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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: • • 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 percent) relied on their intuition to determine their company’s response. • 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. 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 percent 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 percent of the respondents had learned about the competitor’s move before the competitive change happened. Only 10 percent knew about it when the move hit the market.

tracking needed information

A significant number of executives (30 percent) relied on their intuition to determine their company’s response.
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 that their companies found out 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

executives were then asked how they track the information they need. They said their sources of information are news reports (70 percent), industry groups and conferences (65 percent), annual reports (63 percent), market share data (63 percent), and pricing data (63 percent). 54percent use analysts’ reports as an information source. About a quarter (23 percent) 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.
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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 percent of all respondents and almost 50 percent 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 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. 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.

competitive inteLLigence overview

Competitors that introduced successful competitive moves had significant advantage, more than could be expected
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

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. 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

concLusion

Recent McKinsey surveys have provided important input to CI practitioners and consultants. They
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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. 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 on competitive intelligence at the 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.

references

“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

Avner Barnea is a former senior member of the Israeli Intelligence Community, holds a MA from the Hebrew University

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