Getting To Know Your Competitor

Tom Peters

Do you clearly understand your competitors’ sales compensation schemes and selling costs? Do you know the weighting of certain variables in their executive compensation formula? What about the way they measure customer service? Can you trace the career paths of your competitors’ top ten executives? How many of their careers are rooted in marketing, sales, finance, or operations backgrounds?

Competitive analysis is considered supreme by corporate strategy experts. Their concern is valid, but the models they prefer to guide analyses are so complex that they frighten most managers away. So most firms know pitifully little about their competitors.

A common pitfall is to assess yourself against yesterday’s arch rival. For instance, if you’re J.C. Penney, should you always be on the lookout for Sears? Or should you primarily be eyeing the new specialists, such as The Limited, Toys R Us or discounters such as Wal-Mart?

Besides ignoring new smaller firms, U.S. companies tend to ignore foreign competitors. One company in the chemical industry talks ceaselessly about import issues, and rightly so because it is losing market share to foreign competitors. Yet despite the generic awareness in its business-by-business competitive analyses, it fails to focus on day-to-day operating practices of specific off-shore rivals.

IBM offers a better approach. It assesses itself against the very best competitor in each market segment in which it participates. The only danger is it, too, could miss those new arrivals. For years Xerox underestimated the significance of the early intrusion by Savin, Cannon, and others into segments that at the time were insignificant and in lower-end markets.

My advice, then, is to be sure to compare yourself: (1) with today’s and tomorrow’s rather than yesterday’s competitors; (2) with specific international competitor firms; (3) with emerging small firms or small, highly competitive pieces of larger firms that are not otherwise rivals; and (4) against the keenest rivals in every market (geographic and product) in which you compete.

Even after the appropriate competitors are identified, the typical shallowness of analysis is alarming. Gross indicators such as market share, sales and earnings are conventional comparative yardsticks. But they do not help you ferret out sustainable strategic opportunities. A second level of analysis is usually to assess competitive cost structures. But even this not nearly enough.

Then there’s the trap of focusing only on the technical product traits. Companies tend to spend large sums of money on “reverse engineering.” The great 1984 cookie wars is an extreme case, where Procter & Gamble sued competitors for flying over a plant in an effort to analyze smokestack effluent for clues to P&G’s “soft inside, crunchy outside” cookie formula. Such efforts downplay factors that are more important to predicting future marketplace skirmishes. Frankly, a Coca-Cola can learn more about the course of its future wars with PepsiCo by thoroughly studying PepsiCo’s nonbureaucratic, no-nonsense, “test it, try it … now” environment than by chemical analysis of any new soft drink.

Thus it is far more important to focus on commonsense business queries. How do competitors organize for R&D? How high in the pecking order are the service manager and the sales manager? How much training is given to the people who answer the phones? How high is the division manager’s spending authority?

The answers to such questions are terrific indicators of potential competitor responsiveness. For instance, if the competitor has a many-layered structure with low general manager spending authority, it’s likely to be slow in responding to change.

But do not heed the temptation to unnecessarily complicate the quest. Keep it simple. I was delighted recently to meet a General Motors plant manager who purchased several Japanese cars, brought them to his plant and encouraged all his people to test drive them. This might have been grounds for dismissal not long ago.

The point is to bring the competitor to life and to debunk the myths. The common practice is to confine all competitive analysis to a CIA-like “competitive intelligence unit.” That’s better than nothing, but it misses a superb opportunity to engender widespread involvement in the business problems and solutions.

So, a second set of advice is: (1) routinely use competitors’ products, shop at competitors’ stores; (2) make sure that competitive analysis focuses as much or more on organizational structure and style of management as on the cost of making the product or providing the service; and (3) get everyone involved——educate the factory team, the MIS bunch, the product designers and sales persons about the best competitors’ ways of doing things.

Thorough knowledge of your rivals and your customers is the best tool for creating a business strategy.