Competitor Analysis
In formulating business strategy, managers must consider the strategies of the firm's competitors. While in highly fragmented commodity industries the moves of any single competitor may be less important, in concentrated industries competitor analysis becomes a vital part of strategic planning.
Competitor analysis has two primary activities, 1) obtaining information about important competitors, and 2) using that information to predict competitor behavior. The goal of competitor analysis is to understand:
- with which competitors to compete,
- competitors' strategies and planned actions,
- how competitors might react to a firm's actions,
- how to influence competitor behavior to the firm's own advantage.
Casual knowledge about competitors usually is insufficient in competitor analysis. Rather, competitors should be analyzed systematically, using organized competitor intelligence-gathering to compile a wide array of information so that well informed strategy decisions can be made.
Competitor Analysis Framework
Michael Porter presented a framework for analyzing competitors. This framework is based on the following four key aspects of a competitor:
- Competitor's objectives
- Competitor's assumptions
- Competitor's strategy
- Competitor's capabilities
Objectives and assumptions are what drive the competitor, and strategy and capabilities are what the competitor is doing or is capable of doing. These components can be depicted as shown in the following diagram:
Competitor Analysis Components
