The increasingly competitive landscape in which any business operates can be broken down into a number of structural forces. Those forces can be analyzed and influenced, to improve the business' competitive position and profitability. We use a comprehensive framework of analytical techniques to help your understand your company's position relative to your competitors, and how to leverage that into increased profitability.
Groups of companies linked by geography operate under the same structural forces. Shopping centers, strip malls and business "nodes" can be analyzed in the same way as the more widely viewed definition of industry. The city of Austin, Texas has been very effective at branding their many small business nodes using much of the same technique.
Groups of companies that share the same customer base likewise are affected by many of the same forces. Actions – primarily promotions – can be taken to increase customer visits, if firms are careful to follow strict legal parameters.
Understand Management's Challenges
Determine the challenge and its magnitude. What are the trends for sales and for costs? What has changed recently on the competitive landscape? Are there new competitors? A loss of market share? A change in customer demographics?
Objective: Understand the goals.
Understand Your Industry's Structure
Examine the major forces influencing the intensity of competition and screen the several dozen sub-forces for relevance in the industry. Examine relevant sub-forces for their magnitude of effect on the industry and those competing within it.
As an example, rivalry among existing competitors is a major structural force that can lower the prices of the competing companies and make them all less profitable as they fight against each other for market share. Slow growth of the industry and the need to add capacity in large increments are two structural elements within that major force. "Small plate" restaurants that are becoming so popular have little to fear from these structural elements and can concentrate their efforts on other structural elements. Companies that use large heat treat ovens or autoclaves, on the other hand, may need to deal with both; one company's purchase of a new oven can increase its capacity significantly, leading to intense rivalry among all companies as they face overcapacity and reduced market share.
Objective: Understand the competitive environment.
Understand the Relative Positions of Your Competitors
Explore the range of differentiation among competitors' products and services, capabilities and strategies.
Understand the assumptions, goals and capabilities of your competitors so you can predict their future actions and especially predict their response to any actions you take. Knowing your competitor's values, financial goals and attitude toward risk can help you develop a more successful strategy. The owner of a business may have a goal of no layoffs during a slow economy, and may cut his rates to "buy" a job to avoid laying off any of his employees. It is also important to consider how your competitors are likely to view your assumptions and goals as an indication of their likely response to your actions.
Objective: Understand your competitors.
Develop a Strategy that Sets You Apart
Competitors are segregated into groups of firms that follow a similar competitive strategy amongst a range of dimensions but can vary greatly in profitability and market share. Determining your competitive strategy can be viewed as the choice of which strategic group to compete in, leveraging your strengths and acknowledging your weaknesses. Just as with industry structure, the profitability of a strategy group is determined by the structural forces acting on it and the level of competition within the group.
The framework of competitive analysis allows you to focus on key strategy elements – one at a time. You may be surprised how easily a strategy emerges when guided through this process.
Objective: Maximize profitability of your company.
Defend Your Strategy
Identify the actions you can take to prevent others from entering your strategy group or by weakening it so as to make it less profitable. An awareness of the strategy elements will enable you to recognize and act upon changes in the competitive landscape before others do.
Objective: Protect your company from profit erosion.
Grow Your Industry or Strategy Group
A rising tide floats all boats. We will look at opportunities to increase profitability of all competitors in an industry or strategy group.
Discussions with your competitors on pricing or other strategy elements are strictly illegal, but publicly signaling your intentions to all of them is not. Commenting in the media on industry conditions if a common signaling technique. For example, telling the media that the fierce price competition in the industry is hurting everyone in the industry may have the effect of lessening that price competition.
Firms sharing a geographic location or customer base can work together for the benefit of all in their group. We explore opportunities for cooperative actions that increase customer traffic to all competitors in an industry or to all companies in a business district, or even the mutually beneficial arrangement of two firms that pull from the same customer base working together to increase customer traffic to both.
Objective: Maximize profitability of an industry or strategy group as a whole.
Review Actual Progress against Goals
Discuss metrics and schedule weekly updates. Establish and implement corrective actions.
Objective:Maintain forward momentum.