Challenge 2 Know your competitors

Competitor identification and analysis

This challenge is designed to encourage you to keep looking outside of your organisation to understand more about it by establishing the answer to the question - who are your competitors? Answer the following questions about your own organisation to the best of your own knowledge.

You can decide whether to consider the whole organisation, or to pick a business unit, a product range or an individual product or service. The important thing is to appreciate that organisations compete on many levels.

Don’t worry if you don’t know the answers to all the questions immediately. As with the previous challenge, your learning will be increased by knowing how many you can answer confidently, right now and then finding ways to answer the rest.

Figure 3 below may be helpful as a way of explaining how organisations can identify different competitors.

Figure 3 The dynamic process of commercial awareness (Bergen and Peteraf, 2002)

Show description|Hide description

The Y axis describes market commonality and has a box near the top of it saying indirect competitors (substitutes). The X axis labelled resource similarity has a box near the right hand side of it saying potential competitors. In between both axis is a box saying direct competitors.

Figure 3 The dynamic process of commercial awareness (Bergen and Peteraf, 2002)

The Y axis in diagram 1 describes market commonality (that is where competitors are grouped according to the degree to which they meet the same or similar customer needs or wants). The X axis labelled resource similarity refers to the extent to which competitors have and apply the same resources to meeting those needs.

A couple of examples may help to expand on this. A competitor company that scored high on both axis (i.e. on the top right of the graph) serves the same need in the same way as your company does and so would be considered a direct competitor.

Consider these examples.

• You have a hairdressing salon and you are competing with another hairdressing salon. There are mobile hairdressers who will go to a customer’s home.

• In the travel sector, Easyjet is an airline in direct competition with Ryanair both offering low flights. Other airlines seek to charge more for a superior service offering and though the mode of travel and the destinations are the same, the experience is quite different.

• Currently, Eurostar transports travellers to European destinations, but does not fly them. Eurostar have dissimilar resources but meet a similar need (to travel to a destination) and so could be considered an indirect competitor to the airlines.

The interesting challenge for many organisations comes from companies in the “potential competitor” grouping. As new technology start-ups threaten to disrupt many sectors, it is often technology that is producing a host of possible alternative business models that are disrupting the worlds of banking and financial services, retail, estate agencies, education, publishing and broadcasting, music and many more.

Figure 4 below is a useful way of taking the analysis of the competitive landscape in a sector or marketplace to another level.

Maximise

Figure 4 Five Forces Framework (Porter, 1979)

Show description|Hide description

The diagram has a centre circle saying competitive rivalry and four arrows pointing inwards to it. From the top the arrow says threat of new entry, from the bottom the arrow says threat of substitution, from the left supplier power, and from the right buyer power. In each corher between the arrows are four boxes. The box in the top left says threat of new entry, time and cost of entry, specialist knowledge, economies of scale, cost advantages, technology protection, and barriers to entry. The box in the top right says competitive rivalry, number of competitors, quality differences, other differences, switching costs, and customer loyalty. The box in the bottom right says buyer power, number of customers, size of each order, differences between competitors, price sensitivity, ability to substitute, and cost of changing. The box in the bottom left says supplier poer, number of suppliers, size of suppliers, uniqueness of service, your ability to substitute, cost of changing, threat of substitution, substitute performance, and cost of change.

Figure 4 Five Forces Framework (Porter, 1979)

Porter’s Five Forces Framework has been used for many years now to evaluate how competition arises and manifests itself in an industry or sector. It is designed to allow organisations to understand where there may be threats they need to respond to and how they can achieve a competitive advantage.

At one extreme, a monopoly supplier will have a very different profile to a company operating in a very fragmented industry with many alternative suppliers, potential substitutes for their products and services, and, therefore, choices for customers and end users. While it has been criticised for its simplicity, it has stood the test of time.

Now that you have worked through these questions, which of these do you need more information on to get to an answer?

Where might you find out more? There may be, for example, websites that produce industry reports and sector analysis.

Who in your own organisation has the answers to these questions? Could they point you to reports or organisations that you could use to investigate further?