european summit
How companies respond to
competitors: Lessons from a
Competitive Intelligence prism
Avner Barnea, A.B. Projects
When a competitor strikes—
introducing an innovative new product
or slashing prices—management
theory suggests that companies should
immediately move into analyzing
their possible counteractions across
the competitive landscape and assess
the value of each of these potential
responses.
A recent survey published in The
McKinsey Quarterly, “How companies
respond to competitors,” enlightens the
problem of facing serious competitive
threats by the senior management.
Conducted in April 2008, the survey
asked executives how their companies
responded to a specific competitive
situation, either a significant price
change or introducing a significant
innovation. (The survey received
1,825 responses from a worldwide
representative sample of business
executives. 914 responded to questions
about major innovations by a
competitor and 911 to questions about
pricing changes.)
The survey highlighted the
following results: that their companies found out
• Most responding companies did
not receive in advance alerts on
their competitors’ moves.
• As each company determines how
to respond to a competitor’s moves,
they generally assess fewer than
four options and don’t look forward
more than two years. About half
don’t examine more than one
round of countermoves by any
competitor.
• A significant number of executives
(30%) relied on their intuition
to determine their company’s
response.
Volume 11 • Number 5 • September-October 2008 www.scip.org 45
• Companies most frequently
respond with whatever
counteraction is most obvious
at the moment. For example,
answering a price cut with a cut of
their own, which often didn’t hit
the market until at least one or two
sales cycles after the competitor’s
move.
• The responses to competitive
moves are generally straightforward
and relatively slow—companies
and decision makers are unlikely to
change in this respect.
• Executives are pleased with the
business results they obtain.
Learn about a
competitor’s move
The first question was:
Relative to when this major
competitive move hit the market,
when did you learn about it?
The majority of executives said
about the competitors move too late
to respond before it hit the market.
They discovered it either when it was
announced or when it actually took
place. About a quarter of the responded
said that they have found about pricing
change one or two reporting cycles after
it have been in the marketplace.
When asked how long it took
them to respond to the competitor’s
move, around 60 % of the respondents
said it was either after the change
occurred in the market or after the
change was in place long enough to
affect their business results. Only 5 %
of the respondents had learned about
the competitor’s move before the
competitive change happened. Only 10
% knew about it when the move hit the
market.
Tracking needed
information
Executives were then asked how
they track the information they need.
They said their sources of information
are news reports (70%), industry groups
and conferences (65%), annual reports
(63%), market share data (63%), and
pricing data (63%).
54% use analysts’ reports as an
information source. About a quarter
(23%) mentioned that they received
information from reverse engineering
and mystery shopping. They did not
mention taking proactive steps to
receive focused information on business
threats created by the competitors
Response to threats
It is very interesting to find out
how executives responded to new
threats by their competitors. In the
survey, half the respondents said they
would take the obvious counteractions,
such as matching the price change or
offering an imitative product.
Another common response was
repeating what the company did the
last time it faced a similar competitive
move. About a quarter said they would
seek advice from the board or external
experts.
Not only were these executives not
worried by the long response times, but
they also did not consider changing the
situation or drawing lessons from the
previous failures/situations. Around
????
40% of all respondents and almost 50
% of the C level executives said that
if they faced the same situation again,
they would conduct their analysis the
same way.
Although the survey stated
that “management theory says the
first concern of companies facing a
significant competitive move is to
protect their position or to try turning
the situation to their advantage”, only a
quarter of executives said they intended
their response to deny their competitors
any benefit.
Looking forward
Additional information in this
survey described that since companies
focus on earnings and market share,
more than half of the executives
limited the timeframe of the forecasted
potential impact of their competitive
counteraction to less than two years.
From this McKinsey survey we
find that, contrary to what many
people in the business environment
believe, managers are satisfied with low
results and do not favor a more active
approach. Fighting back strongly by
using effective initiative steps almost
did not exist.
When executives found themselves
in a delay which affected their business
results we expect that they will look to
change the situation and to place their
companies in a stronger competitive
position. According to this survey, this
did not happen.
Competitive Intelligence
overview
I would expect that when
executives find themselves surprised and
affected badly by a lack of intelligence
concerning their competitors’
intentions, they would act firmly
to improve their intelligence and to
enable a longer alert that would help
them to plan better response moves.
Nevertheless, as we see from this survey,
this was not the direction most of them
pursued.
46 www.scip.org Competitive Intelligence Magazine
These survey findings suggest that
companies were not conducting an
effective, ongoing, sophisticated analysis
of their competitors’ potential actions.
They also did not take proactive steps
to monitor systematically their markets
and their competitors.
Although there was no direct
reference to the contribution of a
competitive intelligence function in the
responding companies, the results have
an interesting insight into the question
how intelligence might support firms to
gain competitive advantage.
Executives received alerts that
were not timely nor high quality, and
they did not have the time to take
reasonable decisions and to respond
to competitors’ actions effectively.
Competitors that introduced successful
competitive moves had significant
advantage, more than could be
expected. A lack of CI input in these
situations may lead us to assume that
either CI functions did not exist in
many of the responding firms, or that
these functions were not fulfilling their
goals. Management has a great need
to receive timely alerts regarding the
intentions of the competitors and their
potential moves.
The survey’s responses indicated
that executives had only limited access
to powerful analytical information
prepared for them by any function
in the company. They relied more
on coincidental information than on
systematic intelligence. The survey
analysis pointed out clearly that those
executives lacked a sense of urgency
and a low appreciation for the potential
dangerous effects these competitor
moves had on their business results.
Executives relied heavily on their
personal capabilities or on coincidence
rather than on a strong analytical
capability that would support them
with the needed options concerning
business threats.
Unfortunately we cannot learn
from this survey how many executives
actually initiated inquiries about the
current and potential moves of their
competitors. My impression is that
there were few executive initiatives in
this area, although the probability of
being surprised was increasingly high.
The price a company paid for being too
confident and not looking proactively at
the business environment is significant.
Executives did not seek original
moves and relied mostly on obvious and
common information to develop their
counteractions. The lack of good and
timely intelligence on the competitor’s
intentions plays a significant role in
creating fewer response options and
potentially wrong decisions. It is not
surprising that while these executives
lacked strategic vision, they did not
feel the need to create a CI capability
to assist them in preparing results
for longer time frames in advance of
competitive actions.
Conclusion
Recent McKinsey surveys
have provided important input to
competitive intelligence practitioners
and consultants. They suggest the
challenges executives face and how they
can use or create better intelligence
functions.
. The results of this survey from CI
prism shows that executive awareness to
CI’s potential value is still low and that
companies still face major difficulties in
applying CI discipline for their benefit.
Executives are the key to better CI
implementation.
I suggest using this survey’s results
as a starting point to inquire how your
executives would respond if they had
a powerful CI to supply them with
timely intelligence about competitors’
intentions and their moves. CI
capability supported by a strong
analytical focus clearly creates many
potential positive effects on business
performance. This may also change the
view of executives as presented in this
survey. Companies that react strongly to
competitive moves, supported by their
CI arm, give themselves a competitive
advantage as they fulfill their business
plans.
 ???

References on competitive intelligence at the

“How companies respond to
competitors: A McKinsey Global
survey,” May 2008), at http://
www.mckinseyquarterly.com/
Strategy/Strategic_Thinking/
How_companies_respond_to_
competitors_2146_abstract
Hebrew University of Jerusalem Business
School, at the Management School of
the University of Haifa and in various
business executives training programs.
Avner has an intensive experience in the
integration of competitive intelligence
systems into Israeli corporations. Avner
can be reached at: avnerpro@netvision.
net.il

Avner Barnea is a former senior member

of the Israeli Intelligence Community,
holds a MA from the Hebrew University
of Jerusalem and graduated from the
Top Executive Program in Marketing
Management from the Tel Aviv
University Graduate School of Business
Administration. He is a strategic
consultant in the field of competitive
intelligence and business strategy in
Israel and abroad. He is a guest lecturer

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