We live in an interdependent business world. In hard times, the success of a company’s strategy often depends greatly on the strategies of its competitors. This strategic interdependence implies that the ability to anticipate your competitors’ strategies is essential.
Yet a recent survey of business executives found that the actions and reactions of potential rivals almost never play a role in, for example, decisions to introduce and price new products.
An important reason for this neglect, we believe, is that strategic-planning tools, such as game theory and scenario planning, are of limited use unless a company can correctly define the key elements of the strategic game, especially the strategic options and objectives of competitors.
This is no easy task. Companies that truly understand what its competitors and their decision makers care about most are rare. With this insight a company could reverse-engineer the moves of competitors and predict what they were likely to do. In a credit crunch, for instance, such a company would be well positioned to buy financial and non-financial assets at attractive prices if it knew that poorly capitalized competitors would avoid new risk and therefore not bid for these assets.
Getting inside your competitor’s head is difficult because companies (and their decision makers) usually are not alike. So if you want to anticipate rather than react to strategic moves, you must analyze a competitor at two levels: organizational and individual.
At the organizational level, you have to think like a strategist of your competitor by searching for the perfect strategic fit between its endowments and its changing market environment.
At the individual level, you have to think like the decision makers of the competitor, identifying who among them makes which decisions and the influences and incentives guiding their choices.
While this approach won’t eliminate surprises, it will help you better understand your competitors and their moves to possibly eliminate some of the guesswork that undermines the development of strategies.
Asymmetric competition
One of the keys to predicting a competitor’s future strategies is to understand how much or little it resembles your company.
In the fast-food industry, for example, two leading players, McDonald’s and Burger King, face the same market trends but have responded in markedly different ways to the obesity backlash.
Burger King has introduced high-fat, high-calorie sandwiches supported by in-your-face, politically incorrect ads. As the dominant player, and McDonald’s has rolled out a variety of foods it promotes as healthy.
McDonald’s is the lightning rod for the consumer and government backlash on obesity. It can’t afford to thumb its nose at these concerns. Smaller players like Burger King, realizing this, see an opportunity to cherry-pick share in the less health-conscious fast-food segment. Burger King competes asymmetrically.
Capabilities come in two categories: the ability both to identify and to exploit opportunities better than others do.
The key to getting inside the head of a competitor making any decision is first identifying who is most likely to make it and then figuring out how the objectives and incentives of that person or group may influence the competitor’s actions.
No matter how thorough and insightful your analysis may be, two things are almost sure to happen: your competitor will make some moves you considered unlikely, and some of your data will quickly become obsolete.
When a competitor acts in unexpected ways, your company has a crucial learning opportunity. Where did you go wrong? Did you undermined the execution of the strategy you thought the competitor would follow? Did the market environment change, creating new threats and opportunities for the competitor? You must diagnose your mistakes, learn from them, and ensure that you use the latest data to develop your point of view.
Learning from your mistakes means managing these competitive-insight activities as an ongoing process for real-time strategic planning and decision making, not as an annual or biannual event in a bureaucratic planning process. Particularly in dynamic markets, where companies have to make decisions constantly, information about competitors must be updated as soon as possible.
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