Hi. Welcome back. In the last videos, we talked about how to perform an external analysis. External analysis are important to understand the environment in which your firm operates. They are also used for you to identify which players and elements needed to be monitored and understood. To really understand your current and future behavior, we will discuss another of Professor Michael Porter's tool, competitor analysis. Some authors refer to this type of study as competitor profiling or four-corner analysis. The concept of competitor profiling was borrowed from the military which have used this concept for centuries as a way to understanding and predicting the enemy's decisions and their most likely actions and incorporate this knowledge into their planning. Although the benefits of this kind of analysis seems obvious, a relatively small number of companies use this too well. When you analyze a competitor, you should focus on four main factors. Current actions, which is basically the current competitor strategy. What resources the competitor has available, which is the capabilities. What motivates the competitor or drivers, and what competitors decision makers think about the market and about itself. These are the assumptions. The current competitive strategy. Well, this is the easy part. All you need to do is to identify what the competitor sells, to what market segments, in which geographic markets, to what channels and at what prices? This will give you a glimpse on the competitor's strategy. Capability. Know what resources competitors have is also relatively easy. Many companies have this information on their websites. Resources such as physical facilities, laboratories, patents, manufacturing plants, partners, et cetera are easy to find. Many people will try to make an analysis based only on these two types of information. This is wrong, and this is dangerous. Many companies will think of something like, if I were in my competitor's situation, this is what I would do. Well, this works sometimes. The problem is that you are not in your competitor's shoes, and you do not have access to the same information. You do not feel the same pressures, and you do not have the same history. Also, you do not think in a static way. Why should your competitor? To predict the competitor's future behavior, one must see the world with your competitor's eyes, not yours. You can do that by understanding drivers and assumptions. Drivers is what motivates your competitors, one which will understand. What motivates your competitors to analyze his or her goals, and if the competitors has been achieving them? According to the gap, you will have a good idea on the motivation level to achieve these goals. This analysis needs to be performed at a tactical and strategic levels. Each companies has its own metrics, and these can be expressed in terms of market share, profitability, and others. If you pay attention to your competitor's language, that will be clear. Assumptions. That is what the competitor thinks about him or herself, and the industry. Assumptions are key to predict future behavior. The competitor will act according to his or her vision of the world. Therefore, if we can understand how the competitor sees the world, we will have a very good idea on what he or she will do. The nice thing about this technique is that if you identify that your competitor has an incorrect assumption, the competitor will make wrong decisions systematically. For example, in the Kodak case, the assumption was that photography was a chemical process, and Kodak customers would not migrate to the digital world quickly. Kodak assume that he had years to act. When you understand these competitive parameters, current strategy, capabilities, drivers and assumptions, you will be able to answer the following questions. Is the company satisfied with this current position? If not, the company will act. What are your competitor's most likely actions? If these moves caused you problems, you have to act. Where is the competitor vulnerable? If you can identify and explore your competitor's vulnerability, you should do it. Hot Buttons. What will provoke the strongest reactions? Every companies has hot buttons. Actions that generate a disproportionate response. For example, if your firm's survival is threatened by a competitor actions, you are more than likely to act. This technique is very useful because it offers a structured way to understand the competitor behavior. Although originally designed for competitor analysis, it can also be used to understand customers. This is the topic of our next video. Thank you for watching. I'll see you in our next video.
