If you want to increase your company’s success, it’s important to fine tune your understanding of competitors. These key players have a large impact on your ability to win market share and boost revenue potential. Acquiring new skills to help you think like your competitors will help you anticipate your competitor’s next move.
Focus on Strategy
A competitor of similar assets and size might have strategies like your own organization. The McKinsey Quarterly calls this "symmetric competition." However, if your competitors have different market positions, assets and resources, you won’t react identically to the market conditions. This is called "asymmetrical competition" and your strategies are likely to be different in this situation. In order to understand your competitor’s strategies, identify if your largest competitors are symmetric or asymmetric competitors.
For example, McDonald's and Burger King are leading competitors in the market. However, when responding to the backlash from obesity, the companies select two very different strategies. McDonald's created a variety of new healthier products to address the concerns of consumers and the government. Smaller fast food organizations, like Burger King, however, choose to shift marketing focus to less conscious consumers. Since they didn’t hold as strong of a market position as McDonald's, the organization’s strategy was different.
Resource Based Strategy View
Companies should evaluate their competitors’ strategies by using a resource-based view of strategy. Resources generally have three categories; tangible assets, which include physical assets or technology, intangible assets which are a company’s brand and reputation among consumers and market position. A company’s ability to exploit opportunities better than you also plays a role in their strategy.
For example, think about Microsoft and Sony in the video game consol market. Each company is working towards dominating the next video console game system. Both organizations are looking to replace consumer electronic devises, such as the DVD player and MP3 player. However, each company’s strategy is different, based on which products they currently offer consumers. For example, Sony’s existing business includes consumer electronics. Therefore, the importance of establishing Sony’s new console as a living room hub is important to the company’s existing product lines. Since Microsoft has products in the software business, it’s critical to establish their console as a digital living room hub with software to protect the company’s existing business. Each company shapes their strategy to preserve existing products and revenue streams.
Get into a Competitor’s Mind
Anticipate your competitor’s next strategic move by thinking like a corporate decision maker. These decisions don’t always align with corporate objectives, so you need to take a new approach to anticipate strategy. You must first understand who will make the decisions and how that person’s objectives and incentives play a role in those decisions. Owners and top managers are usually the people who make the decisions. Frontline managers, however, are usually more heavily influenced by pricing and service decisions.
Owner’s decisions might be controlled by values, relationships or family history with the business. Top-level management decisions, however, might be influenced by business style. For example, top-level managers might favor experimentation in a new market and more operation accountability. By studying decisions made by top executives in the past, you will anticipate decisions patterns.
General manager decisions, however, are different. For example, let’s say the organization wants to replace an existing product with a new and improved version. If the existing product is still performing well, a general manager might not want to take the risk. He might want to continue enjoying the rewards of the existing product’s performance. His strategy might include waiting to introduce the new product until the well-performing product’s sales start to decline.
Reshape your Views
Once you understand your competitor’s strategy options, it’s important to understand how the organization would evaluate these options. Hold brainstorming sessions, where strategists pretend to be the organization making the competitor’s decisions. Use information from your frontline employees, study the competitor’s blogs, learn about current promotions or sales tactics to shape your decisions. When possible, establish information sharing agreements with your business partners. For example, suppliers might give you a heads up if a competitor price adjustment is scheduled. Based on this exercise, your company can make reasonable forecasts of what the competitor will do in the market conditions given their resources. Then, you can evaluate what your competitor actually does. If the organization does something different than you forecasted, study the decision for future strategy decisions.
In the current business environment, companies need to be more aware than ever of their competitor’s strategies for decision making. Accurately anticipating your competitor’s next move will assist in making better decisions and getting an edge in the marketplace. As a result, you have fewer surprises from competitors and more opportunities to grow your business.
Resource
Hugh Courtney, John T. Horn and Jayanti Kar. "Getting into your Competitor’s Head." The McKinsey Quarterly, 2009.
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Hard Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition” and “Selling Your Business The Practical Guide to Getting It Done Right”. For more information, contact him at 770.399.9512 or by email.
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