The Components of Competitor Analysis

Before discussing each component of competitor analysis, it is important to define which competitors should be examined. Clearly all significant existing competitors must be analyzed. However, it also may be important to analyze the potential competitors that may come on the scene. Forecasting potential competitors is not an easy task, but they can often be identified from the following groups:

  • firms not in the industry but who could overcome entry bar-riers particularly cheaply;
  • firms for whom there is obvious synergy from being in the industry;
  • firms for whom competing in the industry is an obvious ex-tension of the corporate strategy;
  • customers or suppliers who may integrate backward or for-ward.

Another potentially valuable exercise is to attempt to predict probable mergers or acquisitions that might occur, either among es-tablished competitors or involving outsiders. A merger can instanta-neously propel a weak competitor into prominence, or strengthen an already formidable one. Forecasting acquiring firms follows the same logic as forecasting potential entrants. Forecasting acquisition targets within the industry can be based on their ownership situation, ability to cope with future developments in the industry, and poten-tial attractiveness as a base of operations in the industry, among other things.


The diagnosis of competitors’ goals (and how they will measure themselves against these goals), the first component of competitor analysis, is important for a variety of reasons. A knowledge of goals will allow predictions about whether or not each competitor is satis-fied with its present position and financial results, and thereby, how likely that competitor is to change strategy and the vigor with which it will react to outside events (for instance, the business cycle) or to moves by other firms. For example, a firm placing a high value on stable sales growth may react very differently to a business downturn or a market share increase by another company than a firm most in-terested in maintaining its rate of return on investment.

Knowing a competitor’s goals will also aid in predicting its reac-tions to strategic changes. Some strategic changes will threaten a competitor more than others, given its goals and any pressures it may face from a corporate parent. This degree of threat will affect the probability of retaliation. Finally, a diagnosis of a competitor’s goals helps interpret the seriousness of initiatives the competitor takes. A strategic move by a competitor which addresses one of its central goals or seeks to restore performance against a key target is not a casual matter. Similarly, a diagnosis of its goals will help deter-mine whether a corporate parent will seriously support an initiative taken by one of its business units or whether it will back that busi-ness unit‘s retaliation against moves of competitors.

Although one most often thinks of financial goals, a compre-hensive diagnosis of a competitor’s goals will usually include many more qualitative factors, such as its targets in terms of market lead-ership, technological position, social performance, and the like. Di-agnosis of goals should also be at multiple management levels. There are corporate-wide goals, business unit goals, and even goals that can be deduced for individual functional areas and key managers. The goals of higher levels play a part in, but do not fully determine, the goals lower down.

The following diagnostic questions help to determine a competi-tor’s present and future goals. We begin by considering the business unit or division, which in some cases will comprise the competitor’s entire corporate entity. Then we examine the impact of the corporate parent on the future goals of the business unit in the diversified com-pany.


  1. What are the stated and unstated financial goals of the com petitor? How does the competitor make the tradeoffs inherent in goal setting, such as the tradeoff between long-run and short-run performance? Between profits and growth in revenue? Between growth and ability to pay regular dividends?
  2. What is the competitor’s attitude toward risks! If financial objectives essentially consist of profitability, market position (share), rate of growth, and desired level of risk, how does the competitor appear to balance these factors?
  3. Does the competitor have economic or noneconomic organi-zational values or beliefs, either widely shared or held by senior management, which importantly affect its goals? Does it want to be the market leader (Texas Instruments)? The industry statesman (Coca-Cola)? The maverick? The technological leader? Does it have a tradition or history of following a particular strategy or functional policy that has been institutionalized into a goal? Strongly held views about product design or quality? Locational preferences?
  1. What is the organizational structure of the competitor (func-tional structure, presence or absence of product managers, separate R&D laboratory, et)? How does the structure allocate responsibil-ity and power for such key decisions as resource allocation, pricing, and product changes? The competitor’s organizational structure provides some indication about the relative status of the various functional areas and the coordination and emphasis that are deemed strategically important. For example, if the sales department is headed by a senior vice-president who reports directly to the presi-dent, it is an indication that sales is more influential than manufac-turing if manufacturing is headed by a director who reports to the senior vice-president for administration. Where responsibility for decisions is assigned will give clues about the perspective top man-agement wants to bring to bear on them.
  2. What control and incentive systems are in place? How are executives compensated? How is the sales force compensated? Do managers hold stock? Is there a deferred compensation system in place? What measures of performance are tracked regularly? How often? All these things, though sometimes difficult to discern, yield important clues about what the competitor believes is important and how its managers will respond to events in view of their
  3. What accounting system and conventions are in place? How does the competitor value inventory? Allocate costs? Account for in-flation? These sorts of accounting policy issues can strongly influ-ence the competitor’s perceptions of its performance, what its costs are, the way it sets prices, and so o
  4. What kinds of managers comprise the leadership of the com petitor, particularly the Chief Executive Officer (CEO)? What are their backgrounds and experience?2 What kinds of younger manag-ers seem to be getting rewarded, and what is their apparent empha-sis? Are there any patterns in the places from which outsiders are hired into the company as an indication of a direction the company might be taking? Bic Pen, for example, had an explicit policy of hir-ing from outside the industry because it believed it needed to take an unconventional strategy. Are retirements imminent?
  5. How much apparent unanimity is there among management about future direction? Are their management factions favoring dif-ferent goals? If so, this may lead to sudden shifts in strategy as power shift Unanimity, conversely, may lead to great staying power and even stubbornness in the face of adversity.
  1. What is the composition of the board? Does it have enough outsiders to exercise effective outside review? What kinds of outsid-ers are on the board, and what are their backgrounds and company affiliations? How do they manage in their own firms, or what inter-ests do they represent (banks? lawyers?)? The composition of the board can provide clues about the company’s orientation, posture toward risk, and even preferred strategic appro
  2. What contractual commitments may limit alternatives? Are there any debt covenants that will limit what goals can be? Restric-tions due to licensing or joint venture agreements?
  3. Are there any regulatory, antitrust, or other governmental or social constraints on the behavior of the firm that will affect such things as its reaction to moves of a smaller competitor or the proba-bility that it will try to gain a larger market share? Has the competi-tor had any antitrust problems in the past? For what reasons? Has it entered into any consent decrees? Such restraints or even just a his-tory may sensitize a firm so that it foregoes reacting to strategic events unless some essential element if its business is threat The firm attempting to capture a small share of a market from an indus-try leader can enjoy some protection as a result of such constraints, for example.


If the competitor is a unit of a larger company, its corporate parent is likely to impose constraints or requirements on the business unit that will be crucial to predicting its behavior. The following questions need to be asked in addition to those just discussed:

  1. What are the current results (sales growth, rate of return, et) of the parent company! As a first approximation, this gives an indication of the parent‘s targets that may be translated into market share objectives, pricing decisions, pressure for new products, and so on, for its business unit. A business unit performing worse than the parent as a whole is usually feeling the pressure. A business unit of a parent with a long string of unbroken financial improvement will be unlikely to take an action that can jeopardize the record.
  2. What are the overall goals of the parent! In view of these, what are the parent‘s probable needs from its business unit?
  3. What strategic importance does the parent attach to the par-ticular business unit in terms of its overall corporate strategy? Does the corporation view this business as a “base business” or one on the periphery of its operation? Where does the business fit into the par-ent‘s portfolio? Is this business seen as a growth area and one of the keys to the future of the corporation, or is it considered mature or stable and a source of cash? The strategic importance of the business unit will have a major influence on the goals it is expected to meet, and assessing strategic importance is discussed further below.
  1. Why did the parent get into this business (because of excess capacity, need for vertical integration, to exploit distribution chan-nels, for marketing strength)? This factor will give some further in-dication of the way in which the parent views the contribution of the business and the probable pressure it will place on the unit‘s strategic posture and behavior.
  2. What is the economic relationship between the business and others in the parent company’s portfolio (vertical integration, com plementary to other businesses, shared R&D)? What does this rela-tionship imply for special requirements the corporation may place on the unit relative to the way it would behave as a free-standing company? Shared facilities, for example, may mean that the unit is under pressure to cover overhead or absorb excess capacity gener-ated by its sister units. Or if the unit is complementary to another di-vision in the parent, the parent may choose to take the profits else-where. Interrelationships with other units in the company may also imply cross-subsidies in one direction or another.
  3. What are the corporate-wide values or beliefs of top manage-ment? Do they seek technological leadership in all their businesses? Do they desire level production and the avoidance of layoffs to carry out a corporate policy against unions?3 These sorts of corporate- wide values and beliefs will usually have an effect on the business unit.
  4. Is there a generic strategy that the parent has applied in a number of businesses and may attempt in this one? For example, Bic Pen has employed a strategy of low-price, standardized, disposable products produced at very high volumes with heavy advertising to compete in the areas of writing instruments, cigarette lighters, panty-hose, and now razo Haynes Corporation is in the process of ap-plying the L’eggs strategy in pantyhose to such diverse businesses as cosmetics, men’s underwear, and socks.
  5. Given the performance and needs of other units in the cor-poration and the overall strategy, what sorts of sales targets, hurdles for return on investment, and constraints on capital might be placed on the competitor unit? Will it be able to compete successfully against other units in its corporate organization for corporate capital given its performance vis-à-vis these other units and the corpora-tion’s goals for it? Is the business unit either actually or potentially big enough to command the attention and support of the parent company, or will it be left on its own and assigned low priority in terms of managerial attention? What are the investment capital re-quirements of the other units of the company? Given any clues avail-able about the priorities its parent company places on the various units and the amount of funds available after dividends, how much will be left for the unit?
  1. What are the parent company’s diversification plans! Is the parent planning to diversify into other areas that will consume capi tal or which provide an indication of the long-run emphasis that will be placed on the unit? Is the parent moving in directions that will bolster the unit through opportunities for synergy? Reynolds recently purchased Del Monte, for example, which should give a shot in the arm to Reynold’s consumer food businesses because of Del Monte’s distribution system.
  2. What clues does the organizational structure of the compet itor’s corporate parent provide about the relative status, position, and goals of the unit in the eyes of the corporate parent? Does the unit report directly to the chief executive or an influential group vice- president, or is it a small part of a larger organizational entity? Has a “comer” in the organization been placed in charge or a manager on his way out? The organizational relationships will also give clues about actual or probable strategy. For example, if a cluster of elec-trical product divisions are grouped under an electrical products gen-eral manager, a coordinated strategy among them is more likely than if they are independent divisions, particularly if an influential execu-tive has been made group general manager. It is important to note that clues derived from reporting relationships must be combined with other indications before confidence in them can be complete since organizational relationships can be merely cosmetic.
  3. How is divisional management controlled and compensated in the overall corporate scheme? What is the frequency of reviews? The size of bonus relative to salary? What is the bonus based on? Is there stock ownership? These questions have clear implications for divisional goals and behavio
  4. What kinds of executives seem to be rewarded by the corpo rate parent, as an indication of the types of strategic behavior rein-forced by corporate senior management and thereby of divisional management’s goals? How rapidly do managers typically move in and out of the unit to other units in the parent company? The answer may provide some evidence about their time horizons and the man-ner in which they balance risky strategies versus safer ones.
  1. Where does the corporate parent recruit froml Has current management been promoted from within—which may mean that past strategy will be continued—or from outside the division or even outside the company? What functional area did the current general manager come from (an indication of the strategic emphasis top management may want to bring to bear)?
  2. Does the corporation as a whole have any antitrust, regula-tory, or social sensitivities which may spill over to affect the business unit?
  3. Does its corporate parent or particular top managers in the organization have an emotional attachment to the unit? Is the unit one of the early businesses of the company? Are any past chief exec-utives of the unit now in top corporate jobs? Did current top man-agement make the decision to acquire or to develop the unit? Were any programs or moves of the unit begun under the leadership of such a manager? These sorts of relationships may signal that dispro portionate attention and support will be given to the unit. They may also indicate exit barriers.”


When a competitor is part of a diversified company, analysis of its parent company’s collection of businesses can be a potentially re-vealing exercise in answering some of the questions just posed. The full range of techniques available for analyzing a business portfolio can be used to answer questions about the needs the competitor unit is fulfilling in the eyes of the parent company.5 The most revealing technique for portfolio analysis of the competitor is the one the com-petitor uses itself.

  • What criteria are used to classify businesses at the compet-itor’s parent if a classification scheme is in use? How is each business classified?
  • Which businesses are being counted on to be cash cows?
  • Which businesses are candidates for harvest or divestment given their position in the portfolio?
  • Which businesses are the habitual sources of stability to off-set fluctuations elsewhere in the portfolio?
  • Which businesses represent defensive moves to protect other major businesses?
  • Which businesses are the most promising areas the parent company has in which to invest resources and build market position?
  • Which businesses have a lot of “leverage” in the portfolio? These businesses are ones where performance changes will have a significant impact on the performance of the parent overall in terms of stability, earnings, cash flow, sales growth, or cost Such businesses will be protected vigorously.

Portfolio analysis of the parent will provide clues to what the objectives of the business unit will be; how hard it will fight to main-tain its position and performance along dimensions such as return on investment, share, cash flow, and so on; and how likely it is to at-tempt to change its strategic position.


One approach in formulating strategy is to look for positions in the market where a firm can meet its objectives without threatening its competitors. When competitors’ goals are well understood, there may be a place where everyone is relatively happy. Of course such positions do not always exist, particularly when one takes into ac-count that new entrants may be tempted into an industry where exist-ing firms are all doing well. In most cases the firm has to force com-petitors to compromise their goals in order for the firm to meet its objectives. To do so it needs to find a strategy it can defend against existing competitors and new entrants through some distinctive ad-vantages.

Analysis of competitors’ goals is crucial, because it helps the firm avoid strategic moves that will touch off bitter warfare by threatening competitors’ ability to achieve key goals. For example, portfolio analysis can separate cash cows and harvest businesses from those the parent is trying to build. It is often quite possible to gain position against a cash cow if this does not threaten its cash flow to the parent, but it is potentially explosive to try to gain against a business the competitor’s parent is attempting to build (or one to which it has emotional attachments). Similarly, a business that is counted on to achieve stable sales may fight aggressively to do so even at the expense of profits, whereas it will react much less to a move designed to boost a competitor’s profits though leaving market shares the same. These are just some examples of how analysis of goals can begin to answer the questions about competitors’ behavior posed in Figure 3-1.


The second crucial component in competitor analysis is identi-fying each competitor’s assumptions. These fall into two major cate-gories:

  • The competitor’s assumptions about itself
  • The competitor’s assumptions about the industry and the other companies in it

Every firm operates on a set of assumptions about its own situa-tion. For example, it may see itself as a socially conscious firm, as the industry leader, as the low-cost producer, as having the best sales force, and so on. These assumptions about its own situation will guide the way the firm behaves and the way it reacts to events. If it sees itself as the low-cost producer, for example, it may try to disci-pline a price cutter with price cuts of its own.

A competitor’s assumptions about its own situation may or may not be accurate. Where they are not, this provides an intriguing stra-tegic lever. If a competitor believes it has the greatest customer loyal-ty in the market and it does not, for example, a provocative price cut may be a good way to gain position. The competitor might well re-fuse to match the price cut believing that it will have little impact on its share, only to find that it loses significant market position before it recognizes the error in its assumption.

Just as each competitor holds assumptions about itself, every firm also operates on assumptions about its industry and competi-tors. These also may or may not be correct. For example, Gerber Products had steadfastly believed that births would increase ever since the 1950s, even though the birth rate has been declining steadily nd the actual upturn in births may just have occurred in 1979. There are also many examples of firms that greatly over- or underes-timated their competitors’ staying power, resources, or skills.

Examining assumptions of all types can identify biases or blind spots that may creep into the way managers perceive their environ-ment. The blind spots are areas where a competitor will either not see the significance of events (such as a strategic move) at all, will per-ceive them incorrectly, or will perceive them only very slowly. Root-ing out these blind spots will help the firm identify moves with a lower probability of immediate retaliation and identify moves where retaliation, once it comes, is not effective.

The following questions are directed toward identifying compet-itors’ assumptions and also areas where they are likely not to be completely dispassionate or realistic:

  1. What does the competitor appear to believe about its relative positionin cost, product quality, technological sophistication, and other key aspects of its business—based on its public statements, claims of management and sales force, and other indications? What does it see as its strengths and weaknesses? Are these accurate?
  2. Does the competitor have strong historical or emotional identification with particular products or with particular functional policies, such as an approach to product design, desire for product quality, manufacturing location, selling approach, distribution ar-rangements, and so on, which will be strongly held to?
  3. Are there cultural, regional, or national differences that will affect the way in which competitors perceive and assign significance to events? To take one of many examples, West German companies are sometimes very oriented toward production and product quality, at the expense of unit costs and marketing.
  4. Are there organizational values or canons which have been strongly institutionalized and will affect the way events are viewed? Are there some policies that the company’s founder believed in strongly that may still linger?
  5. What does the competitor appear to believe about future de-mand for the product and about the significance of industry trends! Will it be hesitant to add capacity because of unfounded uncertain-ties about demand, or likely to overbuild for the opposite reason? Is it prone to misestimate the importance of particular trends? Does it believe the industry is concentrating, for example, when it may not be? These are all wedges around which strategies can be built.
  1. What does the competitor appear to believe about the goals and capabilities of its competitors! Will it over- or underestimate any of them?
  2. Does the competitor seem to believe in industry “conven-tional wisdom” or historic rules of thumb and common industry ap-proaches that do not reflect new market conditions?6 Examples of conventional wisdom are such notions as “Everyone must have a full line,” “Customers trade up,” “One must control sources of raw material in this business,” “Decentralized plants are the most effi-cient manufacturing system,” “One needs a large number of deal ers,” and so on. Identifying situations where conventional wisdom is inappropriate or can be changed yields advantages in terms of the timeliness and effectiveness of a competitor’s retaliation.
  3. A competitor’s assumptions may well be subtly influenced by, as well as reflected in, its current strategy. It may see new indus-try events through filters defined by its past and present circum stances, and this may not lead to objectivity.


The recent resurgence of Miller Breweries provides an example of the benefits that accrue to the perception of blind spots. Miller, acquired by Philip Morris and not bound by conventional wisdom like many family-owned breweries, has introduced Lite Beer, a 7- ounce bottle, and a domestically brewed Lowenbrau Beer at a 25 percent price premium over Michelob (the leading domestic premi-um beer). According to reports, most breweries laughed at Miller’s moves, but many have now grudgingly followed as Miller made ma-jor gains in market share.7

Another situation in which the recognition of outdated conven-tional wisdom has been credited with yielding great rewards is in the turnaround of Paramount Pictures. Two new senior executives with backgrounds in network television management have violated many industry norms in the movie industry—presetting of films, releasing films simultaneously in large numbers of theaters, and so on—and registered major gains in market share.8


One of the often powerful indicators of a competitor’s goals and assumptions with respect to a business is its history in the busi-ness. The following questions suggest some ways to examine these areas:

  1. What is the competitor’s current financial performance and market share, compared to that of the relatively recent past? This can be a good first indication of future goals, particularly if results of the “rememberable” past were somewhat better and provide a tangible and annoyingly visible indicator of the competitor’s poten-tial. The competitor will almost always be striving to regain the per-formance of the recent past.
  2. What has been the competitor’s history in the marketplace over time? Where has it failed or been beaten, and thus perhaps not likely to tread again? The memory of past failures, and the impedi-ments to further moves in those areas they bring, can be very lasting and given disproportionate weight. This is particularly true in gener-ally successful organizatio For example, some argue that a past failure with discount stores delayed Federated Department Stores’ reentry into this area of retailing for seven years.
  3. In what areas has the competitor starred or succeeded as a company? In new product introductions? Innovative marketing techniques? Others? In such areas the competitor may feel confident to initiate a move again or to do battle in the event of a provocation.
  4. How has the competitor reacted to particular strategic moves or industry events in the past? Rationally? Emotionally? Slowly? Quickly? What approaches have been employed? To what sorts of events has the competitor reacted poorly, and why?


Another key indicator of a competitor’s goals, assumptions, and probable future moves is where its leadership has come from and what the managers’ track records and personal successes and failures have been.

  1. The functional background of top management is one key measure of its orientation and perception of the business and ap-propriate goal Leaders with financial backgrounds can often em-phasize different strategic directions, based on what they feel com-fortable with, than leaders with backgrounds in marketing or production. Current examples could be Edwin Land’s penchant for radical innovation as a solution to strategic problems at Polaroid, and McGee’s strategy of retrenchment to energy-related activities at Gulf Oil.
  1. A second clue to the top managers’ assumptions, goals, and probable future moves is the types of strategies that have worked or not worked for them personally in their careers. For example, if cut-ting costs was a successful remedy for a problem facing the CEO in the past, it may be adopted the next time a remedy is needed.
  2. Another dimension of the top managers’ backgrounds that can be important is the other businesses they have worked in and what rules of the game and strategic approaches have been charac-teristic of those busi For example, Marc Roijtman applied a strategy of salesmanship, implemented successfully in industrial equipment, to the farm equipment business when he assumed the presidency of J. I. Case in the mid-1960s. R. J. Reynolds has recent-ly brought in new leadership from consumer packaged food and toi-letries companies that has introduced many of the product manage-ment and other practices characteristic of those businesses. And the recently retired top management of Household Finance Corporation (HFC) came from the retail industry. Rather than bolster HFC’s strong position in consumer credit and capitalize on the consumer credit boom, the company spent its resources diversifying into retail-ing. A new CEO, promoted from the consumer finance division, has reversed this direction. This tendency to reuse concepts that have worked in the past applies to senior executives coming from law firms, consulting firms, and from other companies in the industry. All can bring to the competitor a perspective and tool kit of remedies to some extent reflecting their past.
  3. Top managers can be greatly influenced by major events they have lived through, such as a sharp recession, traumatic energy shortage, major loss due to currency fluctuations, and so o Such events sometimes broadly affect the perspective of the manager in a wide range of areas and can influence strategic choices accordingly.
  4. Indications of top managers’ perspectives can also be gained from their writing and speaking, their technical background or pat-ent history where applicable, other firms they come into frequent contact with (such as through boards of directors they sit on), their outside activities, and a range of other clues limited only by the imagination.
  1. Management consulting firms, advertising agencies, invest ment banks, and other advisors used by the competitor can be im-portant clues. What other companies use these advisors and what have they done? What conceptual approaches and techniques are the advisors known for? The identity of a competitor’s advisors and a thorough diagnosis of them can provide an indication of future stra- tegic changes.


The third component of competitor analysis is developing state-ments of the current strategy of each competitor. A competitor’s strategy is most usefully thought of as its key operating policies in each functional area of the business and how it seeks to interrelate the functions. This strategy may be either explicit or implicitone always exists in one form or the other. The principles of strategy identification have been discussed in the Introduction.


A realistic appraisal of each competitor’s capabilities is the final diagnostic step in competitor analysis. Its goals, assumptions, and current strategy will influence the likelihood, timing, nature, and in-tensity of a competitor’s reactions. Its strengths and weaknesses will determine its ability to initiate or react to strategic moves and to deal with environmental or industry events that occur.

Since the notion of a competitor’s strengths and weaknesses is relatively clear, I will not dwell on it here. Broadly, strengths and weaknesses can be assessed by examining a competitor’s position with respect to the five key competitive forces discussed in Chapter 1, an analysis I will pursue in Chapter 7. Taking a narrower perspec-tive, Figure 3-2 gives a summary framework for looking at a compet-itor’s strengths and weaknesses in each key area of the business.9 A list such as this can be made more useful by asking some additional, synthesizing questions.

‘For other sources of areas to look at in assessing capabilities, see Robert Buchele, “How to Evaluate a Firm,” California Management Review, Fall 1962, pp. 5-16; “Checklist for Competitive and Competence Profiles,” in H. I. Ansoff, Cor-porate Strategy (New York: McGraw-Hill, 1965), pp. 98-99; Chapter 2 in W. H. Newman and J. P. Logan, Strategy, Policy and Central Management, 6th ed. (Cincinnati: South-Western Publishing, 1971); Chapter 5 in W. E. Rothschild, Putting It All Together (New York: AMACOM, 1979).

FIGU RE 3-2 Areas of Competitor Strengths and Weaknesses


Standing of products, from the user’s point of view, in each market segment

Breadth and depth of the product line


Channel coverage and quality

Strength of channel relationships

Ability to service the channels

Marketing and Selling

Skills in each aspect of the marketing mix

Skills in market research and new product development

Training and skills of the sales force


Manufacturing cost position—economies of scale, learning curve, newness of equipment, etc.

Technological sophistication of facilities and equipment

Flexibility of facilities and equipment

Proprietary know-how and unique patent or cost advantages

Skills in capacity addition, quality control, tooling, etc.

Location, including labor and transportation cost

Labor force climate; unionization situation

Access to and cost of raw materials

Degree of vertical integration

Research and Engineering

Patents and copyrights

In-house capability in the research and development process (product research, process research, basic research, development, imitation, etc.)

R&D staff skills in terms of creativity, simplicity, quality, reliability, etc. Access to outside sources of research and engineering (e.g., suppliers, custom-ers, contractors)

Overall Costs

Overall relative costs

Shared costs or activities with other business units

Where the competitor is generating the scale or other factors that are key to its cost position

Financial Strength

Cash flow

Short- and long-term borrowing capacity (relative debt/equity ratio)

New equity capacity over the foreseeable future

Financial management ability, including negotiation, raising capital, credit, in-ventories, and accounts receivable


Unity of values and clarity of purpose in the organization

Organizational fatigue based on recent requirements placed on it

Consistency of organizational arrangements with strategy

General Managerial Ability

Leadership qualities of CEO; ability of CEO to motivate

Ability to coordinate particular functions or groups of functions (e.g., manu-facturing with research coordination)

Age, training, and functional orientation of management Depth of management

Flexibility and adaptability of management

Corporate Portfolio

Ability of corporation to support planned changes in all business units in terms of financial and other resources

Ability of corporation to supplement or reinforce business unit strengths


Special treatment by or access to government bodies

Personnel turnover



  • What are the competitor’s capabilities in each of the func-tional areas? What is it best at? Worst at?
  • How does the competitor measure up to the tests of the con-sistency of its strategy (presented in the Introduction)?
  • Are there any probable changes in those capabilities as the competitor matures? Will they increase or diminish over time?


  • Will the competitor’s capabilities increase or diminish if it grows? In which areas?
  • What is the competitor’s capacity for growth in terms of peo ple, skills and plant capacity?
  • what is the competitor’s sustainable growth in financial terms? Given a Du Pont analysis, can it grow with the indus-try?10 Can it increase market share? How sensitive is sustain-able growth to raising outside capital? To achieving good shortterm financial results?


  • what is the competitor’s capacity to respond quickly to moves by others, or to mount an immediate offensive? This will be determined by factors such as the following:
    • uncommitted cash reserves
    • reserve borrowing power
    • excess plant capacity
    • unintroduced but on-the-shelf new products


  • What are the competitor’s fixed versus variable costs? Its cost of unused capacity? These will influence its probable re-sponses to change.
  • What is the competitor’s ability to adapt and respond to changed conditions in each functional area? For example, can the competitor adapt to
    • competing on cost?
    • managing more complex product lines?
    • adding new products?
    • competing on service?
    • escalation in marketing activity?
  • Can the competitor respond to possible exogenous events such as
    • a sustained high rate of inflation?
    • technological changes which make obsolete existing plant?
    • a recession?
    • increases in wage rates?
    • the most probable forms of government regulation that will affect this business?
  • Does the competitor have exit barriers which will tend to keep it from scaling down or divesting its operations in the busi ness?
  • Does the competitor share manufacturing facilities, a sales force, or other facilities or personnel with other units of its corporate parent? These may provide constraints to adapta-tion and/or may impede cost control.


  • what is the ability of the competitor to sustain a protracted battle, which may put pressure on earnings or cash flow? This will be a function of considerations such as the following:
    • cash reserves
    • unanimity among management
    • long time horizon in its financial goals
    • lack of stock market pressure

Source: Porter Michael E. (1998), Competitive Strategy_ Techniques for Analyzing Industries and Competitors, Free Press; Illustrated edition.

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