Guest Lecture on Competitive Analysis Frameworks
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These are the slides on my favorite competitive analysis frameworks that I presented in my recent guest lecture at Johns Hopkins University
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Guest Lecture on Competitive Analysis Frameworks
- 1. Guest Lecture: Competitive Analysis August Jackson august (at) augustjackson (dot) net http://www.augustjackson.net http://www.twitter.com/8of12
- 2. Your Guest Lecturer Web 2.0 Open Source Intelligence RSS
- 6. How I choose: begin with the end in mind
- 8. FAROUT to evaluate analytical frameworks Analytical Method Future Orientation Accuracy Resource-Efficiency Objectivity Usefulness Timeliness Stakeholder Analysis Present to short-term Medium Medium Medium Medium Medium to high Business Screening Matrix Present to short-term Low to medium Medium Low Medium Medium SWOT/TOWS Present to short-term Medium Medium Low to Medium Medium to high Medium to high Industry Analysis Present Medium Medium to high Medium Medium to high Medium Scenario Analysis Long-term Medium to high Low to medium Medium Medium to high Low to medium Win/Loss Analysis Present Medium to high Low Low to Medium Medium to high Low
- 11. Market analysis: market trend analysis Diffusion of Innovation Theory “ Where are we on this curve?” Analytical Method Future Orientation Accuracy Resource-Efficiency Objectivity Usefulness Timeliness Market Trend Analysis Short-term Medium High High Low High
- 12. Market analysis: market trend analysis Gartner Hype Cycle
- 13. Market analysis: disruptive technology model “ Is there a technology out there that can disrupt out market?”
- 15. Industry analysis: Porter five forces Analytical Method Future Orientation Accuracy Resource-Efficiency Objectivity Usefulness Timeliness Five Forces Present to short-term Medium to High High Low Medium Medium
- 17. Industry analysis: value net analysis Your Firm Competitors Complementors Suppliers Customers Analytical Method Future Orientation Accuracy Resource-Efficiency Objectivity Usefulness Timeliness Five Forces Present to short-term Medium to High High Low Medium Medium
- 18. Industry analysis: value net analysis Example: Google, AT&T, Verizon Wireless and the FCC in the 2008 700 MHz Wireless Spectrum Auction
- 19. Company analysis: business screening matrices Analytical Method Future Orientation Accuracy Resource-Efficiency Objectivity Usefulness Timeliness Business Screening Matrix Present to short-term Low to medium Medium Low Medium Medium
- 20. Business attractiveness screening matrix Business Attractiveness Industry Attractiveness High Medium Low High Invest to grow the business Invest selectively, expand where feasible Focus on income potential Medium Invest selectively, expand where feasible Develop selectively for income potential Harvest or divest Low Develop selectively and grow on strengths Evaluate harvesting these businesses Divest
- 21. Company analysis: SWOT Analytical Method Future Orientation Accuracy Resource-Efficiency Objectivity Usefulness Timeliness SWOT/TOWS Present to short-term Medium Medium Low to Medium Medium to high Medium to high
Notes de l'éditeur
- This is the framework that Professor Keiser has laid out for analysis. Analysis is the process through which raw data is translated to intelligence and from thence on a recommended set of actions. Recommended actions can also include an explanation of multiple options from which to choose, the uncertainties and possible outcomes of each. Every action has trade-offs, and rarely is there a decision that is truly a “no brainer.” The opportunity cost of every decision taken is the actions not pursued. An important part of intelligence, analysis and providing business support is a recognition of the uncertainty that surrounds our data, conclusions and the future orientation of everything we do. It’s important and business and other endeavors to always remember that we do not have the luxury to wait for certainty. By the time certainty arrives any opportunity to seize higher returns on our investments (of time and money) is gone because our competitors are right there with us. Within Competitive Intelligence circles analysis is quickly becoming the core competency of competitive intelligence. Thanks to improving search engines and ever-improving access to data secondary research is becoming much easier than it’s ever been in the past. Social networks like LinkedIn and Twitter make it easier to capture primary intelligence in a more timely and cost-effective manner. In short, with very few exceptions everybody has access to the dame data. We are moving away from an era defined by asymmetry of information being the basis for competitive advantage to an asymmetry of interpretation being that core. Analysis is central to this.
- It’s not always obvious immediately which analytical framework or frameworks we need to deliver the insight and recommendations for action to the decision-makers we support. The most important thing to consider when selecting are the KITs and KIQs we’ve defined, because these are directly related to the decisions that need to be made about which actions we should take. In the words of Steven Covey, this is “beginning with the end in mind” and the first of the seven habits of highly successful people. Next is the considerations of the data that’s available and that we’ll be able to capture in our research. Finally, what do we have available in terms of time and financial resources? Generally the resource issue is related to the need to collect data. As with all projects you can have two of three attributes: good, fast or cheap. Usually if we cannot take the time to conduct the necessary primary and secondary ourselves we’ll contract out for that research (and indeed some specific data will come only at considerable cost). So good and fast does not equate to cheap.
- This is the decision process I use when planning an analysis project. Who is the requestor? What specific preferences to do they have for deliverables and types of information? Are they familiar with or do they prefer a specific analytical model or framework? What is their level of familiarity with intelligence and uncertainty? Do they have specific preferences for deliverables (written report, powerpoint or verbal delivery)? Probably the most important issue is what is the business decision they are trying to make or the challenge that they are facing. Analytical frameworks are suited for certain business decisions. The business decision is translated into a set of KITs and KIQs. Then how much time do we have to conduct our research and analysis, and what resources do we have available to us on that timeframe and within that budget. From their I plan the secondary and primary research. Often we find as we go into the process we learn things as we go along about what will or will not be possible in terms of our research. We often need to recalibrate our project based on what we learn in a series of initial research efforts.
- These are some of the most used analytical frameworks, and I’ve tried to categorize them based on the scope of the decisions they support.
- The FAROUT framework is particularly useful for choosing from among analytical frameworks based on resources available to conduct a CI project and the degree to which more long-term strategic or near-term and generally for tactical guidance is required. Taken along with knowledge of what types of business decisions each analytical framework can support this framework cal help the CI professional plan their project. Future-orientation: timeframe over which analysis can guide decisions Accuracy: Likelihood that analysis will predict orders of magnitude and direction of future market developments or competitor actions Resource-efficiency: level of effort divided by the value of the final deliverable or analytical product Objectivity: Degree to which the analysis is based on objective and knowable data sets as opposed to assumptions or any frameworks or data that reflect subjectivity of analysts, researchers or providers of data. Usefulness: Degree to which the analytical output is directly applicable to executive and managerial decision-making Timeliness: How quickly can the product be turned around to respond to an inquiry or request
- STEEP analysis is very useful for understanding the broader environment in which a business operates because it establishes a baseline understanding of the demographics, environmental factors, technological innovation and other factors that will determine the potential for success in the endeavor. This helps us understand the field and anticipate what changes will take place in that field over time. STEEP is a very broad framework and often tactical managers will not understand the importance or the applicability of STEEP. While the analysis is easy to conduct and the data is abundant, it is most useful for strategic decisions that will guide tactics years in advance. As such it is truly a strategic tool. Social generally refers to demographic trends such as proportion of population of various ago cohorts/generations, gender power relationships, ethic make-up and subsequent differences in beliefs and behaviors held across these cohorts. Technological refers to trends in innovation and adoption of technology and different value creation systems, business models and disruptive potential of those technologies. Economic refers to the business and general economic state of affairs and likely trajectories in the future. Is the economy growing or declining, what industries are driving those trends, what parties are funding economic activity and which groups are experiencing the greatest economic value. Environmental refers to the general ecological state and issues such quality of air and water, availability of potable water, access to arable land and industry contribution to climate change. This is the additional view STEEP includes over PEST. Considering the increase in a stakeholder orientation and interest in Corporate Social Responsibility this is an important strategic consideration. Environmental concerns are increasingly relevant for planning supply and value chains, identifying target customer segments and myriad other strategic considerations. Political refers to political and regulatory environment, such as the stability of this environment, perspectives of political leaders, distribution of power within political systems and industry’s ability to influence the decisions of policy-makers and regulators.
- Is there any example that we can choose from among the group projects?
- Diffusion of Innovation Theory popularized by Everett Rogers in the 1960s to define "the process by which an innovation is communicated through certain channels over time among the members of a social system.” Lays out 5 stages to technology adoption process and the attributes of segments of adopters on the product life cycle. More information here: http://en.wikipedia.org/wiki/Diffusion_of_innovations An extension of this framework was introduced in the 1990s called “Crossing the Chasm” that explores the challenges of new technological innovations moving beyond the innovator and early adopter phases to the early majority when a product has moved into the mainstream. It should be noted that 100% penetration is not universal penetration but rather penetration of a technology or product’s addressable market. The addressable market is the sum of all users who would receive value from the technology or product.
- An alternative market trend analysis framework was developed by Gartner in the mid 1990s. This was developed probably in part tongue-in-cheek in response to the tendency of technology marketers to over-hype new innovations, even many technologies that will never “cross the chasm” to reach what Gartner calls the plateau of productivity, Once a product or technology moves on to the “plateau of productivity” it begins to enter the “early majority” or “late majority” phase of the technology adoption life-cycle.
- The disruptive innovation model is a framework introduced by Professor Clayton Christensen of Harvard Business School and explored in “The Innovator’s Dilemma” and “Seeing What’s Next.” The basic premise is that incumbents quickly overshoot the functionality that customer’s demand, as technology of production is a steeper curve than how customer’s functionality requirements grow. Low cost innovators will introduce low-cost solutions that initially under-serve the majority of customer requirements and serve customers that cannot afford the incumbent solution. Those producers will quickly innovate to meet the functionality requirements of a larger proportion of the addressable market. The classic examples that Christensen applies here are min-mills disrupting the larger steel industry and Southwest Airlines and jetBlue disrupting the traditional airlines.
- Understanding drivers and inhibitors can be particularly useful when introducing new products or solutions to a market. This analysis can help plan a marketing strategy. It is particularly important for first-movers and innovators to understand the issues that will drive and inhibit adoption of new solutions. These issues are often similar to those issues included in evaluating the technology adoption curve.
- Porter’s Five Forces is used to evaluate the profit potential of an industry and is concerned with the balance of power among customers, suppliers, competitors as well as potential substitutions or new market entrants. This framework is useful because it can help a firm understand the potential vectors from which competitive forces that harm profitability may arise. If a market is defined by a small group of customers (such as say the airplane manufacturers industry) those customers will have significant power to negotiate because if one customer chooses a competitor or decides not to buy the product there are not likely many customers to replace the one lost. By contrast in consumer retail there are many buyers, and it is comparatively easy to replace a lost customer. In these markets the customer is the price taker. Likewise the relationship between the number of suppliers and competitors for a market is an important power dynamic. In an industry that relies on a small set of suppliers there is the potential for the few suppliers to extract considerable value in what they charge to the competitors they serve. Suppliers with monopoly power in the form of patents are in the most favorable position. The threat of substitutes and new market entrants are always at the edges of any competitive industry. In what other ways and with what other solutions can customers achieve the same or similar value that the competitors’ offerings provide? If there are a number of products that can satisfy the same need well-enough, then competitors will have little pricing power. Rivalry among competitors is another important factor, and is often psychological or behavioral. Do competitors compete directly for revenue? In a market that is not growing or may even be declining then it is very likely that competitors will resort to stealing market share from one another. Are their distinct niche markets that each competitor can serve without competing directly? Is there any regulatory or anti-trust oversight that prevents these competitors from dividing the market and keeping prices high.
- A Five Forces analysis is useful for defining strategies to attack or defend in the competitive marketplace. For example, new market entrants will be encouraged to enter the market if the competitors already in that market are generating high profit margins well above the cost of capital required to enter that market. Established competitors will want to deter new market entry, and one way to do this is to keep profits low enough to make the market sufficiently unattractive. Some competitors will resort to legal and regulatory protections to prevent new market entrants. One example of this are licensing requirements for interior decorators and other professional services. The non-regulatory barriers to entry in these markets are actually very low, and so the requirement to pay for and attend classes as well as be licensed create barriers that new market entrants must overcome. Many prospective interior designers will decide that it’s not worth it to enter that market. Established competitors can also control new market entry by limiting the number of licenses that are made available, how often licenses are issued or increasing the amount of training or complexity of the test. Competitors may also seek to capture customers or channels to market through long-term exclusive contracts with customers or distributors. Te customer cannot choose another offering from either a competitor or new market entrant until the contract expires. These contracts often cede some portion of the profit to the customer or distributor, and penalties for breaking these contracts is the competitors way to recapture some of those profits as well as deter the party from breaking the contract.
- Source: Brandenberger, Adam M.; Nalebuff, Barry J. “The Right game: Use Game Theory to Shape Strategy.” Harvard Business Review July – August 1995: 33 – 47. The value-net analysis is similar in structure to the Five Forces framework, and the goal is to determine the ability of the parties in a given market to extract the maximum value from participating in that market. This is a useful mechanism when attempting to formulate a pricing strategy or develop contract terms, because it evaluates the comparative strength of each participant. It is a great compliment to a Five Forces analysis. In the Brandenberg and Nalebuff article they articulate how a value net analysis can be used along with basic game theory to map out interaction among the parties in a complex, multi-party negotiation.
- This is an example of an analysis I conducted for my own MBA program. The value net analysis was used (post-fact) to evaluate the motivations of each of these participants. My theory is that specific actions taken prior to the auction that Google and Verizon Wireless took served as signals to one another and other participants of their intentions to aggressively pursue specific strategies and to deter competitors (mainly AT&T) from pursuing a head-on strategy. The wireless spectrum in auction was different from those that came before it because there was a new, cash-rich market entrant: Google. Google was less interested in buying spectrum in the auction than they were in being guaranteed access to spectrum at favorable cost and terms. Google urged the FCC to set conditions on the sale of the C-block licenses for open network access. Google made public statements that if the FCC were not to impose those open network requirements Google would bid a minimum of $4.6 billion for that spectrum block and make it available on an open basis themselves. This was a strong signal of a price floor below which the C Block would not be acquired by any other market participant. Verizon Wireless quickly filed legal suit opposing the provision but just as quickly withdrew its legal complaint. Further, Verizon Wireless announced that they would voluntarily implement several of the open network provisions Google proposed on all of the spectrum they owned currently as well as any spectrum acquired in the then-upcoming 700 MHz auction. Message to the other market participants: We want the C-Block, we’re willing to beat the $4.6 billion floor for the licenses and we will surrender some of the value of that purchase to Google and other purchasers of wholesale spectrum. Message to other competitors: if you’re going to bid for the C-Block with a hope to win you’re going to have to beat the price floor, and if you want to keep that network closed you’re going to have to pay a lot for it to keep that value for yourself– basically surrender the value anyway in the form of a higher purchase price. The FCC eventually did impose several of Google’s proposed open network provisions on the C-Block. Verizon Wireless won the C-Block licenses. AT&T, Verizon Wireless, Sprint and several other competitors purchased the many A- and B-block licenses that were included in the auction. Verizon Wireless and Google both got what they sought and were both better off for the competition. AT&T were likely the worse off for the approach Google and Verizon Wireless employed in the lead up to the auction.
- Business Screening Matrices place two attributes, usually a combination reflecting attractiveness of a business environment and the ability of the firm to execute in that environment to develop a set of product or business strategies. Boston Consulting Group (BCG) product market attractiveness matrix is the most commonly-used and famous example. Where a product or business falls on a business screening matrix suggests a specific strategy to pursue and priority for investment to consider for a given product or business. BCG Matrix External Market Growth Rate reflects likely continued ROI for prioritization of a product investment made today. Firm’s capability to compete in that market is reflected in its share of the market. Matrix splits out into four categories that suggest specific product or business strategies: Cash cows: Milk them for their cash flow to fund other products (particularly Stars) Dogs: Divest or discontinue unless the product is key to retaining critical customer(s) or provide reverse vertical benefit for other products (i.e. are an input to another product) Stars: Invest in them now to generate cash flow as they mature into cash cows as company reduced need for continued capital investment to accommodate growth and moved up the experience curve. Question Marks: Conduct deeper analysis, identify those products for which the firm has the resources and capability to turn them into Stars and subsequently cash cows
- This is a generalized version of the BCG matrix. It compares Business Attractiveness on one dimension to industry attractiveness. You can define attractiveness based on any number of metrics, and usually financial or performance metrics are the basis of attractiveness.
- SWOT Strengths Weaknesses Opportunities Threats This is probably the most widely used and immediately recognized and accessible analytical framework. It’s a standard element of any competitor profile. Most managers and executives are familiar with SWOT and its implications. Even those that are not familiar with the framework will catch on very quickly. The basic goal of the framework it to describe the alignment or fit between the firm’s internal capabilities (Strengths and Weaknesses) and the external environment (Opportunities and Threats). It’s easy to remember that Strengths and Weaknesses are specific to the firm. A variant of the SWOT is the relative SWOT that compares the firm’s strengths and weaknesses relative to those of the immediate competitors. Internal factors include existing products and their differentiators in the market (weakness: competitive differentiators of existing competing products). Other internal factors include resources, R&D capabilities, corporate culture, systems, staffing practices, intellectual property, existing contracts and strength of the order pipeline. External factors include market demand, degree of market saturation, growth state of the market, government policies, economic conditions, social trends, technology development and related trends. The output of a STEEP analysis is very useful in helping the analyst choose the appropriate and relevant Opportunities and Threats. The SWOT suggests a strategic framework that suggests a firm will use its strengths to exploit opportunities and defend against its weaknesses and defend against threats in the external environment. The Weaknesses also suggest gaps that the firm may choose to address depending on priority and availability of resources. We can try to do a SWOT analysis of one of the group projects.