Competitor Analysis the GE Way
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Transcript of Competitor Analysis the GE Way
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5/18/2018 Competitor Analysis the GE Way
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Competitor analysis: the
missing link in strategy
William E. Rothschild
No top m anager w ould deny that com petitor focus is an
essen tial e lemen t in developing corporate strateg y in today s
cut and thru st for larger shares of often dim inishing m ark ets.
Yet al though m any com panies go throug h the m otions of
keeping an eye on com petitor m ov es, the real m essa ge behind
th e data they co llect is all to o often m issed . In thi s article
GE strategist su gg ests what question s to ask ahou t
com petitors, how to ohtain the answ ers and how to interpret
tho se answers to the best strategic ad van tage .
Over the past two decades, American companies have experienced
dram atic changes in their dom estic com petitiye enyironm ent. Sm al
specialist competitors have exitedorbeen swallowed up by larg er
multi-industry companies resultinginoften stron ger , financially
solvent, butmore unpred ictable com petition. Foreign andmu lti-
national competitors have taken aim at the critical and more
profitable US markets, which are easier to penetrate and pivotal to
worldwide success, while building andm aintaining in their own
home markets barriers
to
the entry
of
US companies. T his foreign
invasion has taken many forms, including importing, acquiring US
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eglected task
All these facts are well known to readers of the business press. Yet
competitor analysis has remained a largely neglected managerial
task. Far too little emphasis has been placed on answering such
:>asic questions as:
Who is the competition now and who will it be in the future ?
W hat are the key com petitors' strateg ies, objectives and goals?
How important is a specific market to the competitors and are
they committed enough to continue to invest?
W hat unique strengths do the competitors have?
Do they haye any weaknesses that make them vulneral)le?
What changes are likely in the competitors' future strategies?
What are the implications of competitors' strategies on the
market, the industry and one's own company?
On the surface these questions appear to be logical and straight-
forward. Yet; th e answ ers ar e usually lack ing , for a variety of
reasons:
Overconfidence
M any m anag ers who lead profitable businesses tend
to be overconfident. Because of their past success in winning the
competitive battle, they begin to believe either that the competitor
S inept or that they are superior.
onfusion Some business managers are simply confused. They are
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Concern A third cause of ineffectiye competitor review is fear that
the company will be forced to employ illegal or unethical tactics to
obtain the data it seeks. This concern is completely unwarranted:
the strateg ic data required to make effective analyses are available
from legal, ethical and relatively conven ient sou rces. The desire to
tell the world and influence investors usually leads competitors to
broadcast their investment priorities and strategy in a variety of
ways.
Another concern that sidetracks management from competitor
review is that intelligence will be misinterpreted, resulting in
wrong decisions. Of course, this is a risk in any analysis or plan ning
- data can be misinterpreted, and misinterpretation can lead to
failure. But a leader must assume some calculated risk.
o
a r e t h e y?
Now let us retu rn to our list of basic que stion s. The first to consider
is deceptively simple: Who is the competition now? Who will it be
fiye years from now?
Covering all possibilities Competition for your customers' dis
cretionary and nondiscretionary dollars comes in many shapes and
forms; there are many ways to satisfy the customers' needs and
wa nts in the a reas you serve. So we are led to the further qu estion s
' 'W ha t is the customer bu yin g? and W ha t are all the ways the
custom er can be satisfied in achieving this need or w a n t? If a
consumer wants entertainment and you are in the television
market, you should consider all the forms of entertainment on
which a consumer might choose to spend his money: radio, stereo
home m ovies, hobb ies, games, in-home sp orts, and so on. (The t ru
scope of competition here was painfully learned by radio consol
manufacturers when television entered the scene.)
Industry profile A second way to examine competition is to draw
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How the
competition changes
omp ny
type
Single industry
Multi industry
Conglomerate
Marke t focus
US Foreign
MNC
A
B
D
E
F
G
H
J
reseni
Single industry
Multi industry
Conglomerate
us;
Foreign
MNC
E
F
G
B
C L
O K
H J
us
A
Foreign
M N C
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Single industry
should be classified as domestically focused, participating abroad
on a selective or opportunistic basis: foreign focused; or multi-
national worldwide. Combining these two assessments of company
type and market focus provides a graphic display that can be used
to describe the competitive position in the industry in the past and
the present and to anticipate likely changes in the future.
Exhibit I shows the changes that have occurred oyer the past fiye
years and that may take place oyer the next fiye-year period in one
industry. Fiye years ago, this industry included a number of single
indu stry spe cialists companies A to D) th at acco unted for approx
imately 50 percent of the m ark et; the othe r major partic ipan ts w ere
diyisions of large r multi-indu stry companies E to H ); m ad dition
the Japanese were beginning to make their moye, with two com
panies I and J) leading the way. Today, only one competito
remains in the single-industry category, and eyen this competito
is under attack and could be forced to merge or sell out to another
company. A number of the companies baye been acquired or haye
merged into Japanese and European companies. Thus, the com
petitiye game in this industry has significantly changed and may
continue to do so, with the possibility that two companies will exi
completely in the next few years.
Change of role A
third yiew of competitors focuses on potentia
changes by reviewing the total system of interactions from supply
to user. Could any of the participants in the system expand thei
role and become competitors? The suppliers of components o
materials, for instance, may decide to integrate forward and
compete with you - or distributors may decide to integrate back
ward. For example, when Ford announced th at it was discontinuing
the manufacture of Philco appliances, Philco distributors were lef
empty-handed. Since the other major producers already had in
dependent wholesalers, or sold direct, they were faced with
choice - get a new product line or quit. They decided they would
band together, form a buying pool, and obtain a private label line
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acquired component manufacturers and became competitors in the
components field.
What are they up to
Having established the identity of the major competitors, the next
question to ask is: What are the major competitors' investment
priorities and objectives? A listing or graphic display of the
competition and major competitors isn't sufficient. It is important
to understand their total corporate situation and intentions, a task
that will yary in complexity depending on whether a competitor is
a spe cialist, diyersified, dom estic, or worldwide in scope. In essence,
we wish to know th e com petitors' total financial situa tion , deter-
mine whether they haye profitable and balanced portfolios, and
identify any serious problems they may have and the opportunities
they are trying to pursue.
Single-industry specialists are the easiest to evaluate since they
are dedicated to one industry. Often they are ' 'niche -oriented and
distinguish themselves by innoyation, quality, or dependability.
Further, they are often led by an aggressive, strong-willed, even
autocra tic entrepren eur which may be both a strength and a
limitation.
Multi-industry diversified companies have a variety of business
options. Each business should have its own investment and cor-
porate purpose, and it is important to understand each one.
It IS useful to asce rtain how a com petitor d escribes each of its
businesses in order to determine th e b alance and viability of its to tal
portfolio. Is the competitor trying to grow in too many segments
simultaneously? Does it haye a sufficient number of earnings and
cash generators? Will tbe total achieve desired results? Multi-
mdustry c-ompanies rarely have management depth sufficient to
lead all their businesses effectively and, therefore, often appoint
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profits through low-cost government loans, tax concessions, o
infiated profits on government projects.
The objectives and investment priorities of multinational com
panies are even more difficult for an American domestic compan
to comprehend. Multinational companies may sacrifice profits i
one country to penetrate or gain position while using profits from
another country to support this aggressiveness. They have th
ability to work with governments, select the least costly source o
supply, and even negotiate favorable trade concessions.
ndustry commitment
Next, you should consider how important your industry is to th
com petitor and w hat its strategic p urpose is. It is essential to asses
a com petitor's overall goals, bu t you should try to p inpoin t you
competitor's purpose in your own industry. Its commitment may b
based on rational judgments or on emotions. On the rational side
it may be the anticipation of growth, strong customer needs, o
some unique product or market strength - i.e., your industry ma
be im po rtant to the com petitor's future grow th, earnin gs pe
formance, or cash-flow position. A rational basis is normally to b
preferred, since the competitor's behavior is most likely to b
consistent and logical. For example, if the competitor is dependin
on your industry to finance its other ventures, then it will figh
hard to protect this cash-flow position.
Often, however, emotions play a significant part in decision mak
ing. The competitor's commitment may be based on such shallow
reasons as : Th e CEO grew up in the indu stry and is emotionall
attached to it , 'T h e business is the core from which the tot
corpo ration gr ew , or T he indu stry is considered glamorous an
ex citin g. Investm ents are consequently made th at are unjustifie
or even detrim ental
such as adding capacity when the re is alread
overcapacity, introducing new expensive modifications prem
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turely, or cutting prices to gain share in a declining market.
If the competitor wishes to gain share by innovation, does it have
the proper skills to do the job? These will be different from those
required to hold position, maximizing earnings via a low-cost
position. Thus one must look at critical resources required by a
competitor and ask if it can obtain what is required in both
quantity and timing.
The major resource areas that should be assessed for each com-
petitor are management, innovation, financing, production and
marketing.
Management Who are the key leaders and decision makers? How
quickly can decisions be made? Is the management team know-
ledgeable or experienced in the industry? Are they risk takers? Is
there depth in the management ranks?
The answers to these questions will reveal managerial skills,
flexibilities, values and longevity, thus enabling you to determine
the competitor's managerial fit with the strategy it is pursuing. If
the strategy requires flexihility and rapid decision making, but the
management team is risk-ayerse, slow and deliberate, the com-
petitor vail have a major problem in executing its desired strategy.
If the strategy is aimed a t m aximizing cash flow by a slow harv est,
but the management is aggressive and growth-oriented, then there
is a serious mismatch that may be unresolvable,
Innovation
Assessment here must identify the driving forces he-
hind th e com petitor 's innoy ation record. It is not un usu al to find a
few key individuals as the driving forces behind innovation or to
find the entire compj^ny's success built upon a few key patents. In
svich a case, the competitor's ability to continue this track
record must be determined. Financing of innovation should also be
studied to find out where the financing came from and how con-
sistent it has been.
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Here one must attempt to understand the competitor's ability t
generate financing both internally and externally at the right tim
and in sufficient quantity. If a strategy requires large but cyclic
volumes of cash and the competitor isn't able to obtain them, th
strategy won't be successful. If a competitor wants to increase it
worldwide sales but isn't able to provide long-term, low-co
financing, its results will be disappointing.
Production. This requires an evaluation of efficiency, cost reduc
tion, and capacity and supply situations, along with an understand
ing of the competitor's total resources for production - human an
material. Some useful questions to probe are:
1 Does the com petitor m anufacture in a high- or low-cost labo
area?
1 Is its plant and equipment efficient?
T Is its flexibility or response to market demands inhibited by to
much integration, capital intensity, or overdependence on on
technology?
T How sensitive is its break-even to capacity utilization?
\ How skilled is it in m aintain ing q uality ?
II How is it affected by
OSH
and EEO regulations?
Marketing. How do the competitor's marketing abilities compar
to the requirem ents imposed by its strategy or m ark et? Some strate
gies require the ability to anticipate and/or create customer needs
while others are more dependent on providing pre- and post-sal
service. If the key skills aren't available, the competitor will hav
less than optimal resu lts. M arketing skills, like any other reso urce
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must be carefully nurtured and preserved and thus require con
' h i
Checklist for competitor resource analysis
Management
Key people
Objectives and
priorities
Values
Reward
systems
Decision
making
Location
Type
Speed
Planning
Type
Emphasis
Time span
Staffing
Longevity and
turnover
Experience
Replacemern:
policies
Organization
Centralization
Functions
Use
of staff
Innovation
Technical
resources
Concepts
Patents and
copyrighls
Technological
sophistication
Technical
integration
Human
resources
Keypeople and
skills
Use of external
technical groups
Funding
Total
Percentage o
sates
Consistency
overtime
Internally
generated
Government-
supplied
Financing
Long term
Debt/equity ratio
Cost of debt
Short term
Line of credit
Type of debt
Cost of debt
Liquidity
Cash flo w
Days
of receivables
Inventory turnover
Accounting
practices
Human
resources
Keypeople and
skills
Turnover
Systems
Budgeting
Forecasting
Controlling
Product ion
Physical
resources
Capaci ty
Plant
Size
Location
- A g e
Equipment
- A u t o m a t i o n
- M a i n t e n a n c e
Flexibility
Processes
Uniqueness
Flexibility
Degree
of
integrat ion
Human
resources
Key people and
skills
Workforce
-Skills mx
Unions
Turnover
Marketing
Sales force
Skills
Size
Type
Location
Distribution
network
Research
Skills
Type
Service and
sales policies
dvertising
Skills
Type
Human
resources
Key peopleand
skills
Turnover
Funding
Total
Consistency
ove r t ime
Percentage
of sales
Reward systems
nl l r iHi 'd t ? ' ' V ^ ' ^ ^^l ^
f
businesses (sizes, priorities, importance to company) and resources
provided by parent company.\ f foreign, examine national prioritiesof home country, degree of governm ent
own ership, supports, incentives, hom
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ources of competitor information
Public
Trade professionals overnm ent Investors
W h a t
compet i t o rs
say about
tf iemselves
What o thers
say about
them
Advertising
Promotional
materials
Pressreleases
Speeches
Books
Articles
Personnelchanges
W an t ads
Books
A rticles
ase
studies
Consultants
Newspaper reporters
Environmental
groups
Consumergroups
Unions
W ho's Who
Recruitingfirms
Manuals
Tech nical papers
Licenses
Patents
Courses
Seminars
Suppliers/vendors
Trade press
Industry study
Customers
Subcontractors
SE reports
FIC
Testimony
Lawsuits
Antitrust
Lawsuits
Antitrust
S tate/federal
agencies
National plans
Government
programs
Annual m eetin
Ann ual reports
Prospectuses
Stock/bond
issues
Security analy
reports
Industry studie
Creditreports
The key is to develop
a
profile of com pe titors , test for valid ity a
identify areas of agreement and disagreement.
It
is surprising j
how muchisknow n and w hat can be deduced from com petito
actions. Exhibit III outlines these sources of data.
mplicat ions
o
change
Another question that must be considered is: What could cau
a change
in
com petitors' p riorities, strateg ies
or
resources? A
significant change
in the
external ' 'ma cro environment
h
government, society,
or
the economy) or
in
the internal m icr
environm ent ca n cause a change in competitive behavior. L ikewi
the acquisition
of a
company may strengthen
or
weaken
it
some cases, the mergeris sodisruptive th at it causes the co
petitor actually
to
lose streng th).
At
other times,
a
competi
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petitor s bu t, because they fail to interr elate their assessm ents, they
never see the consequences of one competitor interacting with
another.
The importance of this composite picture is seen in the case of one
industry segment, a high break-even business requiring high
capacity utilization. Four of the five competitors were aiming to
grow an d the leader had vowed to hold its position, so a toug h ba ttle
was expected and a lot of red ink was likely to flow. Two of the
companies were planning to add capacity, which could mean there
w^ould be excess capacity. Investment was likely to be heavy,
rang in g from 90 million to 250 million over five ye ars . The
combination of aggression, possible excess capacity and high
capital investments meant the going would be expensive.
The final step is to determine how the competitors can affect your
company and the worth of your strategy. If a company expects to
compete in the segment just described but doesn't wish to expend
heavily on capacity, then it must learn to specialize, or risk
extinction.
As an aid in determining and reviewing strategy, competitor
analysis is increasing in complexity and importance. If it is to have
the influence it deserves, top managers must insist on a disciplined,
comprehensive and strategically focused effort to assess each
major competitor and the total interaction between competitors
and the corporation.
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