rief Guide the Basic Principles of Competitive Intelligence Essay Sample
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rief Guide the Basic Principles of Competitive Intelligence Essay Sample
This guide to competitor analysis is by its nature, elementary and is a summary and precursor to a more detailed article published in Business Information Review in June 2002. (This can be accessed from our CI Articles request form). There are also many books on the subject – covering everything from finding information on competitors, to analysing the information and finally using it in business strategy. We list a number of titles on our recommended books pages – (for example the classic texts on strategy by Michael Porter – Competitive Strategy and Competitive Advantage). We can also help you in most aspects of CI offering research and analysis services, as well as training and CI workshops so that you can learn how to do CI effectively yourself. However, enough of the preamble…. Introduction
No business is an island. For success, the business will need to deal with customers, suppliers, employees, and others. In almost all cases there will also be other organizations offering similar products to similar customers. These other organizations are competitors. And their objective is the same – to grow, make money and succeed. Effectively, the businesses are at war – fighting to gain the same resource and territory: the customer. And like in war, it is necessary to understand the enemy: * how he thinks;
* what his strengths are;
* what his weaknesses are;
* where he is vulnerable;
* where he can be attacked;
* where the risk of attack is too great….
and so on. And like in war, the competitor will have secrets that can be the difference between profit and loss, expansion or bankruptcy for the business. Identifying these secrets is thus crucial for business survival. But all this is not new… Sun Tzu and the Art of War
Around the year 500 BC, the great Chinese military strategist, Sun Tzu wrote
a treatise on the Art of War. From a 21st century perspective, many of Sun Tzu’s approaches would be viewed as barbaric today. Nevertheless, his views on strategy are still relevant today – for both military commanders and business leaders looking at how to win against competitors. For instance: If you are ignorant of both your enemy and yourself,
then you are a fool and certain to be defeated in every battle. If you know yourself, but not your enemy,
for every battle won, you will suffer a loss.
If you know your enemy and yourself, you will win every battle. Who is a competitor in business?
Business competitors are:
* Other organizations offering the same product or service now. * Other organizations offering similar products or services now. * Organizations that could offer the same or similar products or services in the future. * Organizations that could remove the need for a product or service. Why monitor competitors?
By knowing our Competitors we may be able to
predict their next moves,
exploit their weaknesses
and undermine their strengths.
Customer’s usually know the differences between companies – their good points and bad points. They know that company A is cheaper than company B and that company C has a better after-sales service. For a business to operate in a market and not know the same, and more, is tantamount to giving up the battle without even starting. As Frederick the Great said: It is pardonable to be defeated, but never to be surprised
So what is involved?
There are four stages in monitoring competitors – the four “C”s: * Collecting the information (with a first stage – deciding what to collect) * Converting information into intelligence
(with three steps: CIA -Collate and catalogue it, Integrate it with other pieces of information and Analyse and interpret it) * Communicating the intelligence.
* Countering any adverse competitor actions – i.e. using the intelligence. One mistake a lot of people make is to start by collecting information without thinking how the information will be used. There is no value in information that will just sit on a shelf. If it cannot be used to inform the business’s strategic or tactical decisions then the time, money, and effort spent collecting it is wasted. * The business may be planning a new product – so information on what competitors are doing in the same area will help in the decision processes and plans for this new product. * Alternatively, the business may be looking at how the industry will develop over the next 5 or 10 years. * Or perhaps the board is looking at a potential merger, acquisition or business partnership. The information requirements for each of these business decisions will be completely different and so the information that should be sought will also be different. Thus before starting to search for information the competitor analyst needs to sit back and define what they are looking for and why.
They need to identify the key areas of concern for the business decision makers requesting the information, and aim to satisfy these. Other information may be interesting, but unless it helps the decision process it should be viewed as superfluous, and stored for use at another time or even ignored if it is unlikely to ever have value. (As an example, it is generally not necessary to know the name of the CEO’s children to understand how the CEO makes decisions.) Thus, rather than collecting information in a random or haphazard manner, the search needs to be focused and planned, and aimed at answering the various intelligence requirements of the business (often termed key intelligence topics, or KITs). Collecting competitor information
Information will come from a variety of sources, both within the organization and external to it. * Sales representatives deal on a daily basis with customers – and will hear what the competitors have been doing. They are the business foot soldiers – with the ear to the ground who can forewarn management about impending enemy campaigns. * Research & Development may come across new patents. * Purchasing may find out that a supplier is now also supplying a competitor. * Market research can give feedback on the customer’s perspective …but these are just examples of where information can come from. Information can also be found on the Internet itself – most companies are now advertising their services and some specialise in offering information that can be used for competitor research. Among the best are D&B (Dun & Bradstreet) with a database of over 30 million companies world wide. If you need to know about both private and quoted companies this is one of the best sources. Few other companies offer the same global scope – although some local companies will give D&B a run for its money for single country information.
For public companies, there is also the D&B subsidiary, Hoovers, which holds considerable information – much of it free. Patent information can be obtained from companies such as Thomson Scientific’s patent service (formerly known as Derwent Information) or from local patent offices. And global press information is available from databases made available by companies such as Dialog (also from the Thomson group), Lexis-Nexis and Factiva. There are numerous other web-sources – discussion forums, web-logs (blogs), podcasts, protest groups, customer and governmental sites and so on. We include some of the web-sources we use to search for competitor information on our CI Sources links pages. You can also find information at trade shows and conferences, and by interviewing industry experts, your competitors’ customers and suppliers, ex-competitor employees – or even the competitor although there are ethical issues involved when obtaining information from some of these sources. From information to intelligence
Having scanned the press, searched the Internet, spoken to the sales force, customers, suppliers, Uncle Tom Cobbley and all, there should now be a large pile of data on your competitors. Unfortunately much of this data will be repetitious, out of date, wrong or inaccurate, misleading, or incomplete. However like a jigsaw, each piece can help build up the compete picture. And even if some pieces are missing, you can often get a good idea of what the real picture actually is – even if other pieces are damaged and not all remaining pieces fit perfectly. For example, * the company report can give an idea of a company’s health – which will be enhanced by information from trade suppliers, trade press articles, and credit information agencies such as D&B; * Patents give an idea of R&D activity;
* Trade press gives an idea of marketing activity.
And of course there are specialist organizations such as AWARE that have the techniques to dig deeper and get information that can lead to an idea of competitor strategy and future trends. All this information needs to be collated – with any links and commonalities highlighted. The information will need to be indexed and catalogued – so that when new information comes along, it can be quickly linked to similar information that had previously been found. It may be stored in a custom-built or dedicated competitor database accessible via the company Intranet – although it can also be stored in much less sophisticated forms. Finally, the relevance and importance of each piece of information needs to be interpreted and analysed – on its own and in conjunction with other information, the other pieces in the jigsaw. This is where information starts to become intelligence. Communicating the intelligence
Many companies are overly secretive, protecting information that all their customers and competitors already know. Secrecy is important. It can be extremely dangerous to let a competitor know about the new product being developed. However, letting the sales force attempt to sell products without a full awareness of their products’ strengths and weaknesses relative to the competition is like sending them out with one arm tied behind their back. They will be unable to answer objections and comparisons convincingly, and thus are less likely to make the sale. And if the competitor product is that much better then shouldn’t marketing, or product development be looking at ways of improving one’s own product – rather than hiding the damaging news ostrich like? Competitor intelligence needs to be evaluated and selectively communicated to all who need to make decisions based on what customers, suppliers, or other companies in the market are doing or are likely to do. And in today’s world, that usually means everybody. The worker in the factory needs to know why production processes have changed from what was always done if he is to believe in management. The Mushroom theory of management (keep ’em in the dark!) has always had its adherents but has not usually succeeded in the long term. Countering Competitor actions
Having identified what competitors are doing, battle can be entered.
Sometimes the battle will be vicious – especially when two competitors have been slogging it out for years. (Pepsi vs. Coca Cola; Procter & Gamble vs. Unilever). Various military strategies have been used to describe different approaches to beating competitors – flanking strategies, encirclement and siege strategies, frontal attacks and even guerrilla marketing tactics. However it should always be conducted within the law. Although it is tempting to use underhand ways of gaining an advantage, certain activities may result in a prison sentence as well as extremely damaging publicity, loss of goodwill and loss of revenue. Collecting Information on competitors can be likened to prospecting for gold. Nuggets are a rarity. The prospector will need to sift through a lot of soil, to find the few grains of gold which make the task worthwhile. Occasionally, the prospector will even be tricked by iron pyrites – or “Fool’s gold”!
Similarly, some of what is collected on competitors will turn out to be useless. Sometimes the information may be completely wrong and lead the unaware on the wrong path. However with experience, this is less likely, as with the skilled gold prospector and “Fool’s gold”.|
Competitor Analysis. . . . Keeping Ahead Of The Game
A recent survey of businesses in the USA on their approach to understanding the operations of their competitors identified two categories of company, eagles and ostriches. Eagles analyse their rivals, and assume these rivals are doing the same; and ostriches, well, they’re just content to focus on their own affairs. Few companies can survive without some basic knowledge of their competitors, such as the products or services they sell and, crucially, the price they sell them at. Yet relatively few small and medium sized enterprises invest in a thorough analysis of their rivals, mainly due to a lack either of resources or an appreciation of how this can be carried out. As awareness of the benefits of gathering this information grows however, more and more businesses are investigating how to go about it. What Is Competitor Analysis?
Competitor analysis (‘CA’) is the in-depth study of one or more rivals (or potential rivals) to gather information on their structure, strategies,
strengths, weaknesses and future directions. This information is then used to make informed decisions about everything from marketing to long term business strategies. CA goes beyond the type of B2B research that most companies will already be engaged in to varying degrees, such as reading trade papers or obtaining rivals’ sales literature – although the systematic gathering of information from published sources is an important element of it. It involves extracting and piecing together the inside information your competitors really don’t want you to get your hands on. The most effective technique to achieve this is the skilful interviewing of people connected with the company concerned – without alerting them to your motives. It’s a highly specialised discipline, and while increasing numbers of very large companies are employing their own in-house competitor analysis professionals, for the vast majority of businesses the most practical option is to use specialist agencies. CA Or CI?
Most of the literature on this topic refers to ‘competitive intelligence’ (‘CI’) – in many ways the terms CI and CA are interchangeable. CA can be viewed as a highly specialised subset of CI, as the latter covers a broader spectrum of activity to monitor aspects of competitive environment including general industry, economic and regulatory trends.
There are various approaches to gaining and maintaining the edge over your competitors. At one level this can mean ensuring that your products and services are actually better than theirs. At another it can mean ensuring you are better at marketing your products/services, even if they are very similar to those of your rivals. But succeeding in these areas requires you to actually know how your competitors are operating. Certain basic information about them – their products/services, list prices and the features/benefits they are pushing to clients – can be obtained relatively easily. This at the very least gives you a starting point for positioning your prices appropriately, and setting out your selling points. But it stands to reason that the more you know about your competitors, the better equipped you are to stay ahead of them. This is particularly true of CAD, which is a mature market where Resellers need to be innovative to remain competitive. However, if you try to dig out inside information yourself on competitors’ strengths and weaknesses the barriers can go up; for example it is simply not in the best interests of a potential customer to tell you the exact price they paid for the product or service of your closest rival. Independent, external B2B research is usually more effective in producing accurate, unbiased responses. If…
…you had access to information on your main competitors on some or all of the following areas: * structure, strategy, motivations and objectives
* financial and operating analysis, eg. return on sales, gross profit margin etc. * marketing strategy, eg. messages and tactics, price flexibility, new services or products, distribution models used, names of key customers * market perception, eg. why their customers buy from them and their satisfaction levels i. e. what are your competitors’ best practices and key strengths? * future directions
… then you would be in a strong position to:
* understand their mission and objectives and develop your own accordingly * develop realistic sales targets through understanding the scale of their operations and turnover * implement product/service improvements to counter strengths/weaknesses and innovations in their product portfolio * position your prices appropriately
* target your direct sales policies through knowing their distribution channels * offer competitive discounts and payment terms
* develop an appropriate marketing communications strategy in response to their messages and where they put them across * strengthen your products/services and marketing strategy by adopting and adapting the best practices observed in your competitors’ armoury. Not in a blind ‘copy-cat’ way, but creatively shaping those practices to your own circumstances In the CAD market, price tracking studies might prove particularly valuable to enable Reseller to keep abreast of price trends. Similarly an analysis of competitors’ added value services (such as engineering drawing bureaux or e-commerce facilities) will pinpoint areas for service improvement. This is what CA is all about – enabling you to significantly improve your own performance by really targeting resources where they will have most impact. How Is It Done?
The straightforward element of CA involves gathering information from publicly available sources; probing beyond this however needs to be conducted very carefully to avoid alerting a competitor to your interestand intentions. Before you decide to invest in any such analysis you should ask yourself some key questions. * What do we need to know?
* What do we already know?
* How much will it cost to get it?
* What could it cost not to get it?
Answering the question ‘what do we already know?’ will help to inform the parameters you set for the first question. It is important at an early stage to make sure you have pulled together all the existing knowledge you have gathered from trade papers, websites etc, plus the titbits gleaned through conversations with suppliers, sales people and so on – if you decide to bring in an outside specialist you don’t want to pay for information you already have. While there are additional sources of recorded information that can be explored (such as commercial databases), speaking to people with inside knowledge is the most effective way to penetrate beneath the facade of the competitor. According to the information you want, these might include actual employees, ex-employees, industry experts, suppliers, customers and so on. Gathering information in this way is fraught with difficulties, and requires a creative mind and lateral thinking to overcome obstacles and avoid detection. CA professionals will not give away the tricks of the trade easily, but skilful interviewers are able to structure their approach and frame their questions in such a way as to elicit huge amounts of invaluable information.
An 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
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. 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 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: “The Five Forces”
Benchmarking and competitive evaluation
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 provided by Gegen CIS.
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: Ignore
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.
Case study 1. Company A, the market leader in sales for a type of computer hardware, was concerned over Company B’s aggressive pursuit of its market share. As a specialist agency, The Business Advantage Group Plc was commissioned to investigate Company B’s operations in several European countries, including their distribution models, profit margins, strategies, strengths and weaknesses. Numerous people were ‘interviewed’ in the information gathering exercise including Company B’s customer service personnel, sales representatives, senior managers and telephonists. Their distributors and resellers were also interviewed in depth. The resulting information and recommendations enabled Company A to reshape its marketing strategy, and re-structure its pricing matrix to counter Company B’s strengths and target their perceived weaknesses. Company A has since started to see an increase in their market share. Case study 2. A leading telecommunications manufacturer wanted a better understanding of six of its main competitors. A detailed study was carried out by Business Advantage which examined the following areas for each competitor: * company overview, structure and strategy
* financial and operating analysis
* current product range
* new product developments
* key service provisions
* pricing structure
* quality issues
* market perceptions
* distribution and sales strategy
* marketing communications strategy and tactical implementation * overall strengths and weaknesses
With an accurate assessment of their leading competitors, our client re-shaped some fine points of its overall marketing strategy and then implemented plans aimed specifically to counter competitive strength and exploit weaknesses. The outcome? Increased revenues and an enhanced market position. Ethical Questions
CA should not be confused with espionage; almost all the information needed can be gathered by examining published sources, interviewing or other legal, ethical methods. There are certainly grey areas, both between what could be considered ethical and non-ethical, and legal and illegal – but the consequences of stepping over the line can be severe in terms of business reputation and punishment by law. Not that that prevents some companies from engaging in improper practices; last year in the USA the FBI investigated hundreds of cases under the Economic Espionage Act. The Society of Competitive Intelligence Professionals (SCIP), set up in the USA but now with a branch in London, was established with the goal of promoting CI as a discipline bound by a strict code of ethics. So Who’s Doing It?
As disciplines, CI and CA originated in the USA, and most of the new ideas and supporting technologies are coming from there. ‘The UK and Europe are lagging behind in terms of the numbers of companies actively engaged in analysing their rivals’, explains Annemarie Jago, EMEA Knowledge Manager and CI professional for Arthur Andersen. ‘Most companies are still just waking up to the many justifications for putting resources into Competitive Intelligence. SCIP has a lot of members from the pharmaceutical and telecommunication industries, but representation in the IT sector is growing.’ Annemarie feels this trend will continue: ‘With business becoming ever more competitive and global, companies are recognising that in order to gain and maintain competitive advantage, they must understand what their competitors are doing and formulate a strategy that exploits their rivals’ weaknesses and compensates for their strengths.’
Competitor analysis and competitive advantage
Marketing-orientated businesses need to do more than just meet customer needs. To succeed and prosper, a business also needs to meet customer needs and wants better than the competition. In other words – the business needs to seek competitive advantage. A competitive advantage is a clear performance differential over the competition on factors that are important to customers Competitor actions have a direct effect on the profitability of a business.