How to Make Sense of Business and Competitive Analysis
This chapter is from the book
This chapter is from the book
This chapter is from the book
Business competition now comes in many different forms and from a great variety of competitors, and the challenges are increasing. Successfully positioning the enterprise, properly deciding on the correct allocation of resources, and deciding what an acceptable level of performance might be in such a competitive environment are key tasks of senior decision makers. Consequently, skillful business and competitive analysis (BCA) is critically important in determining how an enterprise can compete and deliver value to its stakeholders.
This book is designed to assist analysts to develop high value insights, to aid them in making sense of the competitive environment confronting their organizations, and to guide them in advising their decision makers. Our underlying premise throughout this book is that a good analyst, working in any environment, must have a robust and healthy repertoire of methods, tools, and techniques to help answer important questions on the enterprise's ability to compete, not only in the present, but also the future. For the most part, the end users of an analyst's output are decision makers, and as such, they will be the clients or customers taking action based on those results.
Uniquely, this book focuses specifically on analysis, analysis methods/techniques, and the analysis process. It is not designed to be another strategic management or strategic planning text. There are plenty of good titles of those genres available,1 although the processes and techniques described herein will certainly benefit strategic planners and managers. We have decades of experience advising, consulting, instructing, practicing, and researching how BCA is used in all types of enterprises.
What surprises us about competitive and strategic analysis is the relatively limited number of tools and techniques used by most practitioners and how little genuine insight emanates from them!
These adverse results occur not only because some tools are badly chosen, outdated, or incorrectly used, but also because they are misunderstood and/or misapplied. This book provides comprehensive instruction on a range of constructive processes, tools and techniques that are available, direction on how the method was developed, analysis of its strengths and weaknesses, an outline of the process used to actually employ the technique as well as sample applications, and identification of complementary techniques, resulting overall in that vital ingredient—insight.
Our first text in this area identified 24 different techniques.2 Since the first book was published, we have seen many instances and heard countless anecdotes from practitioners who wished to have an "analyst's manual" of BCA tools and techniques. We believe that this book goes some way toward meeting that desire.
Understanding the Terminology
This book emphasizes a handful of key words: competitive, strategic, analysis, and intelligence. These are all part of the normal business and management lexicon. As we use these words repeatedly, it is useful for us to clearly identify what we mean when we use them.
Competitive
In this book, we look at businesses that are in competitive markets and typically operate in a competitive mode. We are addressing the processes and means by which firms position themselves and their products or services against their rivals to win market share.
Competitive means that a contest is occurring between two or more parties. The sources of this can be multi-faceted, originating in product or service offerings, shelf-space negotiations, supplier contracts, and investor relations, to name just a few. Usually, competitive bouts end up with a winner, and no further contest is needed.
The focus of this book is on the market place, though, and this is quite a different proposition. Competition here is about achieving a sustainable winning performance, not delivering one action that simply wounds, but consistently beating the rest who are working, most likely, toward the same or very similar goals as your enterprise.
Strategic
Strategic is a word used today to describe almost every decision and/or action taken, when in reality there is a clear mix of the no less valuable, tactical decision making taking place. The generic use of a word such as "strategic" can diminish its real role and mask the impact that a true strategic decision has.
Strategic matters are a key focus of this book. Strategic decisions, as opposed to tactical, operational, or instantaneous decisions, have a unique set of characteristics to differentiate them. These distinctions occur along the dimensions of time, frequency, effort required, consequences, and impact. Strategic decisions typically:
- address at least a medium-term time horizon, at best long-term (time).
- occur infrequently or emerge from a formalized planning cycle (frequency).
- require significant input from key people (effort).
- require significant information input from key functions (effort).
- require substantial resources to formulate and implement (effort).
- affect the long-term direction of the organization (consequences).
- affect many, if not all, of the organization's activities (consequences).
- affect competitive dynamics (impact).
- involve major change to the firm's activities (impact).
- become the over-arching blue-print for subsequent decisions (impact).
If all or a significant number of the preceding elements are present, the greater the likelihood that the decision is indeed strategic. We want to make it clear that just because a decision is not strategic does not make it unimportant.3 Many non-strategic decisions help to determine the performance of an enterprise in a marketplace, particularly in the shorter term. Decisions such as seasonal price discounting, direct mail campaigns, product enhancements, and ambush marketing are all examples of non-strategic decisions. They have a short-term lifespan and a short-term effect.
The key to our identification of a strategic decision is that they are the ones typically made by senior executives, managing directors, and/or the senior management team. Consequently, the enterprise that gets the strategic decisions "right" has a far greater chance of also getting the non-strategic decisions right.
Analysis
Where does analysis fit in with competitive understanding? Competitive analysis is the cornerstone of effective strategy formulation and execution.4 Valuable analysis helps decision makers to understand and predict critical market-changing actions that may be taken by competitors and other competition-impacting stakeholders. These decision makers are charged with answering a small number of very powerful questions about their organization, including the following:
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What is our current status or situation?
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What are our options?
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Which direction do we want to go?
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Which direction should we go?
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How can we get to where we have decided we are going?
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How will we know that we have gotten there?
Many of the analysis tools in this book will be beneficial to strategic decision makers in their effort to address those critically important questions. Properly conceived analysis aids decision makers in generating, choosing, and validating appropriate strategic responses.
Analysis is a term that generates much controversy and disagreement. Before we provide our definition of analysis, it may be helpful to examine definitions put forth by others that are in common usage. These can be found in Table 1-1.
Table 1-1. Common Definitions of Analysis as Used in Intelligence Contexts
|
Definition |
Source |
|
A critical evaluation, usually made by breaking down a subject (either material or intellectual) into its constituent parts, then describing the parts and their relationship to the whole. |
Dictionary definition |
|
The application of common sense and experience to raw information. |
Fuld, 1995 |
|
A process where one does many of the following, in any order: observe, classify, count, compare, ask questions, role play (engage in war games, do scenarios, run simulations, etc.), and take action. |
Halliman, 2003 |
|
The use of some methodology or technique to, first, find relationships between different pieces of information and then draw inferences from the relationships. |
Halliman, 2003 |
|
A process where one converts information into actionable intelligence. |
Halliman, 2003 |
|
A process where one asks, or answers, the "So What?" question. |
Halliman, 2003 |
|
The application of individual and collective cognitive methods to weigh data and test hypotheses within a secret socio-cultural context. |
Johnston, 2005 |
|
The process of evaluating data for reliability, validity, and relevance; integrating and analyzing it; and converting the product of this effort into a meaningful whole, which includes assessment of events and implications of the information collected. |
Johnston, 2005 |
|
The primary output of the processing phase of the intelligence cycle is the human process of synthesizing pieces of information into finished intelligence. |
Procycshn, 1998 |
|
The breaking down of a large problem into a number of smaller problems and performing mental operations on the data in order to arrive at a conclusion or generalization. It involves close examination of related items of information to determine the extent to which they confirm, supplement, or contradict each other and thus to establish probabilities and relationships. |
Mathams, 1995 |
|
The heart of the intelligence process whereby meaning is derived from data. |
IALEA, 2001 |
Although there is some value in these definitions, we find each of them to be lacking in some aspect. As such, in this book, analysis is defined as: "The skilled application of scientific and non-scientific methods and processes by which individuals interpret data or information to produce insightful intelligence findings and actionable recommendations for decision makers."
Like many developing fields of inquiry, business and competitive analysis is NOT purely art or science, but a combination of substantial portions of both in its effective application. As with the type of research formally taught to scientists, the analysis process can be viewed as holding much in common with the scientific method. Analysts will observe certain events, persons, or actions, develop a proposition or hypothesis that describes/explains what they have observed, and then use the hypothesis to make predictions about what may subsequently occur. These predictions can then be further assessed through additional observations or data, and the hypotheses can be modified based on the results.5
This process, which can be applied in theory by analysts, gets complicated very quickly by factors present in the real world of business and market-place competition, as well as the politics and social nature of decision makers and enterprises. Analysts frequently work in groups or teams and benefit from the pooling of expertise. Hypotheses aren't always developed, tested, or reformulated, but are frequently modified in real-time by the evidence that is acquired. These factors point to genuine business and competitive analysis being more of a social scientific pursuit than that of physical or pure science.
The "real world" tends to bring out the "art" aspect of analysis. When conducting an experiment using control groups, we know that some percentage of a treatment group's analyses will not confirm the control group's analyses. Analysts in these two groups will weigh the same data or information differently, based on schemes that may be hard for others to accurately replicate. Even when analysts do substantively agree about the nature of the problems being addressed, they can still subsequently disagree about the proposed course of action. Consequently, analysts may never be able to "prove" they were right. It is these kinds of experiences that points to why analysis can sometimes be viewed as more akin to art than science. The following humorous parable helps point out some of the important differences between the two perspectives.
Business and competitive analysts are tasked with making sense out of often ambiguous, complex, and challenging matters that decision makers care about. Like the artist on the bus, they too have to weigh up the odds, work through the scenarios, work out what they know as opposed to their competition, and take action. They have to make sense of, or create meaning from, a typically constrained sample of data and information. In an often-confused and rapidly moving competitive landscape, they try to answer the three critical questions commonly asked of them:
- "What?"
- "So what?"
- "Now what?"
Any of these three questions may be answered in a variety of constructive ways using replicable procedures and methods (science), as well as intuitive or creative ones (art).
Intelligence
It is important to understand the place of intelligence within the larger context of an enterprise. The need to generate competitive intelligence (CI) is certainly not new. Sun Tzu plainly stated the rationale for intelligence over two thousand years ago. He wrote, "Now the reason the enlightened prince and the wise general conquer the enemy whenever they move, and their achievements surpass those of ordinary men, is foreknowledge."6
Intelligence processes in business organizations have received significant attention in recent decades. The benefits gained by successfully anticipating a competitor's future plans and strategies are generally self-evident. The consequences of making decisions based on information that is incomplete, inaccurate, or late are as severe.
CI often engenders images of fictional secret agents such as James Bond using an impressive array of sophisticated gadgetry to eavesdrop on their business competition. In reality, CI can be exhilarating, but not because of illegal skullduggery. Modern CI practitioners are stimulated by using their unique set of skills, knowledge, abilities, and instincts to uncover relationships that enable their organizations to compete more effectively. Most CI practice includes a heavy dose of analytical capabilities. Analysts are prominent, central members of CI functions in today's successful, global enterprises.
There are numerous definitions of CI in contemporary practice and scholarship. Our current sense is that no single definition of CI is likely to be precise and universally accepted. As such, CI is generally viewed as the process by which organizations gather actionable information about competitors and the competitive environment and, ideally, apply it to their planning processes and decision-making in order to improve their enterprise's performance. CI links signals, events, perceptions, and data into discernible patterns and trends concerning the business and competitive environment. CI can be simple scanning, such as analyzing a company's annual report and other public documents, or elaborate, such as performing a fully digitized war gaming exercise.7
CI is not business espionage; it is ethical, legal, legitimate, and essential. Business espionage develops intelligence by illegal or cloak-and-dagger means such as breaking and entering, bribery, coercion, deliberate deception or advertising "phantom" job vacancies, electronic eavesdropping, bugging or tapping, network infiltration, or systems hacking.8 CI practitioners use public, but not necessarily published, information. In other words, the information the CI practitioner seeks is readily available and identified through legal means of open sources such as public documents, interviews, and in-house expertise. It does not involve the theft of trade secrets.
One way to understand CI is to view it as a progression from raw inputs to finished outputs. In this perspective, CI begins with scattered bits of raw, basic data. This raw material is then organized by CI practitioners and becomes information. Information becomes intelligence when it is placed into a format useful to a decision-maker's unique or critical intelligence needs (CINs). Intelligence is therefore information that is analyzed, interpreted, and infused with developed implications—the basic focus of this book. Using this lens, CI is the refined intelligence product produced by an analyst that meets a decision-maker's unique needs for understanding a competitive aspect of the internal and/or external environment. Effective CI helps the decision-maker make a better decision!
CI can also be viewed as an organizational function ranging in scope between the broader area of business intelligence (BI) and the narrower version practiced as competitor analysis (CA). A CI function provides the foundation on which strategy and tactics are built, assessed, and modified. As a mostly staff-oriented function, CI will cut across and overlap other functions, in particular, those associated with marketing, planning, and strategy.
Competitive Intelligence Programs (CIPs) have goals such as proactively detecting opportunities or threats; eliminating or reducing blindspots, risks, and/or surprises; and reducing reaction time to competitor and marketplace changes. CIPs attempt to ensure that decision makers have accurate, current information about the organization's competitive environment, and a plan for using that information.9