Analysis of competition
The third element of Strategic analysis is to look at the competitive environment - what your competitors are doing, where the next technological developments are coming from and the general directions the market is moving.
Competitive and environmental analysis
A competitive and environmental analysis of your markets should include all the key influencing factors that affect the way in which you can compete. A competitive review is important for two reason.
Firstly, even if you know what the customers want and have the resources to meet the customers' demands, it may be that the competitive environment means that it is not worth pursuing particular parts of the market for a whole range of strategic reasons, such as the threat a price war, channel conflict, or legal or ethical considerations.
Secondly, you need to know if your competitors are doing things better than you are, or more dangerously, whether they are looking to change the basis of competition in the market, for instance by moving to a direct sales model, or by introducing some revolutionary new product or technology.
The main types of competitive analysis from a strategic point of view are:
Market Intelligence is the primary mechanism for gathering information about competitors (although some may come from talking to customers in your own market surveys). Notanant is our on-line market knowledge system for collecting, sharing and managing customer and competitor knowledge.
The five forces come from Porter's famous framework and are:
- Power of Buyers
- Power of Suppliers
- Threat of substitutes
- Barriers to entry
The idea is that change in your market is likely to come as the basis of one of these five areas. For instance, buyers may distort the market by forcing prices down, or by deciding to take build products in-house.
In considering how these "forces" act on your markets, you get a picture of issues such as channel conflict, threats from vertical integration, the impact of regulatory change or the advent of new technology. You can also take a view as to how you are or can affect the competitive situation for your own benefit, rather than statically accepting the status quo.
Consequently it becomes possible to play around with different future competitive scenarios and to use these to test different propositions to try and guess how the market will change. Your strategy can then include contingencies and responses to changes that might affect you, or changes that you might make to the market.
Benchmarking is used to ascertain how well you are doing against the competition. Are there areas that you can learn from the competition? Are there ideas in markets outside your own that would be worth bringing into your market to give you a competitive advantage?
Your competitors can also be a source for information about the general market. Their advertising and marketing is telling you something about the messages and approaches that they think are applicable to your market. If they have done their research, you can learn from their approaches.
One common issue that comes from looking at the competition is what do you do about it? The options are:
In practice, if there is merit in something new and you ignore it, it is likely to bite you later. If you fight against it, you add to your costs potentially just to save market share, rather than to win market share.
Consequently often adoption of the competition's good ideas is the best way forward (although perhaps after a little fighting to test whether the ideas are sound). Microsoft's Embrace and Extend and Intel's "Only the Paranoid Survive" are good examples of companies that use the competition to keep their products at the cutting edge.
Often there can internal cultural issues that mean this can be difficult to accept. But learning from the competition, doesn't mean following the competition. This approach, known as an "invest in your threats" strategy, can be an extremely effective way of keeping up with and ahead of the market.
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