To anticipate the moves of your rivals, you must understand how their strategists and decision makers think.
Here is a brief excerpt from an article about doing that, written by Hugh Courtney, John T. Horn, and Jayanti Kar for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.
To learn more about the McKinsey Quarterly, please click here.
* * *
he global financial crisis that erupted in 2008 shows, with painful clarity, that we live in an interdependent business world. In bleak times and fair, the success of a company’s strategy often depends greatly on the strategies of its competitors. In periods of financial turmoil, for instance, the prospects—and even survival—of a bank often depend on the near-term M&A of its rivals. Similarly, the ultimate success of Boeing’s new commercial jet, the 787 Dreamliner, will depend on the way Airbus positions, markets, and sells its new and competing A380 and A350. Pfizer’s ability to sustain market share and profitability in the market for cholesterol-lowering treatments will depend on the moves of the company’s branded and generic pharmaceutical competitors, to say nothing of biotech and medical-product companies developing alternative treatments.
This strategic interdependence implies that the ability to anticipate your competitors’ strategies is essential. Yet a recent survey of business executives found that the actions and reactions of potential rivals almost never play a role in, for example, decisions to introduce and price new products.1An important reason for this neglect, we believe, is that strategic-planning tools, such as game theory and scenario planning, are of limited use unless a company can correctly define the key elements of the strategic game, especially the strategic options and objectives of competitors. This is no easy task. Rare is the company that truly understands what its competitors and their decision makers care about most, how they perceive their assets and capabilities, and what all this means for their strategies. A company with such insights could reverse-engineer the moves of competitors and predict what they were likely to do. In a credit crunch, for instance, such a company would be well positioned to buy financial and nonfinancial assets at attractive prices if it knew that poorly capitalized competitors would avoid new risk and therefore not bid for these assets.
Getting inside your competitor’s head is difficult because companies (and their decision makers) usually are not alike. At any time, a company has assets, resources, market positions, and capabilities it must protect, leverage, and build upon. Different endowments imply different strategies even in the same general market environment. What’s more, even a competitor with similar endowments may pursue different strategies if its owners, stakeholders, and decision makers have a different objective.
So if you want to anticipate rather than react to strategic moves, you must analyze a competitor at two levels: organizational and individual. At the organizational level, you have to think like a strategist of your competitor by searching for the perfect strategic fit between its endowments and its changing market environment. At the individual level, you have to think like the decision makers of the competitor, identifying who among them makes which decisions and the influences and incentives guiding their choices. This approach moves you beyond the data-gathering efforts of most competitive-intelligence functions, toward a thought process that helps turn competitive intelligence into competitive insights. While our approach won’t eliminate surprises, it will help you better understand your competitors and their likely moves and eliminate some of the guesswork that undermines the development of strategies in an increasingly interdependent business world.
* * *
Here is a direct link to the complete article.
Hugh Courtney is an alumnus of McKinsey’s Washington, DC, office, where John Horn is a consultant; Jayanti Kar is a consultant in the Toronto office.