you still do not think your organization has even one competitor in the world, you can still use a form of a competitive analysis that will be useful.
Compare your organization against itself (its past and expected future), or against some ideal or benchmark (numerical goal) that you give your organization. Apply the same techniques in the analysis and compete against “yourself” as you constantly look for outside competitors.