Strategic Analysis, Competitive Intelligence, and Strategy ...

M. S. Miller, Strategic Analysis 1

Strategic Analysis, Competitive Intelligence, and Strategy Development

by Mitchell Shaw Miller, March 2017

Preface

To maximize potential profits, to derive an ideal business and marketing plan, to practice strategic management, to develop an enterprise-level investment policy, to develop and refine the organization’s portfolio, its services, objectives, strategies, and tactics – an organization or partnership clarify its vision and its mission, from which it may then establish clear objectives, and in turn, clear strategies and clear tactics. The vision and mission statements are speak toward the purpose of a venture, and provide a high-level view of its business policies, its strategic position, and its strategic goal; beyond those, they lay the framework from which its theory of business can grow. In 1994, Peter Drucker published an article in Harvard Business Review entitled The Theory of Business.1 In this article, Drucker says: “Every organization, whether a business or not, has a theory of business.” On this so-called theory of business, Drucker explains:

“The assumptions that shape any organization’s behavior, dictate its decisions about what to do and what not to do, and define what the organization considers meaningful results. These assumptions are about markets... about identifying customers and competitors, their values and behavior... about technology and its dynamics, about a company’s strengths and weaknesses... about what a company gets paid for. They are what I call a company’s theory of business.”

In his article, Drucker defines several key aspects about a theory of business. First, Drucker explains that a theory of business has three parts:

(1) The assumptions about the environment of the organization (e.g. society and social structure, the market, the customer, the technology)

(2) The assumptions about the specific mission of the organization

(3) The assumptions about the core competencies needed to accomplish the organization’s mission

A valid theory of business, Drucker continues, has four specifications:

(1) The assumptions about environment, mission, and core competencies must fit reality

(2) The assumptions in all three parts must fit one another

(3) The theory of business must be known and understood throughout the organization

(4) The theory of business must be tested constantly (it is merely a working hypothesis)

There are three general activities for a business to maintain itself: preventive care, early diagnosis, and cure. Preventive care, used consistently, allows an organization to remain alert and capable of rapidly changing itself and its theory. There are two preventive measures identified by Drucker: (1)


abandonment, and (2) noncustomers. On abandonment, Drucker says “every three years, an organization should challenge every product, every service, every policy, every distribution channel, and question – if we were not in it already, would we be going into it now? By questioning accepted policies and routines the organization forces itself to think about its theory.” On noncustomers, Drucker says “the first signs of fundamental change rarely appear within one’s own organization or among one’s own customers. Almost always they show up first among one’s noncustomers.”

For early diagnosis, Drucker explains several criteria from which an organization can be made aware that it is time to re-evaluate its theory of business. Fulfilling one of the organization’s original objectives is one signal. Another signal is rapid growth – “any organization that doubles or triples in size within a fairly short period of time has necessarily outgrown its theory.” Another clear signal that one’s theory of business has become obsolete is an unexpected success either in one’s own organization, or in the organization of a competitor. Lastly, unexpected failure (again, in one’s own organization or in the organization of a competitor) is another sure sign that a theory of business should be re-appraised.

With regards to a cure, Drucker includes several success stories (e.g. the CEO of Merck, the CEO of Sony). Drucker indicates that “to establish, maintain, and restore a theory... does not require Genghis Khan or Leonardo da Vinci in the executive suite. It is not genius, it is hard work. It is not being clever, it is being conscientious.” About those who have found success, he says: “they start out with diagnosis and analysis. They accept that attaining objectives and rapid growth demand a serious rethinking of the theory of business. They do not dismiss an unexpected failure as the result of a subordinate’s incompetence or as an accident but treat as a symptom of systems failure. They do not take credit for unexpected success but treat it as a challenge to their assumptions.”

In Drucker’s article, he explains that organization’s that either fail to achieve success or suddenly lose success can generally trace the problem back to a simple origin – reality has changed, and the theory of business has not changed with it. Considering this theory of business is not only important for organizations seeking to diagnose and repair failures, but also those who are currently successful and wish to maintain success, as well as those whose environment is changing, those who are defining their objectives and seeking to understand their strategic position, and those who are just beginning in new or revised ventures.

Analyses and Models for the Task

Before conducting the Strategic Planning Meetings (during which vision and mission statements are developed, enterprise objectives, and enterprise strategies) there are some fundamental analyses that would ideally be conducted first. These analyses span from areas like competitive intelligence to marketing strategy, and offer deep insight into strategy development and will be valuable foundational knowledge before addressing questions like “what kind of company – and serving which market – do we wish to be in x years?”

Porter’s Value Chain and Supply Chain Analysis Relates to · Strategy development

· Assessment of Competitive Advantage Benefits · Identify organizational activities which contribute to profitability and competitive advantage, and

those that do not. 2 · Understanding of the behavior of costs and sources of differentiation2 · Helps overcome some limitations of portfolio planning2

Criticisms · More easily applied to organizations in the context of manufacturing2

This type of analysis is useful not only for strategic analysis pertaining to the proposed partnership, but also as part of gaining insight into further strategic alliances, and – furthermore – as part of the


appraisal or ‘audit’ process used in assessing a client’s situation and suggesting value-adding additional services from the interdisciplinary consultancy.

M. H. Evans authored a series of online course documents on Excellence in Financial Management; course number 12 is on competitive intelligence, and Evans describes the supply chain / value chain process: 3

A great deal of knowledge can be gained by understanding the dynamics behind a supply chain – manufacturer, distributor, retailer, and customer... The purpose of value chain analysis is to understand the complexity of the entire process and how can we produce more value for the customer at the end of the process... Keep in mind that the value chain involves all of the supply and demand flows of not just the products, but also the services and information. These can include things like procurement processing, order fill rates, transportation logistics, customer services, and everything else that transforms inputs into finished products delivered to customers.

A basic model for pulling this together comes from Michael Porter’s book “Competitive Advantage: Creating and Sustaining Superior Performance.” Porter concludes that the profit margins for a business are a function of the Sales Revenues less all value-chain activity costs. Porter's model divides value chain activities between primary (directly involves in making and moving the products) and support (functional types activities such as product quality, order processing, technology, finance, etc.).

The adjacent figure depicts the graphical presentation of Porter’s value chain, taken from a page on Porter’s value chain in Kaplan Financial Knowledge Bank.2

The following figure depicts the interconnected nature of various value chains – this interconnectivity referred to as a depiction of a value network. The graphic was also taken from the Kaplan Financial Knowledge Bank.2


While Porter’s value chain model is highly quantitative and analytical, I have found a simplified graphical view of the supply network to be useful when first examining an industry and searching for potential opportunities for cooperative alliances (or other opportunities for competitive advantage). Identifying complementary products or services can help elucidate opportunities for future business agreements or to lower barriers for market entry. The below illustration depicts a hypothetical (and grossly oversimplified) scenario examining several primary and support services related to a manufacturing operation and its immediate downstream provider, for the purpose of strategy developing relating to the market entry of an industry-specific team of legal and financial specialists offering a consultancy service. The downstream provider is referred to as a processing service, but could be considered in this example to be the outsourcing operation for product packaging and quality testing.

Referring to the graphic, we see (outlined in yellow) potential consolidation of services which are currently provided by two separate organizations. Should a business venture be pursued which offered an interdisciplinary team of legal and financial specialists with industry expertise, it is likely that their package could be offered at a competitve price relative to the current manufacturer’s dealing with two separate agencies. Furthermore, there is potential benefits relating to market stayability for such a combined service provider, in contrast with the services standing independently – entry barriers for a competitive agency have become higher. Immediately downstream (for the processing service), there are also identifiable opportunities for consolidating the service providers which offer legal counsel related to compliance issues and financial services related to trade agreements. Such an analysis is devoid of many important details, which would require a deeper subsequent analysis using other tools, but offers a convenient way of viewing interconnected supply / value chain elements and looking for opportunities to negotiate business alliances.

PEST Analysis (and variants) Relates to · Environmental Scanning (Business Climate) Benefits · Understanding the business environment plays an important role in strategy development Criticisms · “In carrying out a PEST or PESTLE analysis it is all too easy to produce lists of factors, many of which

may be of little or no importance in developing strategy... Developing a clear understanding of the cause-and-effect relationships between the factors in the PESTLE model is more challenging.” (Tovstiga and Aylward, 2008)

Integrations · The output can be used to populate Opportunities and Threats entries for a SWOT analysis · The output comprises the Climate component of the 5Cs model


PEST Analysis examines political, economic, social, and technological factors that shape the business climate within which the enterprise will be operating. A close variant, PESTLE, adds legal and environment factors. Including most factors from all the variants, PESTLE(DIR), would include: political, economic, social, technological, legal, environmental, demographic, intercultural, and regulatory factors. Of course, not all of these factors will be relevant and can be selected to fit the required criteria for analysis.

Taken from the Wikipedia page:

Political factors are basically how the government intervenes in the economy. Specifically, political factors include areas such as tax policy, labor law, environmental law, trade restrictions, tariffs, and political stability.

Economic factors include economic growth, interest rates, exchange rates, inflation rate. These factors greatly affect how businesses operate and make decisions. For example, interest rates affect a firm's cost of capital and therefore to what extent a business grows and expands.

Social factors include the cultural aspects and health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. High trends in social factors affect the demand for a company's products and how that company operates.

Technological factors include technological aspects like R&D activity, automation, technology incentives and the rate of technological change. These can determine barriers to entry, minimum efficient production level and influence the outsourcing decisions. Furthermore, technological shifts would affect costs, quality, and lead to innovation.

Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law. These factors can affect how a company operates, its costs, and the demand for its products.

Environmental factors include ecological and environmental aspects such as weather, climate, and climate change, which may especially affect industries such as tourism, farming, and insurance. Furthermore, growing awareness of the potential impacts of climate change is affecting how companies operate and the products they offer, both creating new markets and diminishing or destroying existing ones.

Demographic factors include gender, age, ethnicity, knowledge of languages, disabilities, mobility, home ownership, employment status, religious belief or practice, culture and tradition, living standards and income level.

Inter-cultural factors consider collaboration in a global setting.

Regulatory factors include acts of parliament and associated regulations, international and national standards, local government by-laws, and mechanisms to monitor and ensure compliance.

In a 99-page MBA thesis authored by R.J. Collins (Henley Business School), Collins sheds some enlightening background on the PESTLE Analysis, its uses, its importance, and its proper implementation.4 The PEST analysis was originally introduced by Aguilar (1967), in which he outlined the cause-and-effect structured nature of Business Environment Scanning. Collins summarizes this structured relationship in the simple flowchart below:


“In order to develop a good theory of the firm in an environmental context, one must develop rich, relevant and useful theories or models of the business environment itself,” quoted from Collins’ thesis. “For this co-evolution to be strategically valuable,” referring to the dynamic nature of the firm in the context of its environment, “it must be purposeful. A rich model of the external environment that enables and promotes sense-making of the environment by business leaders is a valuable component of being effectively purposeful.” Collins offers a quote from Horton (2010): “When there are high levels of ambiguity, complexity or unpredictability in the business environment, strategy must be discovery driven, involve exploration and learning using qualitative methods.” Collins continues to say that “for a firm to maintain competitive advantage it must purposefully create, codify and leverage information about an evolving business environment.” On this, he offers a supportive quote from Kiesler and Sproull (1982): “[a] crucial component of managerial behavior in rapidly changing environments is problem sensing, the cognitive processes of noticing and constructing meaning about environmental change so that organizations can take action.” While all this makes a strong case for environmental scanning, Collins offers one more profound excerpt on the issue, from McEwen (2008): “Despite the importance of the entrepreneur’s knowledge to a new venture success, many are faced with a capability gap because of the discrepancy between their current knowledge and the information that is relevant to the current business environment... One way of acquiring and using outside information is through environmental scanning.”

Collins constructed a flowchart summarizing a chapter from The Company and its Environment: Relating Opportunities to Resources, by Andrews (1980):

PESTLEWeb is a graphical approach and software engine used to produce PESTLE analyses and reports. Available at: http://pestleanalysis.com/pestleweb/ Collins makes a strong case for the uses and benefits of PESTLEWeb in his thesis. He shows how PESTLEWeb can be used to overcome some of the criticisms and shortcomings of conventional PEST analyses comprised of disconnected list

http://pestleanalysis.com/pestleweb/


entries. Several types of elements/relationships visualized through PESTLEWeb:

Collins gives an example from the global automotive industry to show how these elements are used:

Next, Collins shows how the PESTLEWeb model relates several issues: recent credit crisis and its political/economic implications for the automotive industry, social-economic-technological factors leading to the United States weighting toward a large-automobile preference, and issues of unintended consequence of government support of existing manufacturers:


The next figure, also from Collins, relates of a set of casual-relationship threads introducing some issues associated with emerging economies and country-specific biases toward certain vehicle types:

SWOT Analysis Relates to · Strategy generation (for a given Objective) Benefits · Useful in any decision-making with respect to a particular objective Criticisms · Users must generate meaningful questions in order to generate meaningful information

· Information is not prioritized or evaluated critically (i.e. weak opportunities may appear to balance strong threats)

Integrations · SWOT analysis can be used in Strategic Planning Meetings to help generate strategies for each of the objectives targeted by the enterprise; based on the strategies, objectives can be modified or refined

SWOT Analysis (strengths, weaknesses, opportunities, threats) examines the internal factors (S/W) and external factors (O/T) potentially affecting a business with respective to a particular objective. The analysis considers these factors in relation to an organizational objective because comparison of multiple objectives simultaneously may not be possible (one objective often has an opportunity cost in terms of the other objective, and so a SWOT analysis could return contradictory results). Because SWOTs produce an un-weighted list of information, the importance of an individual SWOT analysis is gauged by the value of the strategies generated through that analysis. Factors considered in the SWOT analysis may include any number of parameters, from the “four Ps” i.e. “marketing mix” (product, price, promotion, place/distribution), to personnel, finance, manufacturing capability, etc. Further example considerations for S/W may include: human resources, physical resources, financial, activities and processes, and past experiences. Further example considerations O/T may include: future trends in field or culture, economy, funding sources, demographics, physical environment, legislation, and global or regional events.


Porter’s Five Forces (or extended Six Forces Model) Relates to · Industry rivalry

· Acquisition decision-making · Alliances · Account management · Negotiating large contracts

Benefits From Grundy (2006):5 · Helps predict long-run rate of returns in a given industry · Emphasizes the importance of negotiating power and bargaining arrangements · Helps combine input-output analysis of an industry with boundaries via entry barriers and substitutes · Focuses managers, more-so than SWOT analysis, on the external environment

Criticisms From Grundy (2006):5 · “Porter’s five competitive forces model has been a most influential model within business schools but has perhaps had less appeal to the practicing manager outside of an MBA...” · Oversimplifies industry value chains · Fails to link directly with possible managerial actions · Tends to over-stress macro analysis of the industry, rather than specific product-market segments;

Integrations From Grundy (2006):5 · Partially meets the large gap remaining for a systemic analysis after conducting PEST and SWOT (the two most widely-implemented techniques )

Porter’s five forces analysis was extended upon to produce the closely related six forces model. The original five forces were bargaining power of suppliers, bargaining power of buyers, entry barriers, substitute products, and degree of rivalry. A later revision added the sixth force, complementary products. The analysis is used to give an assessment of a particular industry environment, degree of competitiveness, identification of threats to position and profitability, and thus a view of the current organization’s strategic position. Identifying the driving forces of profitability and competition is beneficial for gaining an informed perspective when shaping business strategy.


An article published by Tom Grundy in 2006 expressed several important points of criticism against Porter’s five forces model, but also raised awareness toward an improved methodology by which it could be more useful. Grundy indicates that, to his estimates, perhaps 15-20% of strategic managers are made aware of Porter’s five forces model – while perhaps only 5% of these managers will actively implement the model into analytical use. In contrast, Grundy estimates that 90-95% of strategic managers are made aware of SWOT analysis and at least 50% actively use the technique. Grundy offers some of the possible reasons:

• Porter’s framework is abstract and analytical

• Porter’s framework explained the assessment criteria in terms of micro-economic theory rather than in practical terms

• The model is prescriptive and rigid

• The core structure of the Porter model is difficult to assimilate, despite helping to simplify micro-economics

Grundy offers some guidance on making Porter’s five forces model more useful on a practical level.

(1) Prioritization can be ascribed to the model within a force field analysis format

(2) Individual forces can be broken down further, to the micro-level

(3) Transformation into a dynamic model at the industry and micro/transactional level can be achieved

(4) Five forces analysis should be applied across the business (“segment by segment”)

Grundy points out that PEST analysis and SWOT analysis, the two most widely used strategic techniques, are separated by a large gap which can be bridged with a combination of Five Forces analysis and Grundy’s growth drivers technique. Grundy illustrates a dynamic system, comprised of PEST factors, growth drivers, five forces, and competitive position.


From Grundy’s “onion-model” of the generic system, you can see the conventional PEST factors at the far outside (political, economic, technological, social); next, Grundy’s growth drivers analysis; within growth drivers, Porter’s five forces (“competitive pressure”), and within the inner-most ring is the company’s competitive position (which, following Grundy’s logic, would apparently be assessed by SWOT analysis). Considering Grundy’s dynamic “onion model”, one can see that Grundy intends to make it clear that Grundy’s growth drivers should be seen as being influenced by PEST factors and, in turn, influence Porter’s five forces – which, in turn, influence the organization’s competitive position. These have been annotated on the figure below:

Grundy’s growth driver model simply looks at some of the forces over a period of time that speed up or slow down market growth. Like a concise timeline featuring push-pull influence on market growth:


Grundy also emphasizes the importance of considering the interdependencies between the five forces of the model, as well as the interdependencies between each of the forces and their external environment.

• new entrants encouraged: buyers may actively encourage new entrants, reducing entry barriers

• search for substitutes: buyers may actively search for substitutes, encouraging their entry

• backward integrations: new entrants may seek to enter the market by acquiring suppliers or by forming alliances

• forward integrations: suppliers may seek to leap-frog over existing competitors by marketing and selling substitutes

Porter uses a simple qualitative ranking system, placing checkmarks next to each of the five forces (√: unfavorable, √√: neutral, √√√: favorable). Grundy uses his growth driver model as a scoring system to appraise industry attractiveness, in terms of the five forces; upward vectors favorable, downward vectors unfavorable, and vector length reflecting the relative degrees of (un)favorability. He uses the case example of the funeral industry to plot the five forces and their favorable/unfavorable weighting along a growth driver vector-framework:

Lastly, Grundy offers some micro-analysis frameworks for assessing the favorable/unfavorable nature of each of the five forces. These are pictured below:


Grundy makes an important observation in his paper, while making the case for understanding the micro-level competitive dynamics in an industry and drawing conclusions about the industry mind-set. “The strength and homogeneity of an industry mind-set will reduce the responsiveness of the industry to disruptive change and to facilitate rapid market share build-up by a new entrant,” says Grundy. He provides an example from UK Dyson Appliances, who entered the market with a bag-free carpet cleaner and, in just two and a half years, took over a dominant market share while competitors stagnated in a state of “shock and denial.” This resonates with statements made by Drucker in The Theory of Business, where he presents a case study of GM’s failure to respond to disruptive change:1

“Since the early 1920s, GM assumed that the U.S. automobile market was homogenous in its values and segmented by extremely stable income groups. The resale value of the “good” used car was the only independent variable under management’s control. High trade-in values enabled customers to upgrade their new-car purchases to the next category – in other words, to cars with higher profit margins. According to this theory, frequent or radical changes in models could only depress trade-in values.

...For 70 years, this theory worked like a charm. Even in the depths of the Depression, GM never suffered a loss while steadily gaining market share. But in the late 1970s, its assumptions about the market and about production became invalid. The market was fragmenting into highly volatile ‘lifestyle’ segments. Income became one factor among many in the buying decision, not the only one. At the same time, lean manufacturing created an economics of small scale. It made short runs and variations in models less costly and more profitable than long runs of uniform products.

GM knew all this but simply could not believe it. (GM’s union still doesn’t.) Instead, the company tried to patch things over. It maintained the existing divisions based on income segmentation, but each division now offered a “car for every purse.” It tried to compete with lean manufacturing’s economics of small scale by automating the large-scale, long-run mass production (losing some $30 billion in the process). Contrary to popular belief, GM patches things over with prodigious energ, hard work, and lavish investments of time and money. But patching only confused the customer, the dealer, and the employees and management of GM itself. In the meantime, GM neglected its real growth market, where it had leadership and would have been almost unbeatable: light trucks and minivans.”

Evans speaks about the five forces model in his competitive intelligence course3a


One of the building blocks for competitive intelligence is a thorough understanding of the respective industry. You need to map out and understand the forces driving change within your industry... to map this out within a structure [allows you to] see the entire landscape... One reason why CI professionals use tools such as [Porter’s] model is to reduce bias in their analysis. There is sometimes a tendency to over-analyze the competition, forgetting about th other forces impacting your organization.

Evans explains that,

“According to Porter, there are three fundamental strategies companies fall back on: 1. Low cost provider (e.g. Wal-Mart) 2. Differentiation (e.g. Swatch versus Rolex) 3. Highly focused (e.g. very geographic or market niche oriented)

An understanding of which strategy your organization follows is critically important to understanding what you need to monitor in the competitive universe. Additionally, we may want to expand our environmental mapping to include indirect forces. By considering these indirect forces in conjunction with the direct forces defined in Porter’s Five Forces model, we define the competitive intelligence universe. Indirect forces can include things like government regulation, economic conditions, political changes, and demographic shifts.”

Evans’ suggestion to include indirect [external] forces alongside one’s consideration of the five forces agrees with Grundy’s interconnected framework which portrays the five forces under dynamic influence by external factors (the PEST or PESTLE factors) while, at the same time, exerting a dynamic influence upon the SWOT factors and growth-driver analysis.

Value Net Model Relates to · Strategy development – value creation

· Game theory Benefits · While the five forces model is constrained to a single industry, the value net model examines all the

players which interact with a business, the nature of the interactions, and ways through which these interactions can be exploited for an organization’s benefit

Criticisms · “The model is highly abstract. The definition of competitors, complementors and co-opetition is broad. Although the model can stimulate creative thinking, it does not provide clear-cut answers to everyday problems. For example, the model does not provide practical propositions on how to create successful co-opetitive relations with other organisations.”6 · “The model is based on the principles of game theory and has inevitably inherited some of its limitations; i.e. the application of the theory becomes exponentially more complex as more players or options are added.”6

The value net appears – at first glance – similar to the five forces analysis but intrinsically takes on a more dynamic and interconnected perspective. The value net model, or co-opetition model, is influenced by game theory and considers the dynamic interactions relating to a firm’s entry into the “game”. Among other things, it offers insight that can indicate where opportunities may exist to reduce a company’s entry barrier – that is, the model is all about viewing the industry or market-segment as a game and deducing ways by which the game can be manipulated, and thus, tilted in the player’s favor. This is important not only for securing a company’s position in the space, but also for developing a strategic plan which protects a company against future competitors. Therefore, it assists not only in offensive strategy and tactics development, but defensive as well. Furthermore, the model helps illustrate ways that competition can be exploited for a mutual benefit – hence the name “co-opetition model”. The value net can be used to picture a company – or a whole industry – that fits in the center of an interaction map having four other groups (so-called “players”):

• Suppliers • Customers


• Competitors and/or Substitutes • Complements

There are several key elements to the value net model, collectively referred to with the acronym “PARTS”:

• Players • Added value • Rules • Tactics • Scope

Players refer to the other groups within the schematic. One of the goals here is to look for overlap where the entry of your enterprise into the space has a benefit on someone else, and to exploit that mutual benefit to lower entry barriers. Some useful questions to consider, provided by Lendel: 7

• Have you written out the Value Net for your organization to make the list of players as complete as possible?

• What opportunities exist for cooperation and competition between the players and your organization? • Would you like to change the cast of players? In particular, what new players would you like to bring

into the game? • Who stands to gain from your entry to the game? Who stands to lose?

Added values are ways that the organization can create loyalty in their customer base and secure lasting relationships (Lendel uses the example of frequent flyer rewards). Some example questions from Lendel:

• What is your added value? • How can you increase your added value? In particular, can you create loyal customers and suppliers? • What are the added values of the other plays in the game? • Is it in your interest to limit their added values?

Rules refer to the established behaviors pertaining to the business interactions / relationships / transactions in the space. Lendel says “if [you] can change the rules to the game, then you can change the game itself in [your] favor”, and poses the following questions:

• Which rules are helping you? Which are hurting you? • What new rules would you like to have? In particular, what contracts do you want to write with your

customers and suppliers? • Do you have the power to make these rules? Does someone else have the power to overturn them?


Tactics is defined in Lendel’s paper as “actions that players take to shape the perceptions of other players.”

• How do other players perceive the game? How do these perceptions affect the play of the game? • Which perceptions would you like to preserve? Which perceptions would you like to change? • Do you want the game to be transparent or opaque?

Scope is described as links that can be drawn between the game (business) you are currently playing, and the other games being played by the other players in the value net. Lendel explains that “in addition to being part of this game, [other enterprises] are also parts of other games that [your enterprise] is not in, and that linking to them in various ways can expand its scope.”

• What is the current scope of the game? Do you want to change it? • Do you want to link the game to other games? • Do you want to de-link the game from other games?

Porter’s Four Corners Model Relates to · Competitor analysis – predictive modeling Benefits · Aids in predicting a competitor’s course of action

· Good for offensive and defensive strategy development · Considers implicit aspects of competitive behavior (e.g. culture, history, goals)

Criticisms · A survey cited in Wikipedia claims it is not widely implemented in practice – this opinion, however, is not universal

Porter’s four corners analysis involves profiling of a specific competitor, providing insights regarding how that competitor may respond to your own strategic decisions. Evans describes the four corners analysis and a logical method to carrying out the model in practice:

The model has four analytical corners. (1) What drives the competitor? Look for drivers at various levels and dimensions so you can gain insights into future goals. (2) What is the competitor doing and what is the competitor capable of doing? (3) What are the strengths and weaknesses of the competitor? (4) What assumptions are made by the competitor’s management team?

The key to this analysis is to work down each step and see how well, or “tight”, each corner fits for the competitor. When you [complete] the fourth corner (management assumptions), this ties down the model and therein resides some useful insights... A four corners model with poor fit will have numerous assumptions that could be off-base.

Before embarking on four corners analysis, you will need to do some preliminary research. First, identify your competitors. Second, set up a profile template for defining the information to be collected and used in your analysis. This can include numerous types of information: e.g. short history, critical events, major customers, products and/or services, description of management team, operating information, labor force, goals, strategies, core competencies, marketing, branding, pricing, markets served. Third, [initiate collection] and gather all of the information into the pre-defined templates.

Wikipedia offers some further elaboration with regard to each of the four corners (in no particular order):

Motivation – drivers: This helps in determining competitor's action by understanding their goals (both strategic and tactical) and their current position vis-à-vis their goals. A wide gap between the two could mean the competitor is highly likely to react to any external threat that comes in its way, whereas a narrower gap is likely to produce a defensive strategy. The question to be answered here is: What is it that drives the competitor? These drivers can be at various levels and dimensions and can provide insights into future goals.


Motivation – management assumptions: The perceptions and assumptions the competitor has about itself and its industry would shape strategy. This corner includes determining the competitor's perception of its strengths and weaknesses, organization culture and their beliefs about competitor's goals. If the competitor thinks highly of its competition and has a fair sense of industry forces, it is likely to be ready with plans to counter any threats to its position. On the other hand, a competitor who has a misplaced understanding of industry forces is not very likely to respond to a potential attack. The question to be answered here is: What are competitor's assumption about the industry, the competition and its own capabilities?

Actions – strategy: A competitor's strategy determines how it competes in the market. However, there could be a difference between the company's intended strategy (as stated in the annual report and interviews) and its realized strategy (as is evident in its acquisitions, new product development, etc.). It is therefore important here to determine the competitor's realized strategy and how they are actually performing. If current strategy is yielding satisfactory results, it is safe to assume that the competitor is likely to continue to operate in the same way. The questions to be answered here are: What is the competitor actually doing and how successful is it in implementing its current strategy?

Actions – capabilities: This looks at a competitor's inherent ability to initiate or respond to external forces. Though it might have the motivation and the drive to initiate a strategic action, its effectiveness is dependent on its capabilities. Its strengths will also determine how the competitor is likely to respond to an external threat. An organization with an extensive distribution network is likely to initiate an attack through its channel, whereas a company with strong financials is likely to counter attack through price drops. The questions to be answered here are: What are the strengths and weaknesses of the competitor? Which areas is the competitor strong in?

Internal Metrics for Competitive Intelligence

Evans suggests a particular set of internal “baseline data” by which comparisons can be made between one’s own organization and a competitor.

• Financial ratios • Operating cycle times • Workforce statistics • Sources of revenues (e.g. fees, contracts, passive sources) • Expenditure profile (e.g. operating, marketing, depreciation) • Asset composition (e.g. current, fixed, leased, overseas) • Capital structure (e.g. debt level, interest rates, cost of capital) • Overhead rates • Strategy, operating decisions, tactical decisions • Suppliers, distributors, key customers, other partners • Organizational layout, functions, business units • Processes

Evans provides an example of how these internal metrics can be applied to a situation useful for competitive intelligence: 3a

You have been assigned to study a private company that is competing against your company. Senior management wants to know how much revenue growth is taking place within this company. However, the competing company is private and there are no available financial records anywhere. However, the competing company does reveal the total number of employees, year by year in a trade journal. From your own in-house database, you know that Revenues per Employee are $ 1,200 and the industry average is about the same. So we simply fill in the missing pieces by multiplying the $ 1,200 by the competing company’s headcount each year and we have some idea of top line revenue growth.


Flowchart – Using Analyses on the Route to Full Strategic Planning

Strategic Planning, Competitive Intelligence, Situation Analysis


References

1. Drucker, The Theory of Business. Harvard Business Review 1994, September-October, 95-104. www.fhsu.edu/academic/gradschl/HBR-Drucker---Theory-of-Business/ 2. Porter's Value Chain (from Kaplan Financial Knowledge Base). http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Porter%27s%20value%20chain%20model.aspx. 3. (a) Evans, M. H., Excellence in Financial Management, Course 12: Competitive Intelligence (Part 1 of 2). http://www.exinfm.com/training/pdfiles/course12-1.pdf; (b) Evans, M. H., Excellence in Financial Management, Course 12: Competitive Intelligence (Part 2 of 2). http://www.exinfm.com/training/pdfiles/course12-2.pdf 4. Collins, R. J. Is there a better way to analyse the business environment? Henley Business School. www.docplayer.net/5538031-Is-there-a-better-way-to-analyse-the-business-environment.html 5. Grundy, T., Rethinking and reinventing Michael Porter's five forces model. Strategic Change 2006, 15 (5), 213-229. http://www.ftms.edu.my/images/Document/MOD001074%20-%20Strategic%20Management%20Analysis/WK5_SR_MOD001074_Grundy_2006.pdf 6. Co-opetition (from ProvenModels.com). https://www.provenmodels.com/593/co-opetition/adam-m.-brandenburger--barry-j.-nalebuff. 7. Lendel, The Value Net. Journal of Information, Control and Management Systems 2007, 5 (2), 241-250. https://www.researchgate.net/publication/266166223_THE_VALUE_NET

http://www.fhsu.edu/academic/gradschl/HBR-Drucker---Theory-of-Business/

http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Porter%27s%20value%20chain%20model.aspx

http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Porter%27s%20value%20chain%20model.aspx

http://www.exinfm.com/training/pdfiles/course12-1.pdf;

http://www.exinfm.com/training/pdfiles/course12-2.pdf

http://www.docplayer.net/5538031-Is-there-a-better-way-to-analyse-the-business-environment.html

http://www.docplayer.net/5538031-Is-there-a-better-way-to-analyse-the-business-environment.html

http://www.ftms.edu.my/images/Document/MOD001074%20-%20Strategic%20Management%20Analysis/WK5_SR_MOD001074_Grundy_2006.pdf

http://www.ftms.edu.my/images/Document/MOD001074%20-%20Strategic%20Management%20Analysis/WK5_SR_MOD001074_Grundy_2006.pdf

http://www.provenmodels.com/593/co-opetition/adam-m.-brandenburger--barry-j.-nalebuff

http://www.provenmodels.com/593/co-opetition/adam-m.-brandenburger--barry-j.-nalebuff

http://www.researchgate.net/publication/266166223_THE_VALUE_NET

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