Competitive Analysis and Decision Making
- “I never guess. It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts.”
- —Sir Arthur Conan Doyle, author of Sherlock Holmes stories
Most organizations today are not structured or organized properly to make good decisions that will help them outperform their competition in the marketplace.11
It is commonplace for this book’s authors to hear from decisions makers who lament in retrospect: “If only I’d known that, I’d never have made that decision or taken that action.” Such comments reflect an absence of intelligence supporting the decision maker and the lack of greater insight behind their decisions and subsequent actions.
There is no shortage of examples where poor decisions have adversely affected many stakeholders. Read the business section of your local paper, and you will hear of bankruptcies, down-sizing because of poor sales, over-optimistic new product revenue/volume predictions, wasted research and development (R&D) efforts, or plant closures due to outdated technology or cheap imports. Intelligence failures relative to national decision making are also well publicized and again point to decision makers who were not properly prepared to make optimal decisions.12
Although finding decision makers who will publicly take the responsibility for having made poor choices is often difficult, we all know of individuals who, with hindsight, would have done things differently. Unfortunately, we are unaware of anyone who has figured out how to either roll back the clock or to reverse time! Making better choices and decisions the first time creates a greater need for effective analysis and intelligence.
Today’s managers face an abundance of information in their decision-making contexts, and sometimes this information abundance causes them to be paralyzed. Much information arriving to top managers is biased, distorted, subjective, filtered, and/or late. Analysts have the means for helping reduce both the volume and rate of this information flow while simultaneously assuring the quality of the product being delivered. They can then greatly enhance the executive’s actual ability and confidence in effective decision making.
Analysis has been revitalized in the “knowledge” era, or the era of intellectual capital. Whatever we should call it, knowledge is increasingly recognized as a key organizational asset that can distinguish between the winners and losers in many competitive marketplaces.13 Organizations that can effectively generate, capture, disseminate, and apply knowledge better and faster than their competitors stand a higher probability of achieving successful performance. Analysts are a critical part of this process as they are among the primary directors of knowledge in an organization. One thing we hope to emphasize in this book is that analysts must provide direction and guidance to those individuals responsible for collecting data and information. They are the link to gathered data and the organization’s key decisions.
Analysis is just as important because of the increased recognition and value on good thinking skills. Analysis cannot be conducted in the absence of thinking.14 Without it, we would have random choice and luck. This is not the best foundation for a considered outcome and is increasingly likely to suffer from “extinction by instinct.” The other end of the continuum is from “paralysis by analysis.” That is not to summarily discount the value of instinct, but it has to be measured alongside more reliable and tested methods of analysis.
As access to data or information has increased, the highest value is now placed on not just obtaining appropriate data, but more importantly, to making good sense of it and then communicating that sense to others who need to know it. That is analysis!
The Competitive Context Facing Contemporary Enterprises
- “War is ninety percent information.”
- —Napoleon Bonaparte
Beating competitors, in many industries, has become a necessity rather than a desirable goal. More insightful strategy development and execution has been needed since even a decade ago. We would suggest the following reasons are among the most critical ones underlying increased competition, all of which produce a greater need for improved business and competitive analysis.
Explosion of access to cheap and fast information: Whether it is employee mobility, greater access to higher education in both traditional and online formats, companies showing less loyalty to their employees, or those same employees showing less loyalty to their employers, the window on competition and competitive opportunities has grown wider and more transparent. Keeping key competitive information proprietary and out of the sight or hands of competitors has become more difficult than ever before. This is because of ever-improving information and communication technology, the use of “big data,” enhanced analytic modeling, as well as changing socio-cultural value systems, among other factors.
Maturation of industries and businesses: Many industries that were prominent in the twentieth century were resource-based industries, such as forest products, manufacturing, steel, and so on. These have rapidly matured or have seen a dramatic slowdown compared to past rates of growth. Many have struggled to institutionalize innovation capabilities, resources, strategies, new resource inputs, new production processes, new product development challenges, new employee skill recruitment and integration, new distribution channels, and/or understanding new customer needs. These are quite different challenges to simply trying to build market share in an existing static and simple market space, and the potential for them to miss the disruptive forms of activity that may be occurring on the fringes of their still-lucrative markets is high.15
Loss of traditional means of competitive structuring and advantage: Traditionally, companies could achieve competitive advantage through scale economies, segment entrenchment, first-mover advantages, and other such industry level gains. While still present in some sectors, these approaches are now so quickly and easily imitated that they no longer deliver sustainable advantage. Many of the new strategy experts suggest that there may not be such a thing as “sustainable competitive advantage”; instead, many of them are converging on concepts around being able to consistently achieve temporary advantages and staying ahead of the competition. While the generic strategies of cost, differentiation, and focus originally described so cogently by Michael Porter are still conceptually fruitful, they are hard to achieve and sustain in practice. And much debate continues about whether the achievement of advantage is from positioning, is resource-based, or comes from some other source(s).
Sophisticated and better-informed consumers: Customers are better informed than ever before and have access to significantly more information from point-of-purchase sources and social media on which to base their purchasing decisions. As with business-to-business (B2B) markets, buying habits are less ingrained, and purchases are increasingly based on specification, cost, and value. Today’s consumer is less likely to be swayed by an emotional appeal and will do hard-nosed research before striking a deal, especially with big ticket items.
Companies that still think they can sell anything they like, at any price, to a gullible customer may well do so once, but not again. Bad news travels fast, and the presence of social media, customer pressure groups, protest blogs and sites, and vociferous word-of-mouth channels will quickly damage a brand.
Dynamic and rapidly evolving technology: Physical strengths are being replaced by intangible assets such as intellectual property, knowledge, intelligence, brands, R&D teams, and market position, resulting in volume-based advantages being less prominent.16 Even in industries where scale-based advantages still exist, typically manufacturing, the continual push by businesses across the globe to improve operational efficiency has made it harder to sustain such advantages.17 This has made the development of effectiveness-based strategy and execution more critical than ever.
There is little doubt that competition compels organizations to respond, preferably in a proactive manner. Designing these responses and assessing their impact are the primary task of the business and competitive analyst. The context within which the analysis is undertaken and the organization within which the analyst is working, will, inevitably, produce unique demands. The following section elaborates on the unique contextual factors impacting business and competitive analysts.
Contemporary Context Facing the Analyst
- “He who would search for pearls—must dive below.”
- —John Dryden, historic author
Being an analyst in an enterprise facing a high degree of competitive rivalry is difficult, especially when inexperienced and/or lacking appreciation of analysis science. Analysts have always had to satisfy decision makers who want and need their assistance. If anything, the challenge for the analyst today is more daunting than in the past. We think there are several prominent reasons why this state of affairs exists, such as the following:
Lack of recognition that analysts are mission-critical: It is rare to find a student coming onto a business degree program who claims that he or she wants to be a competitive analyst. In contrast, hundreds, if not thousands, will say that they want to be a management accountant, financial analyst, sales specialist, or brand manager. Similarly, it is rare to hear CEOs or CFOs claim that their competitive advantage came from their analytical team or their capabilities. We know that analysis underlies many companies’ competitive advantages, but it is often called something else, or the process is embedded among other functional activities. Enlightened organizations recognize the unique value that analysis generates, and as a result, then put significant resources behind it to ensure that they continue to derive competitive advantage.
Decision makers cannot always articulate their decision needs: Analysis requires proper direction at the outset for the process to produce a satisfactory output. Unfortunately, decision makers may not ask the right questions of the analyst. They may not even know what the questions are. So it is up to the analyst to focus their decision-maker on the “must know,” as opposed to the ubiquitous “like to know” style that we frequently witness.
Pressure for a quick judgment: Competitors are moving fast, investors and shareholders want the quarterly performance targets on time, customers want solutions yesterday, and nobody is willing to wait. Time is the most precious resource for an analyst; consequently, time will always be in short supply. Decisions are often made on the basis of “what we know now” because the situation simply will not allow for more delay. As such, analysts need to constantly seek established data collection and classification solutions and systems that can provide reliable outputs quickly. They need to provide intelligence despite that being at a lower level of confidence than usually expected. Analysts and decision makers need to address the increasingly time-starved context within which they both work and assess its ramifications.
Highly ambiguous situations: Ambiguity comes in many forms for both the decision itself and the analyst. It can emanate from the nature of competition, the range of competitive tactics employed, key stakeholders’ responses in a competitive arena, product and/or process enhancements, consumer responses to competitive tactics, and so on. These types of interjections have been studied by researchers who have recognized that ambiguity can be a potent barrier to competitive imitation18 and allow for a competitor to sustain their advantage for a longer period.
Incrementally received/processed information: Rarely will an analyst get the information he or she needs, on time and in the required format. The inability of traditional executive information systems to capture, classify, and rank rumors, gossip, grapevine data, and knowledge held by employees out in the field means that analysts lack the kind of primary source information that has always been the “jewel in the crown” element that makes analysis so valuable.19