Sunday, October 7, 2012

What Drives Your Competitive Landscape?

One of the key questions in competitive dynamics research is ‘how’ firms facing the same industry environment act and react differently with each other. What has been overlooked, however, is ‘why’ firms facing the same industry environment act and react differently. Identity domain theory begins to provide an answer: what is ‘objectively’ the same may not be the same to managers of all firms competing in the industry, since certain competitive arenas are more important than others, above and beyond purely economic considerations, (p.50).
Scott Livengood and Rhonda Reger highlight how, “within the competitive dynamics research stream, ‘the awareness-motivation-capabilities (AMC)’ perspective has been championed to explain the antecedents to competitor actions and reactions. Specifically, awareness, motivation, and capabilities have been posited to be three key drivers of inter-firm rivalry. And as Chen argued, as far back as 1996 competitive action is predicated on three conditions: the extent of awareness, the level of motivation, and, finally, the capability to respond,” (p.49).
Researchers taking a cognitive approach to strategic interactions have focused on management’s scanning and interpretation of the external environment to form conceptions of competitive interactions or competitive space, rather than on the actions and reactions themselves, (p.50).
Yet what continues to surprise me is how little organisations often actually know about their competition, even in respect of simple things like their products, their pricing, their target markets, their competitive advantage and many other key features that an organisation should want to know about those organisations competing in their markets.
Competition is healthy in the global business world as it gives customers choices and ensures that organisations are continually striving to improve their product and service offerings, or at least they should be.
Global monopolies do exist, but in many instances come with reasonably tarnished reputations of poor customer service, excessive pricing and very little product development. While these monopolies may feel secure, they should be aware, if not already, that many of their customers would leave in an instance if a competitor entered their market even, initially, if it meant paying more.
In the normal business world, competing organisations can be a threat, but only if you allow them to be. The advantage of competitive organisations is that they can help point you in the right direction and become a benchmark to assess and measure your own performance.
In seeking best practice solutions to their competitive environment organisations need to take the appropriate steps to;
·       Identify their direct competition;
·       Identify their indirect competition;
·       Identify areas of superior and inferior performance, in line with customer value propositions;
·       Identify why customers prefer to buy from their competition (by asking them);
·       Identify the barriers to entry and be alert for new entrants;
·       Benchmark themselves against their competition;
·       Develop proactive and dynamic competitive strategies as part of the strategic process.
Once an organisation has assessed their competitive environment and have a formal internal system for reviewing the competitive landscape, they should also review and discuss how their management team responds to this competitor information and whether they are making optimal strategic decisions that allow them to ‘shape’ their competitive landscape or simply responding in a reactive manner to changes in their competitive environment.
A new look at competition in light of the cognitions of managers and the powerful forces involved with creating and defending a firm’s identity domain can help us understand why managers behave the way they do when making strategic decisions to guide the firm, (Livengood, R.S. and Reger, R.K., 2010, p.59).
Brownbill, N. (2012). Be the Best in Business. Amazon.
Chen, M. J. (1996). Competitor analysis and interfirm rivalry: Toward a theoretical integration. Academy of Management Review, Vol. 21, p.100-134.
Livengood, R. S., and Reger, R. K. (2010). That’s Our Turf! Identity Domains and Competitive Dynamics. Academy of Management Review, Vol. 35 Issue 1, p.48-66.

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