A Framework for Competitor Analysis

A central aspect of strategy formulation is preceptive competitor analysis. There are four diagnostic components to a competitor analysis: future goals, current strategy, assumptions, and capabilities. A basic framework for performing individual competitive analysis has been postulated by Michael Porter.

Future Goals
As can be seen, two factors must be analyzed to determine what drivers the competitor. First, its future goals must be identified. A knowledge of goals will alow predictions about whether or not each competitor is satisfied with its position and financial results, and how likely that competitor is to change strategy. The following diagnostic questions help to determine a competitor s present and future goals: !hat have the competitors s ma"or goals been in the relatively recent past# $ave these goals been achieved# !hat strategies has the competitor employed in the relatively recent past# $ave these strategies been successful#

Assumptions
The second crucial component in competitors analysis is identifying each competitors s assumptions. These fall into two ma"or categories: The competitor s assumptions about itself The competitors s assumptions about the industry and the other companies in it. Answers to the following questions help identify a competitor s assumption: %. !hat does the competitor appear to believe about its relative position & in 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# !hat does it see as its strengths and weaknesses# Are these accurate# '. (oes 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 arrangements, and so on, which will be strongly held to# ). Are there cultural, regional, or national differences that will affect the way in which competitors perceive and assign significance to events# *. 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# +. !hat does the competitor appear to believe about future demand for the product and about the significance of industry trends# !ill it be hesitant to add capacity because of unfounded uncertainties about demand, or likely overbuild for the opposite reasons# ,s it prone to misestimate the importance of particular trends# (oes it believe the industry is concentrating, for e-ample, when it may not be# .. !hat does the competitor appear to believe about the goals and capabilities of its competitors# !ill it over& or underestimate any of them# /. (oes the competitor seem to believe in industry 0 conventional wisdom0 or historic rules of thumb and common industry approaches that do not reflect new market conditions#

History as and Indicator of Goals and Assumptions

Answers to the following questions provide a historical basis for looking at what are a competitor s goal and assumptions: %. !hat is the competitor s current financial performance and market share, compared to that of the relatively recent past# '. !hat has been the competitors s history in the marketplace over time# !here has it failed or been beaten, and thus perhaps not likely to tread again# ). ,n what areas has the competitor starred or succeeded as a company# ,n new product introductions# ,nnovative marketing techniques# 1thers# *. $ow has the competitor reacted to particular strategic moves or industry events in the past# 2ationally# 3motionally# 4lowly# 5uickly# !hat approaches have been employed# To what sorts of events has the competitor reacted poorly, and why#

Current Strategy
The third component of competitor analysis is developing statements of the current strategy of each competitor.

Capabilities
A realistic appraisal of each competitor s capabilities & its strengths and weaknesses& is the final diagnostic step in competitor analysis. ,ts strengths and weaknesses will determine its ability to initiate or react to strategic moves and to deals with environmental or industry events that occur.

Putting the Four Components together

After the competitor s future goals, assumptions, current strategies, and capabilities are analyzed, a competitor response profile is developed. This profile, designed to indicate how a competitor is likely to respond in its competitive environment, is based on the answers to four questions: %. ,s the competitor satisfied with its current position# '. !hat likely moves or strategy shifts will the competitor make# ). !here is the competitor vulnerable# *. !hat will provoke the greatest and most effective retaliation by the competitor# 6 Michael E. Porter7.