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BODY OF EVIDENCE Conventional competitor analysis is no longer enough, argues Mike Brooks, who explains why financial managers can become key agents in the mission to gather competitive intelligence.
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umankind is a competitive species. To observe this, you need look no further than your nearest nursery school, where even the most mild-mannered of toddlers will happily elbow each other out of the way in pursuit of the best toy. Our methods may become more subtle as we grow older, but the instinct remains. It’s not enough merely to do well in order to be satisfied with our lot; it seems more important to do better than the Joneses. We will often suppress this instinct in our personal lives, since many of our aims may be better achieved by co-operation. But in business the competitive urge is not an awkward, antisocial trait to be avoided; it is a key ingredient of success and even survival. Conventional capitalist theory argues that free competition provides a social benefit as well as an economic one: the less efficient firms are weeded out and products are provided in higher amounts and at lower prices. Consequently, a key focus of any commercial enterprise (and many not-for-profit organisations that don’t have a guaranteed customer base) is to identify the nature and extent of the competition and to determine how best to handle the threat. In the past this activity has largely centred on competitor analysis – ie, the process of assessing the strengths and weaknesses of rival firms and adjusting your strategies accordingly. More recently this concept has been expanded to cover a wider field, known as competitive intelligence (CI). According to a study by Insead business school, firms that devote excessive resources to benchmarking are often outperformed by those
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FINANCIAL MANAGEMENT March 2005
that focus on customers and how to satisfy their needs. This broader view of the overall competitive environment distinguishes CI from its more limited antecedent. It covers all the relevant factors that could endanger a company’s profits – for example, technological developments, changing consumer tastes and general economic trends. The economic theory that price is the main determinant of competitive advantage is now recognised as an oversimplification. Where there are complicated pricing structures involving, for example, quantity discounts and unpublished net pricing, it’s often hard to know what prices your rivals are charging. Equally, where competing products aren’t identical, it’s hard to assess the extent to which extra features on different products attract incremental revenues. In some markets, different products fulfil the same customer needs. An obvious example of this is passenger transport: rail operators are competing not only with other railways but also with airlines, bus companies and car manufacturers. More radically, they are also in competition with teleworking. CI considers the whole range of competing suppliers, the prices they achieve and the nature of the customer satisfaction they provide. This provides a major opportunity for the finance function in general and management accountants in particular to contribute to a process that was once the preserve of the sales and marketing department. Another distinguishing feature of CI is that it involves a systematic search for usable information. Conventional market