Understanding the strengths and weaknesses of the enterprise in relation to its competition is essential for both the identification of best strategic options, and the prioritization of investment within operating units. It is basic in assisting the enterprise in answering the three basic questions:
Where are we?
Where do we want to be (and when)?
How are we going to get there cost effectively?
Contingency planning as competitive failure and competitive understanding is vital to risk management
A reduction in the requirement for change management as it steadily moves the enterprise towards higher and higher levels of efficiency and operating performance.
Understanding the scope of the competition
The valuable concept of marketing myopia emphasises the need for the enterprise to define precisely the market sector in which it is operating and the firms against which it is truly competing. Through an analysis of product/ service positioning, the purchase portfolio, the value chain, and substitute behaviour, the essential first step of accurate market definition can be completed.
Knowledge centres, benchmarks and key performance indicators – information systems and action planning
Any competitive assessment must be based on the management of information and responsibility for planning and controlling change. Building competitive understanding into the enterprise is greatly enhanced by the creation of
knowledge centres which focus operational actions on
key performance indicators, benchmarks and targets. As benchmarks are approached the enterprise naturally gains in competitive performance – major gaps between existing levels of achievement and benchmarks will highlight areas for investment, and generate projects for investment appraisal and
action planning and implementation.
With knowledge centers providing the basis for bottom up planning and review throughout the planning cycle (including the planning effectiveness review), problems and opportunities for competitive advancement also become clearer.
Competitive ranking
Any understanding of competitive position must rely on an analysis of ranking against other companies in the relevant sector of the market. As the enterprise ranking improves for each factor, so will the overall competitive position. Ideally, all the data should be quantitative and derive from information collected for industry benchmarks, but because of the broad range of competitive factors subjective assessments will be necessary for several components of a typical competitive analysis.
Such an assessment should certainly be completed for each annual planning session, and for crucial elements where the enterprise is significantly adrift from its benchmark, on a more regular basis.
Starting with critical success factors
Any competitive analysis should start with the critical success factors. Those these vary in detail from sector to sector, a general classification of 12 topics is applicable to all enterprises.
Leadership. The depth and breadth of enterprise leadership will establish its ability to identify and carry through effective strategies and the management of change. Measurements such as the diversity index and the internal satisfaction survey will provide the basis for greater objectivity in measuring leadership effectiveness.
Core competence. The level of skills within the enterprise and its match with the demands of the market will be a vital tool in creating and building competitive advantage. It will be greatly assisted by the development of knowledge centers, a balanced scorecard of objectives based on key performance indicators, and the decentralisation of planning and budgeting.
Stakeholder support. The support of all key stakeholders – employees, suppliers (including financial suppliers), shareholders, and government will be important in ensuring that the enterprise can both survive and more importantly build on its existing competitive advantage.
Focus. Concentration on key customers, suppliers, markets and products will all influence competitive advantage. Analysis of the customer spread ratio, market spread ratio, product spread ratio, product age profile, finance profile, debt allocation ratio, EBITA capital allocation ratio, will all provide clear evidence of the degree of focus within the enterprise.
Awareness. Awareness is vital to all enterprises, as unless they are part of the purchase portfolio they cannot be considered for purchase. An assessment of levels of awareness will depend on advertising research, and be generated by a mixture of market coverage, word of mouth, and promotional investment.
Trial. New customers can only be gained through trial, which defines this as another critical success factor. Levels of trial will depend on a variety of factors including advertising, relative advantage and ease of trial, all of which will require regular reviews of the marketing mix and research feedback through customer panels, market research and mystery shopper techniques.
Repeat purchase. Customers must be maintained for the enterprise to remain stable and grow its overall competitiveness. The higher the level of repeat purchase and the faster the customer transition period from levels of low consumption towards that of an established customer, the better the long term prospects of the enterprise. Measuring such factors as the expectation fulfillment gap through customer satisfaction surveys and other components of the marketing mix against key competitors will be essential to drive higher levels of repeat purchase.
Strategic consistency with market drivers. It is essential that the enterprise controls its response to market forces (PEST) and does not merely react to it. Measuring the degree of existing (and more importantly future) strategic fit will be a vital element in any competitive comparison. The balance between the seven strategic options (do nothing, withdrawal, consolidation, market penetration, market development, product development, diversification) identifying the level of risk that each enterprise is willing to accept.
Risk management. Each enterprise will need to effectively manage risk, with a subjective assessment of past successes and failures providing a reasonable measure of how well each organisation manages risk.
Pricing power. The ability of the enterprise to achieve adequate levels of profitability will be vital, It will be achieved by the inter-relationship of the product/ service offering, the power of the buyers, and the economic leverage of the enterprise. Measurement of pricing power will be seen in pricing elasticity, and overall levels of gross profit.
Financial viability. Financial viability is the essential measure of whether the enterprise will be able to continue to operate. It will be a combination of levels of profit, cash flow, return on capital employed, debt levels and ease of raising additional finance. Comparisons can be easily made with other companies via the analysis of financial data.
Labour productivity. Concentrating on labour productivity as a critical success factor will drive skills, decentralise planning and control and lower costs, all generating significant competitive advantage.
Other factors
A number of other factors will influence competitive advantage and will often be sector specific. Some of these can be identified as possibly being of general application.
Corporate governance. There is evidence linking corporate governance to overall competitive advantage. Measuring the corporate governance achievement level against key competitors will give a clear indication of competitive positioning.
Speed. Speed of response (or time based competition) is considered to be an important lever of competitive advantage in many sectors.
Location. For many service based enterprises, location may be a critical success factor as it will be central to building awareness and achieving trial.
Barriers to entry. The status of barriers to entry may also be of vital importance to many enterprises in creating and maintaining competitive advantage.
Market coverage. Control over the distribution channels and market share percentages may also be an important competitive tool.
Threat of entrants. The threat of entrants may for certain sectors be an important competitive problem.
Threat of substitutes. In common with entrants, the threat of substitutes may also be an important competitive problem in some sectors.
Competitive score
From the combination of competitive importance and ranking a simple table can be developed which clearly defines competitive strengths and weaknesses, opportunities and threats (SWOT), setting priorities for investment. Creating the SWOT analysis in this way enables the planner to transfer the most important elements directly to a chart within the business plan, which can be regularly updated within the planning cycle.
The lower the score, the higher the overall competitive advantage. Using the competitive score as a key performance indicator will allow the enterprise to continuously review its overall competitive advantage and identify trends in specific operational areas.
A summary example can be provided for three elements of a manufacturing company.
Factor
Competitive importance
Ranking
Score
SWOT
Leadership
10
3
30
S (Skilled management in most key areas ) W (Succession planning
lacking in cohesion ) O (Build teams for key projects and identify
potential successors ) T (Loss of top management to competition )
Core competence
10
5
50
S (Marketing and financial teams industry leaders ) W (Production,
new product development expertise limited in comparison to competition )
O (Build up expertise in production/ npd through knowledge center
creation ) T (Higher rates of npd and greater production expertise
leading to lower relative competitive positioning)
Speed
3
10
30
S ( None ) W (Slow response times throughout the enterprise in
relation to competitive performance ) O (Enterprise wide programme to
improve speed ) T (Continued loss to competition through poor customer
service )
Total
110
This chart shows that speed is an area of significant competitive weakness. Though it is not rated highly, the returns on investment may be substantial for an enterprise wide programme for greater responsiveness. This may also influence improvements in core competence. Such synergies are common in competitive analysis.
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