Ready to set up the strategy…but what are my competitors?

Thanks to the successful representation of the market in the supplier-producer-distributor-customer chain, management theory has focused on understanding the dynamics of relationships in a rather schematic way, following the path from the "downstream" chain, a vision allowing to map well the company's competitive and social context. This approach also has the advantage of identifying direct and indirect competitors, distribution channels, target market segments, and potential partners for shared business ventures. However, the recent impact of digital technologies and the progressive globalization of the economy is transforming customer habits, with new services and products radically innovating industrial and consumer sectors, new technologies replacing the same transforming manufacturing processes of the companies, and an opening of the information that overrides geographic trade barriers.

All of these factors have consequences in the classic chain from supplier to customer, often changing the rules of the game from a double point of view, namely in the:

  • interaction among actors, with greater dynamism of their business relationship, nowadays no longer following a sequential but a networked flow;
  • structure of an industry, with the alteration of boundaries that define the competitive arena of the company.

This double evolution requires a change in how entrepreneurs can efficiently develop and implement business strategy, as we will see hereinafter.

INTERACTION AMONG ACTORS

As shown an example of another article published on the structure of an international supply chain ("Innovate the supply chain to increase competitiveness in international markets”, 2016), the structure of relations among actors in one market/industry (demand/supply) is more and more similar to a networked system, thanks to the augmented interaction of business functions increasingly open to external rather than internal solutions. In other words, a company encounters superior alternatives in the acquisition of assets or external services not only at corporate level (i.e., upon extensive supply or outsourcing contracts) but also at the level of single business area (organization, marketing, finance, etc...).

STRUCTURE OF AN INDUSTRY

A market is considered a group of consumers that showing similar patterns in consumer habits, needs and possessing fairly homogeneous societal and income characteristics, so that they may be likely to be interested in similar specific products/services. An industry, on the other hand, was traditionally (and speculatively) identified as a set of producers offering and carrying out homogeneous activities, and therefore supplying more or less similar products/services. However, the concept of an industry is today, like the market, driven by the demand, so that the industry boundaries include companies that are able to meet the same clients’ needs, whereas not to generate new needs through the evolution of technology or consumer habits able to create an entirely new market or to replace an existing one.

Thus it happens that the traditional way of analyzing and identifying the competitors of a company (other players carrying out activities and producing same or similar products/services) is no longer sufficient to trace a clear mapping of the company's competitive environment. In other words, absolutely different businesses, which "seemingly" operate in different industries, can suddenly turn to be competitors, matching the changes in the use of a service and/or in the preferences of consumers.

This phenomenon is largely due to the fact that companies were once building their competitive edge over the acquisition of physical and non-intangible assets, becoming annuities, while digital technologies today are able to reduce or cancel positions of privilege in extremely short time.

Dynamism is therefore registered at a double level of:

  • relationships among companies belonging to one industry, with the shift of a company's position along the chain, with companies that can suddenly turn from suppliers to competitors, if not even to customers;
  • boundaries of the industry itself, with traditionally diverse companies starting to compete with one another for the same customer base.

IMPACT ON CORPORATE STRATEGY

The described factors generate a steady market evolution that induces entrepreneurs to update their business strategies and often shorten the timing of their planning. Indeed, the dynamism of the context has outdated highly structured and analytic planning approaches, especially if set for the long run, leading to the emergence of the famous "lean planning", a simplified planning method based on market observation and experimentation of actions continuously tuned by market results and feedbacks. But if companies are adjusting their approach to planning because of the volatility of the context in terms of habits, consumption and new requirements, they are much less keen to understand the changes in the structure of the industry, due to shifts in the position along the supply chain by the actors, from suppliers, customers, etc.

So, if managers have always (and correctly) monitored the demand to anticipate new business opportunities, now you need to widen the scenario and look at all directions. Indeed, very different companies by the nature of the provided products or services, geographic location, traditional customer base, can suddenly threaten the company's market share, or vice versa. The company can quickly expand its action to segments or audiences never served so far.

At a strategic level, the perspective changes: if the positioning strategy was a consequence of the business strategy (i.e. the business strategy decided where to go), now the positioning strategy becomes a strategy itself, and under this sense, flexibility plays a decisive role. The company is therefore encouraged to outsource non-core activities and pursue innovative offering and communication policies that allow it not only to defend acquired market positions, but to extend its action to new customer bases or markets.

Antonio Borello
GruppoBPC Consulting

Back