One of the key ingredients of a successful strategy is a profound understanding of the external environment, or to “Know Thy Enemy.” This saying comes from Sun Tzu’s the Art of War. Written more than 2,500 years ago, The Art of War is heralded for its insightful advice on warfare strategy. If you know your enemy, the strategic challenge is to use that knowledge to force him to fight on your terms. Organizations today can apply Sun Tzu’s teachings to win battles in today’s competitive marketplace. Understanding your external environment is key to having an informed basis for developing strategies to achieve competitive advantage.
What is Competitive Intelligence?
Competitive intelligence is the process of discovering and generating actionable market information that facilitates the decision-making of stakeholders in order to create a more competitive company. It is the art of knowing thy enemy, thy self, and thy market to develop better systems and increase competitiveness.
In the journey to build a CI capability, companies pass through three stages. The first stage is competitor awareness, where competitors and their products are identified. The second stage, competitor sensitive, is when companies become aware of the potential damage that competitors could inflict. The third stage, competitor intelligent, is when resources are dedicated to predicting and capitalizing on the actions of competitors.
Once the final stage is reached, a competitive intelligence program can be developed and implemented. To be successful, every CI program must excel at each of the four stages of the CI cycle – planning, collecting, analyzing, and disseminating intelligence. A well-organized and well-integrated CI cycle produces timely intelligence that can keep companies three steps ahead of their competition –beating competitors’ moves before they’re made.
Best in Class Case Studies
Used properly, CI leads to greater strategic agility – the ability to adapt to changing market circumstances. The case studies below highlight companies who have successfully identified risks and opportunities early enough to allow them to adapt their strategy to the changing external environment.
Honda and Mitsubishi
The American car market of the 1970s saw customer preferences move in the direction of smaller, more fuel-efficient vehicles. While most automakers ignored these developments and carried on with business as usual, Honda and Mitsubishi carefully monitored the situation, finding opportunities and creating a strategy to enter this newmarket. After careful planning, research, and analysis, Honda and Mitsubishi jumped into the American market, quickly capturing a significant market share, and cementing themselves as industry leaders.
Growing internal inefficiencies and enthusiastic competition from new entrants put Xerox into a state of vulnerability and decline. To reclaim the title of industry leader, Xerox conducted a comprehensive review of all internal processes and compared those to competitors’ processes. This review uncovered inefficiencies, discovered opportunities, and led to the creation of an innovative plan for new design and production systems.
With 80% marketshare, Intel dominated the microprocessor industry – having the ability to cut prices and drive smaller competitors out of business. In such an environment, a young AMD combined research & development with competitive intelligence to develop an innovation strategy and render competing products obsolete before they reached the market. With a strategy informed by competitive intelligence, AMD managed to not only survive in a cutthroat market, but to thrive against a monopolistic competitor.
After experiencing the pressures of shrinking profit margins, increasing competition, and disruptive government interference in the American health insurance industry, Cigna began exploring opportunities for growth in foreign markets. Employing mergers, acquisitions, and joint ventures, Cigna gained valuable local experience and a foothold in these new markets. This strategy allowed for rapid expansion into underserved areas while also providing information on how to best meet the needs of local clients.
How to Build a CI Capability Case Study
Companies should be constantly reassessing the business and its market and competitors and use that information to generate insights that support ever-changing perspectives. If you want your company to perform consistently better than your competitors, start by thinking about the design of your competitive intelligence process.
In 2018, ServiceMax implemented a 30-60-90-day plan to understand, evaluate, and optimize their CI capability. The first 30 days were used to understand the current CI system, what new information was needed, who needed it, and where the new CI capability could deliver the most value. The second 30 days were spent evaluating strengths, weaknesses, and gaps that competitive intelligence could help resolve. In the final 30 days, strategies and procedures were developed and optimized to provide solutions to the CI gaps identified earlier.
While every CI program is tailored to the specific needs of a business, there are a number of steps each company should take when first building their own CI capability.
Analysis Techniques and Methods
A variety of frameworks can be used to get a good sense of what’s happening in the external environment. This is important for every organization because it’s not just how well you run your business that predicts your success it’s also how well you respond to big trends that are happening around you. Below are some examples of techniques and methods that can be used to reveal opportunities for organizational growth and potential threats due to competitors, suppliers, and/or changing consumer demand.
Porter’s Five Forces
The Porter’s Five Forces Model maps out the balance of power between industry forces that influence business success. These forces are inter-industry rivalries, the threat of new entrants, the strength of product substitutes, the power of suppliers, and the power of buyers. Each of these forces can then be disrupted by technological, governmental, social, and competitive changes. When developing a robust business strategy, the Porter’s Five Forces Model can help gauge opportunities, measure the severity of threats, and forecast the effect of disruptions on the status quo.
SWOT Analyses discover a company’s competitive advantage by assessing internal strengths and weaknesses, as well as external opportunities and threats. Strengths are characteristics that give your company an advantage over rivals, weaknesses are the absence of strengths that limit competitiveness, opportunities are new paths that could lead to profit and growth, and threats are industry changes that could impede competitiveness. SWOT analyses can be used to assess your company’s standing in the industry, the positioning or rivals, or a roadmap for future products.
Business War Gaming
Business wargaming (BWG) is a role-playing workshop where groups of participants are given internal and industry-wide information to compete against each other while developing innovative strategies. A productive war game can be broken up into three phases with the first and most important being the dissemination of intelligence to participants, the second being the development and implementation of strategic options, and the third being the review of these options to inform business strategy. The BWG approach can provide a better understanding of how the industry and rivals behave, how your company can best respond to future events, and how to identify early warnings to avoid surprises.
Benchmarking is the process of comparing key metrics of your company to competitors in order to find areas of improvement. Every benchmarking review should identify areas of concern, measure rivals that are comparable, well-established, and new entrants, evaluate competitor trends, communicate findings, and provide options so that decision-makers act on the results. Benchmarking can take place at the strategic/executive level and the tactical/project level to serve the entirety of business operations most effectively.
A gap analysis measures what a company is doing, where it wants to go, and how to close the gap between the two. It should identify areas of improvement and key performance indicators, gather data and analyze the current state, define a quantifiable and optimized end goal, document all challenges preventing the end goal, and develop a plan of action to resolve the identified challenges. Gap analyses reveal problems faced by your company and generate solutions to develop more optimized business processes.
Scenario analyses examine the highest impact forces that shape an industry and allows companies to create plans that will be successful across a range of alternative futures. They can assess competitive threats, identify potential opportunities, and pressure-test existing strategies. Scenario analyses help mitigate being overwhelmed by information overload, an increasing pace of change, rising uncertainty and complexity, and a higher stake, winner-takes-all environment.
Competitive intelligence programs provide insight into the environment your company operates in. They help you understand competitors and yourself so that you can improve current operations and capitalize on future developments. In the words of Sun Tzu:
“If you know your enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”
A robust competitive intelligence program will provide knowledge on your competitors and yourself so that you can find your own competitive advantage and develop a strategy capable of withstanding the battles of the market.
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