Burning Ideas

If you know that your backpacking trip will take you through snowy mountain roads and swampy hiking trails, you would be wise to put on your snow tires and double up on insect repellant. Similarly, if you know the nature of competitive challenges in your market, you should be sure your firm is adequately prepared to meet them. Every firm has both strengths and weaknesses, but it is how they match up against the competitive structure of the market that determines success.
Three broad types of action plans are implicated by competitive analysis. A firm will want to choose its competitive battlegrounds judiciously. If it is the low-cost producer, it might enjoy profitable business from a large, powerful buyer. A firm that is disadvantaged on the cost side should probably not pursue business from the powerful buyer, but compete in another customer sector where quick response and specialized technical service are critical. Solar Kids, a Cincinnati-based computer training company, faced up to the waning profit opportunities at elementary and high schools: lots of rivals, impoverished and slow-paying customers. It changed its name to Solar Comp and moved into corporate training, where competition pivots on expertise with the latest applications software and personal productivity tools.
Innovative organizations will sometimes pursue a strategy designed to change the competitive structure of the industry. Advertising and a sophisticated means of programmed merchandising for resellers may transform a market characterized by small regional manufacturers into one dominated by a few national marketers. In markets where this has occurred, the new competitive structure creates barriers to entry through new distribution requirements and product differentiation by branding.
The third strategic approach is to anticipate and exploit change in the competitive structure of the industry. Our challenge is to look carefully at each competitive force, understand its root causes, and forecast its impact on the profitability of an industry. Then, with insight and mobility superior to our competition, we try to secure a position to capitalize on the evolution of the field. In the opening vignette to this chapter, we profiled the moves to stake out a commercial presence in the developing digital economy. It is a reasonable bet that its growing experience and reputation will earn it superior profits and up the stakes for potential rivals in these evolving markets.

Substantial markets can be revealed by a number of estimation techniques. One very powerful approach is the use of scenarios. Scenarios comprise a forecasting technique that requires managers to write explicit anticipated futures and articulate the chains of events that would need to occur to make the future happen. For example, Royal Dutch Shell tuned its supply strategy when its scenario process in 1973 found no compelling reasons for Arab states to increase their crude oil production. Furthermore, some of the authors helped an environmental management company determine the market for certain types of training. The task involved getting accurate counts of employees in different industries who handled hazardous and toxic materials, plus an assessment of the likelihood of new government regulations that—by fiat or new economic sanctions— would impact the training demand.
A related approach involves hard thinking and analysis of how the product fits into the value-added process. This approach is sometimes called the buildup approach or factoring. Market estimates by this approach come from building up the materials or parts units needed in a specific application or from specific accounts. For example, potential demand for a surgical staple designed for closing Caesarian sections can be estimated from a count of the average number of staples needed to close a typical Csection, times the number of C-sections performed in different countries. Projections in each country are apt to show different trends, based on differences in hospital protocols, fertility patterns, and population distributions.
The same basic approach can be applied using survey responses from prospects or from members of the sales force. Likewise, the volume of certain materials, logistical services, or MRO (maintenance, repair and operating) goods can be compared to finished products output in a statistical series. A statistical series is an estimation technique that uses the correlation between demand and some other set of economic activities to yield a forecast.