Changes in Competition

Competition within the financial services industry is intensifying, and in many cases, even the definition of who is the competitor may be changing. Consider, for example, the retirement income market: banks, broker/dealers, investment companies, and insurance firms all offer products and services that compete for the same dollar from the same customer to satisfy the same needs. Faced with these major structural adjustments and rapid change, companies will be forced to put more emphasis on strategic thinking that includes a comprehensive competitor assessment.

Assessment of What?

Ask any executive how important competitive information is to a company's strategy or ultimate success in today's rapidly-changing environment, and his/her response will most likely be that it is< crucial. But observe most companies' actual practice, and you'll find that "competitor analysis" often involves only a comparison of product features, market shares, and perhaps a brief comment on strengths and weaknesses — all with little actual analysis or sense of the competitors' strategic direction or business models.

In fact, there often appears to be a hierarchy of information gathering, where information collected is inversely related to its usefulness in developing strategy. While many companies appear to be well versed in every feature of a competitor's product, little effort is spent to determine who should appropriately be considered the competition, what they are doing or likely to do next, how they are relatively positioned in the marketplace, and where there may be unique market opportunities for the firm doing the analysis.

The Practical Value of Assessment

Interestingly, in an industry where little real competitor assessment is done or where there is major change taking place, the potential value of competitor assessment can be greatest. As in any marketplace, the more difficult or inefficient the accumulation and use of information, the greater the advantage to those few who gain access and use it creatively.

In general, a thorough competitor assessment will yield value in several ways, by providing:

• A better understanding of who your competitors are, their limitations and capabilities; where they are likely headed strategically; and how this will impact on your firm's strategies.
• An indication of how you can be more competitive, leading to revisions in your strategies.
• Early detection of changes in your marketplace, including creative new approaches by competitors, which you may wish to emulate, or counteract.
• A clear sense of competing business models and what elements of those models lead to success.

Begin With Your Needs

It's important to begin the process with a focus on the specific needs for the assessment: who's going to use it, what is its intended purpose, and how will it be used? Defining your needs will help you to organize and focus the accumulation of information. It's also important to set priorities; otherwise, your definition of assessment needs may turn into nothing more than a "wish list." On the other hand, this need for focus should not eliminate your flexibility to recognize and capitalize upon unique information or opportunities that may arise during the assessment process.

Sources of Information

Finding the information to answer specific competitive questions will typically follow two paths: published (public) sources and direct sources. Published sources may include trade and financial journals, newspapers and magazines, newsletters, filings to regulatory agencies, government documents, company reports such as annual reports or 10K's, purchased reports, online databases, and, of course, the Internet.

Direct sources are limited only by your creativity and by ethical considerations. They can typically include, vendors, distributors, trade association executives, authors of articles, securities analysts, and any other forms of direct contact.

Quantitative Data: Activity vs. Performance

When looking at the quantitative element of competitor assessment, DSG has defined two "types" of data: "activity" data and "performance" data. The reason for this split can be better understood upon reviewing the following simplified "model" of a firm's cycle of strategy/action/results (Exhibit 1).

As shown on the chart, after a company has defined its strategy, certain actions must occur to make the strategy happen. These actions will invariably show up in what DSG terms "activity" data which directly reflects action decisions: where dollars are invested, new resources applied, products announced or changes in distribution or marketing mixes. The implementation of these action steps will ultimately lead to results, which may or may not be satisfactory, but will be measured by "performance" data. If results are not satisfactory, adjustments will be made to strategy and/or actions, and the cycle begins again.

By observing and tracking the "activity" data, it's possible to identify a competitor's actions which represent the implementation of its strategy. The magnitude and trends of these activity numbers indicate importance and priorities, and ultimately a sense of the firm's strategy. Actions do speak louder: if you observe how management spends its time, energy, and money, you will begin to know the competitor's strategy, and what it considers most important.

At the same time, by tracking the "performance" data and determining the relative position of a competitor vs. its industry or peers, you will identify performance "deviations." Any significant deviation from a company's "norm" may indicate either a deliberate change in strategy or a loss of focus — which will often lead to strategic corrections by management. In either event, they provide valuable insights for the assessment process.

Qualitative Data — Adding Perspective

While the quantitative element of the assessment effort will often yield significant insights, combining it with a more subjective, qualitative look at competitors can often enhance the assessment. Important qualitative signals to identify for examination include:

• Management actions and statements.
• Announcements of spending plans or changes in emphasis.
• The competitor's positioning in the marketplace.
• Strengths, weaknesses, and significant capabilities.
• New product introductions/innovations.
• Hiring and/or layoff activity.

Strategic Clues

When examining the data, particular attention should be given to identifying strategic clues. Some clues to look for, and give priority to, during the assessment process might be:

• Apparent anomalies in competitive behavior: what "doesn't make sense" to you could indicate a change in the competitor's strategy or perhaps changing beliefs regarding market dynamics and how to be more competitive. Ultimately, some anomalies could point to the beginnings of a paradigm shift in your industry.
• Incursions into your market from nontraditional players, who may see something that you do not.
• Competitors' resource capabilities and their organizational will to accomplish their objectives.
• Performance differentials between you and your competitors, from the customer's perspective.

Using the Results

There are at least three major practical uses for the results of a comprehensive competitor assessment:

1. Validate or Modify Your Strategies
2. Establish Measures for Future Tracking/Benchmarking
3. Forecast Competitor Behavior

Some Final Considerations

The accumulation, assessment, and use of competitor information may require significant resource commitments. This will be money (and time) well spent if it leads to real improvements in your strategy or development of a unique means of competitive differentiation. This article has not dealt with organizational issues that must be considered when establishing a competitor assessment program (Who drives the process?

How do different parts of the organization participate in the gathering of information, the analysis, the assessment? Should there be a centralized information bank? How are results communicated to those who need it?, etc.). These are issues that must be determined by each firm, based on its unique set of resources and capabilities.

Since not all competitors are equally good at everything they do, it's important to understand their different business models, and which elements of these models are yielding the best results. In this way, you can learn from others, establish appropriate benchmarks, and emulate those successful activities that are consistent with your firm's capabilities.

While DSG believes that competitor assessment should serve an important role in providing essential input into strategic thinking and planning, we suggest that the assessment be developed on a separate track from the strategic planning effort, in order to give it the full attention it deserves. Otherwise, competitor assessment often receives only a scant review. DSG recommends that competitor assessment be a continuing discipline that feeds into the planning process on an ongoing basis. DSG

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