Sharpening the Competitive Edge
Pradeep Anand- August 1999

Every firm wants competitive advantages in the market place. However, two major issues create stumbling blocks and hindrances in the creation of successful competitive advantages. The first is defining the market and the players in the competitive arena, and the second is the nature in which competitive information is gathered and ingested by an organization.

Michael Porter in his seminal "Industry Structure and Competitive Strategy", talks about the nature of competition. Within an industry, competitive forces can emerge from new entrants, existing firms, suppliers, buyers, and substitute products- the strength of each component helps shape the industry’s competitive structure. The benefits of Porter’s techniques for analyzing industry and competitors are well documented.

However, it has been my experience that some firms have limited success in utilizing these and other techniques for competitive analysis. Faulty and limited perspectives about the industry and marketplace lead to perceptions of limited threats, and hence, disastrous results. Sears and JCPenney were too busy fighting it out, with each other, to notice that a rural-focused firm like Wal-Mart would emerge to threaten them and, later, surpass them.

This corporate blind spot is created by tendencies to view markets through lenses of "products", "devices", and "services". Over time, successful companies tend to flip from fulfillment of needs of the market to finding markets that their products can fulfill. This transition creates a "product" lens that diffuses clarity of market vision.

Ted Levitt in his 1960 classic "Marketing Myopia" recites example after example about how suppliers are affected by incorrect definition of their markets. Driven by "product" focus, some firms defined their markets narrowly and met their Waterloo. Railroads thought that they were in the railroad business, and not transportation. Hollywood thought that it was in the movie business, and not entertainment and "barely escaped being ravished by television".

Some firms have a similar tendency of looking at competition; this "product" focus distorts the way firms view their competition. Myopic competitive perspectives are dangerous because real threats are then unexpected and unanticipated. When they arrive, they have a tendency to substantially alter industry and market dynamics. They disrupt markets, and create new opportunities. Typically, an existing firm cannot respond, due to their inertia created by history and institutionalized memory. Most incumbents have ineffective responses to these changes in market conditions.

For example, today the Internet provides one of the most potent opportunities to alter rules in the market place yet suppliers who are firmly ensconced in older paradigms have a hard time appreciating the technology’s potential to alter business models. All major Wall Street brokerage houses sat and watched as ETrade, Ameritrade, Charles Schwab, and other Internet based brokerage firms snatched market share from these full service brokerage houses. The existing firms saw their competition through their "products" lenses and missed those outlying blips on their radar screens, till it was too late; too late because the newcomers have "first mover advantages" that are very expensive to overcome.

Additionally, competitive intelligence plays a key role in a firm’s success. Some firms assume that competitive information is the marketing department’s responsibility. This is farthest from the truth- being sensitive to competition is everybody's business. No employee or department of a firm can abdicate that responsibility.

Yes, sales victories are won in hand-to-hand combat at customer sites but it would be erroneous to assume that all intelligence is available only at that point of contact! A customer site is only one of the fields where a firm’s competitive strategies come to fruition. It is here that a victory or loss is recognized but front-line intelligence has limited tactical focus. Firms can only be reactive to tactical information but to be successful in the long term, they need to be proactive, to leap frog competition.

A great catalyst to consistent victories is the consolidation of all information, from all fronts of the value chain- from supply to delivery. In every organization, every functional department has access to competitive information- from a competitor’s front line to its supply lines. Every piece of information- like leadership, organization, ownership, business design, costs, market push/pull mechanisms, suppliers and many more- form vital links in constructing a true competitive picture. This then enables firms to strike across the entire value chain, avoiding pyrrhic, expensive victories at customer sites.