Given an analysis of a competitor’s future goals, assumptions, current strategies, and capabilities, we can begin to ask the critical questions that will lead to a profile of how a competitor is likely to respond.
1. OFFENSIVE MOVES
The first step is to predict the strategic changes the competitor might initiate.
- Satisfaction with current position. Comparing the competi-tor’s (and its parent company’s) goals with its current position, is the competitor likely to attempt to initiate strategic change?
- Probable Based on the competitor’s goals, assump-tions, and capabilities relative to its existing position, what are the most probable strategic changes the competitor will make? These will reflect the competitor’s views about the future, what it believes its strengths to be, which of its rivals it thinks are vulnerable, how it likes to compete, the biases brought to the business by top manage-ment, and other considerations suggested by the preceding analysis.
- Strength and seriousness of moves. The analysis of a com petitor’s goals and capabilities can be used to assess the expected strength of these probable moves. It is also important to assess what the competitor may gain from the move. For example, a move that will allow the competitor to share costs with another division, there-by dramatically changing its relative cost position, may be a lot more significant than a move that leads to an incremental gain in market-ing effectiveness. An analysis of the probable gain from the move coupled with knowledge of the competitor’s goals will give an indi-cation of how serious the competitor will be in pursuing the move in the face of resistance.
2. DEFENSIVE CAPABILITY
The next step in building a response profile is to construct a list of the range of feasible strategic moves a firm in the industry might make and a list of the possible industry and environmental changes that might occur. These can be assessed against the following criteria to determine the competitor’s defensive capability, with inputs com-ing from the analysis in previous sections.
- To what strategic moves and governmental, macroeconomic or industry events would the competitor be most vulnerable? What events have asymmetrical profit consequences, that is, affect a competitor’s profits more or less than they affect the initiating firm‘s? What moves would require so much capital to re-taliate against or follow that the competitor cannot risk them?
- What moves or events are such that they will provoke a retaliation from competitors even though retaliation may be costly and lead to marginal financial performance? That is, what moves threaten a competitor’s goals or position so much that it will be forced to retaliate, like it or not? Most competitors will have hot buttons, or areas of the business where a threat will lead to a dispro-portionate response. Hot buttons reflect strongly held goals, emo-tional commitments, and the like. Where possible, they are to be avoided.
- Effectiveness of retaliation. To what moves or events is the competitor impeded from reacting to quickly and/or effectively given its goals, strategy, existing capabilities, and assumptions? What courses of action might be taken in which the competitor would not be effective if it tries to match or emulate them?
Figure 3-3 presents a simple schematic diagram for analyzing a competitor’s defensive capabilities. The left-hand column lists first the feasible strategic moves some firm might make and then the envi-ronmental and industry changes that could possibly occur (including probable moves by competitors). These events can then be subjected to the questions listed across the top. The resulting matrix should help pick the most effective strategy, given the reality that competi-tors will respond, and can facilitate rapid response to industry and environmental events that will expose a competitor’s weaknesses. (Concepts for making competitive moves are discussed in detail in Chapter 5.)
FIGURE 3-3 A Scheme for Assessing a Competitor’s Defensive Capability
3. PICKING THE BATTLEGROUND
Assuming that competitors will retaliate to moves a firm initi-ates, its strategic agenda is selecting the best battleground for fighting it out with its competitors. This battleground is the market segment or dimensions of strategy in which competitors are ill-prepared, least enthusiastic, or most uncomfortable about competing. The best bat-tleground may be competition based on costs, centered at the high or low end of the product line, or other areas.
The ideal is to find a strategy that competitors are frozen from reacting to given their present circumstances. The legacy of their past and current strategy may make some moves very costly for com-petitors to follow, while posing much less difficulty and expense for the initiating firm. For example, when Folger’s Coffee invaded Max-well House strongholds in the east with price cutting, the cost of matching these cuts were enormous for Maxwell House because of its large market share.
Another key strategic concept deriving from competitor analy-sis is creating a situation of mixed motives or conflicting goals for competitors. This strategy involves finding moves for which retalia-tion, though effective, would hurt the competitor’s broader posi-tion. For example, as IBM responds to the threat of the minicom-puter with its own minicomputer, it may hasten the decline in growth of its large computers and accelerate the changeover to minicomput-ers. Placing competitors in a situation of conflicting goals can be a very effective strategic approach for attacking established firms that have been successful in their markets. Small firms and newly entered firms often have very little legacy in the existing strategies in the in-dustry and can reap great rewards from finding strategies that penal-ize competitors for their stake in these existing strategies.
Realistically, competitors will not often be completely frozen or even torn by mixed motives. In this case, the questions posed above should help to identify those strategic moves that will put the initiat-ing firm in the best position to fight the competitive battle when it comes. This means taking advantage of an understanding of compet-itor goals and assumptions to avoid effective retaliation whenever possible and picking the battlefield where the firm‘s distinctive abil-ity represents the most formidable artillery.
Source: Porter Michael E. (1998), Competitive Strategy_ Techniques for Analyzing Industries and Competitors, Free Press; Illustrated edition.