Shaw - R - 2016 - DBA Thesis With Guides PDF
Shaw - R - 2016 - DBA Thesis With Guides PDF
Shaw - R - 2016 - DBA Thesis With Guides PDF
UNIVERSITY
Richard Shaw
The formulation of competitive actions in practice
School of Management
International Executive Doctorate
DBA
Academic year: 2012 – 2016
Supervisor: Professor Mark Jenkins
November 2016
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Abstract
This is a study of what managers do in relation to the formulation of competitive actions.
The study started with Project 1 (P1), a literature review that looked at managers’
cognitions in respect of competitive positioning and competitive strategy. A gap was
found in how individual competitive actions are formulated and executed. A gap was
also found concerning what managers do in response to interpretations of their
competitive environments.
Following the literature review, a series of semi-structured interviews were undertaken
with managers and 26 individual competitive actions were recorded and analysed in
Project 2 (P2). A structure to the formulation of competitive actions was discerned and
developed into a processual model that is triggered by a stimulus, followed by the
manager envisaging desired outcome and setting objectives, then deciding which levers
to use, developing the action and refining it. Its application to practice was developed
in Project 3 (P3) through an aide memoir tool to assist managers.
The study makes a contribution to theory by providing a framework that captures the
way in which managers construe and formulate competitive actions. In P2 it was found
that managers tend to follow a largely homogenous process and that the tools and
techniques offered in the extant literature are seldom used. The managers interviewed
in mature industries were far more aware of who their competitors were in more when
compared to nascent industries. This had a bearing on the formulation of competitive
actions insofar as companies operating in mature industries formulated competitive
actions to fend off or compete with their competitors more effectively while companies
operating in nascent industries tended to formulate competitive actions with the aim of
exploiting gaps in the market.
It was found in P2 that managers’ backgrounds, including their functional and
educational, as well as their nationalistic and cultural backgrounds, had a bearing on
how they construed their competitors and the competitive actions they formulated. It
was also found that competitive actions were formulated and executed on an iterative
process, whereby managers would refine their actions applying the learnings from
previous actions. Managers, particularly those with more experience, relied heavily on
intuition and tacit knowledge, as well as input from colleagues and customers, when
formulating competitive actions. Contrary to the assertions many in much of the extant
literature about companies not deviating from industry norms when formulating
competitive actions, the study found that managers would often do so in search of
abnormal profits.
The study makes a contribution to practice by providing a guide to assist in formulating
competitive actions. The guide is based on the processual model developed in P2 and
was summarised in five key steps, comprising Stimulus, Objectives, Levers, Actions and
Refinement, and abbreviated ‘SOLAR’.
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Acknowledgements
I would like to thank my Supervisor, Professor Mark Jenkins, as well as my other panel
members, Dr Palie Smart, and the chair, Professor Cliff Bowman, for their guidance,
encouragement and their invaluable insights. I would also like to thank the DBA Director,
Professor Emma Parry, my cohort leader, Dr Silvia Rossi Tafuri, and the DBA Programme
Manager, Alison Wilkerson, for their support.
I am very grateful to the managers from around the world that I interviewed, that
discussed my findings with me at length and that contributed to the research, not only
in terms of providing indispensable data, but also in terms of their insights and ideas. I’d
like to thank my father, Dr Sandy Shaw, for proofreading my material and offerings ideas
on how I could improve this study.
I’d like to thank my fellow cohort members, including Hamed al Hashemi, Sean Bowler,
John Carr, Adam Manikowski, Ali Al-Moulani, Gary Cundill, Thierry Fausten, Frits Wiegel
and Leslie Pidcock, as well as Saleh Bawazir, for their support and companionship. Last
but not least, I’d like to thank my partner, Linda, for bearing with me while I spent hours
upon hours over weekends and holidays working on this Doctorate.
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Table of contents
Abstract ............................................................................................................................ 3
Acknowledgements .......................................................................................................... 5
Table of contents .............................................................................................................. 7
Linking document ........................................................................................................... 13
Background and rationale .......................................................................................... 15
Summary of research projects and methods .............................................................. 17
Project 1: Systematic literature review ...................................................................... 21
Methods and objectives ......................................................................................... 22
Findings and contributions to knowledge .............................................................. 23
P1 propositions ...................................................................................................... 24
Project 2: Competitive actions in practice .................................................................. 24
Methods and objectives ......................................................................................... 24
Findings and contributions to knowledge .............................................................. 26
P1 propositions ...................................................................................................... 26
Emergent phenomena ............................................................................................ 29
Project 3: Formulating competitive actions ................................................................ 31
Methods and objectives ......................................................................................... 32
Findings and contributions to knowledge .............................................................. 33
Limitations of study and areas for further research ................................................... 35
Project 1: Systematic literature review .......................................................................... 37
Introduction ................................................................................................................ 39
Relevant appendices ................................................................................................... 41
Methodology .............................................................................................................. 41
The systematic literature review process ............................................................... 42
The review panel .................................................................................................... 42
Search strategy ....................................................................................................... 42
Keywords ................................................................................................................ 43
Search strings ......................................................................................................... 44
Databases ................................................................................................................... 48
Cross-referencing ................................................................................................... 49
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Panel recommendations ........................................................................................ 49
Selection criteria for articles .................................................................................. 49
Selected articles ..................................................................................................... 51
Quality appraisal .................................................................................................... 53
Data synthesis ........................................................................................................ 53
Findings ....................................................................................................................... 53
Managers’ cognitive categorisations of competitors ............................................. 54
Influences on managers’ frames of reference ........................................................ 60
Shared intra-industry management cognitions ...................................................... 62
Automatic versus controlled processing ................................................................ 68
Functional biases in the perception of competitive strategy ................................. 72
Does deviating from industry norms result in lower profits? ................................ 73
Competitive Intelligence ........................................................................................ 75
The alignment of strategy and performance management ................................... 77
Strategy as an iterative process ............................................................................. 80
Discussion ................................................................................................................... 83
Gap in knowledge and scope for further research ..................................................... 84
Project 2 Proposal ....................................................................................................... 86
Limitations and reflections ......................................................................................... 87
Project 2: Qualitative research ....................................................................................... 88
Introduction ................................................................................................................ 90
The review panel .................................................................................................... 92
Relevant appendices ................................................................................................... 92
Background ................................................................................................................. 93
Aim of the research .................................................................................................... 95
Research objective ...................................................................................................... 96
Research design .......................................................................................................... 97
Research population ................................................................................................... 98
Recruitment of participants ................................................................................... 98
Eligibility criteria ......................................................................................................... 98
Inclusion criteria ..................................................................................................... 99
Exclusion criteria .................................................................................................... 99
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Research Outcomes .................................................................................................... 99
Research procedure .................................................................................................. 100
Pilot study ............................................................................................................. 101
Analysis ................................................................................................................. 102
Summary of sample demographics ...................................................................... 107
Summary of sample population ............................................................................... 108
Summary of competitive actions .............................................................................. 111
Discussion ................................................................................................................. 116
Proposition 1 – Environmental dependency of managers’ approaches ............... 116
Proposition 2 – Managers’ approaches are influenced by their backgrounds ..... 123
Proposition 3 – Manager’s focus on a narrow subset of their competitors ......... 128
Proposition 4 - Competitive actions are formulated in an iterative manner ....... 129
Emergent themes ................................................................................................. 130
Conclusions ............................................................................................................... 142
Summary of findings ................................................................................................. 146
Limitations and reflections ....................................................................................... 147
Project 3: Development of a guide for the formulation of competitive actions .......... 149
Introduction .............................................................................................................. 151
Relevant appendices ................................................................................................. 152
Research objective .................................................................................................... 152
Research design & methods ..................................................................................... 153
Research Procedure ............................................................................................. 153
Summary of sample population ............................................................................... 155
Competitive action guide development ................................................................... 156
Research outcomes .................................................................................................. 157
Scope for further research ........................................................................................ 158
Limitations and reflections ....................................................................................... 158
References .................................................................................................................... 159
Appendix 1: Competitive actions guide & resources manual version 1 ....................... 171
Appendix 2: Competitive actions guide & resources manual version 2 ....................... 173
Appendix 3: Competitive actions guide & resources manual version 3 ....................... 175
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Appendix 4: Competitive actions guide version 4 ........................................................ 177
Appendix 5: Resources manual version 4 ..................................................................... 179
Appendix 6: Competitive actions guide version 5 ........................................................ 181
Appendix 7: Resources manual version 5 ..................................................................... 183
Appendix 8: Previous consulting assignments & businesses ........................................ 185
Appendix 9: Quality appraisal criteria applied to articles ............................................ 186
Appendix 10: Data extraction form .............................................................................. 187
Appendix 11: Summary of Key Findings from Literature ............................................. 188
Appendix 12: CIMO Maps ............................................................................................ 201
Competitive action 1 - Luxury car 'It's closer than you think' campaign .................. 202
Competitive action 2 - 'It's closer than you think' media selection and placement . 202
Competitive action 3 - Used car warranty programme ............................................ 204
Competitive action 4 - Product development by a UK IT services company ............ 205
Competitive action 5 – Action to fend off threat from smaller competitor ............. 206
Competitive action 6 - New mortgage product developed by a bank ...................... 207
Competitive action 7 – Market segmentation by flooring business ......................... 208
Competitive action 8 – 4G service with voice & data in an emerging market .......... 209
Competitive action 9 – Sales to fellow state institutions in the last fiscal quarter ... 210
Competitive action 10 – Bundling of mobile and fixed-line services ........................ 211
Competitive action 11 – Bundling of services by large financial software vendor ... 212
Competitive action 12 – Product repricing by credit default swaps underwriter .... 213
Competitive action 13 – Re-launch of a luxury motorcar brand .............................. 214
Competitive action 14 – Strategic acquisition by media group ................................ 215
Competitive action 15 – Bundling of value added services by a media group ......... 216
Competitive action 16 – Product discontinuation by drinks manufacturer ............. 217
Competitive action 17 – Product line expansion by a confectionary manufacturer 218
Competitive action 18 – Product development by FMCG manufacturer ................. 219
Competitive action 19 – Product development by drinks manufacturer ................. 220
Competitive action 20 – Product line extension by a FMCG manufacturer ............. 221
Competitive action 21 – Product development by brake pad manufacturer ........... 222
Competitive action 22 – Geographical expansion of an auto-financing company ... 223
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Competitive action 23 – Re-positioning in the Chinese market by fashion brand ... 224
Competitive action 24 – Geographic expansion of alcoholic drink .......................... 224
Competitive action 25 – Product customisation for USA market ............................ 226
Competitive action 26 – New fruit juice brand in an emerging market ................... 227
Appendix 13: Internal & external factors relevant to competitive actions .................. 228
Appendix 14: Points to be covered in the semi-structured interviews ........................ 240
Company and environmental factors ....................................................................... 240
Factors concerning the background of the manager ................................................ 240
Execution of the competitive action ......................................................................... 240
Setting performance targets ..................................................................................... 241
Competitive action formulation ............................................................................... 241
Mental maps of competitors and the industrial structure ....................................... 241
Competitive intelligence ........................................................................................... 242
Appendix 15: Example of CIMO-based coding system ................................................. 243
Appendix 16: Example of a manager interview ............................................................ 248
UK IT services company ............................................................................................ 248
Introduction ......................................................................................................... 248
Interview .............................................................................................................. 248
Appendix 17: Summary of iterations of the guide ....................................................... 255
Initial guide development – Version 1 ...................................................................... 255
Category 1 - Stimuli .............................................................................................. 256
Category 2 - Objectives ........................................................................................ 256
Category 3 - Competitive environment ................................................................ 256
Category 4 - Company-level variables .................................................................. 256
Category 5 - Manager-level variables ................................................................... 256
Second iteration – Version 2 .................................................................................... 257
Third iteration – Version 3 ........................................................................................ 258
Fourth iteration – Version 4 ..................................................................................... 259
Fifth iteration – Version 5 ......................................................................................... 261
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Linking document
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Background and rationale
My field of interest is competitive actions and how they are formulated in practice.
Competitive actions can be described as the actions that either underlie a plan to
improve a company’s competitive position or actions taken in response to a particular
stimulus, such as the threat of a new rival, the emergence of a new competitive product
or service or a change in consumer behaviour or tastes. Competitive actions are far more
granular than competitive strategies insofar as a particular strategy may have many
different actions associated with it and actions may be used as a means of executing the
strategy.
My interest is grounded in my experience as an entrepreneur and a management
consultant. I participated in many assignments involving competitive positioning and the
formulation of competitive strategies, as well as having founded, managed and sold
three companies that operated in highly competitive environments. The main
assignments and businesses that contributed towards the development of my interest
are described briefly in appendix 8. This experience piqued my interest in the field and
informed my research. I made use of the contact network I had developed during my
career, for both the interviews that were conducted as part of the second qualitative
research project, and to validate and refine the guide that was developed in P3. My
personal aim, in relation to this study, has been to develop a tool that managers can use
in practice and being able to apply the findings of the research to my work in assisting
managers and their companies.
The research aim of this DBA study was to establish what managers actually do in
practice in formulating competitive actions and to offer a guide to assist them in this
regard. This encompasses the material processes they employ, the inputs they use and
their cognitions. The scope of the research is limited to the competitive actions taken to
better position companies relative to their competitors in the context of marketing
actions. These are actions ultimately taken to optimise profits. The competitive action
was the unit of analysis and the research was limited to actions taken in the private
sector and with the objective of improving the company’s competitive position. The
overarching research question for the DBA study was:
How do managers formulate the competitive actions they take?
In the context of the research question, the formulation includes the antecedents to the
execution and the outcomes of competitive actions, specifically:
• How managers view their competitive environments and categorise their
competitors
• How they formulate actions to compete more effectively
• Their cognitions in relation to competitive actions and the inputs, including
tools and techniques, that inform these actions
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In the context of this study, competitive positioning refers to the way in which managers
map their rivals’ competitive positions and their own brands or products’ relative prices
and benefits. The term ‘competitive action’ refers to specific actions or mechanisms that
managers plan and take with the objective of competing more effectively. This includes,
inter-alia, actions to change the price or the benefits associated with their brands or
products. The research was not concerned with actions that managers take to
streamline their operations, to procure inputs more economically or any other actions
they take to become more profitable that are related to the operations of the business
rather than the prices and benefits associated with their products, services and brands.
The research topic at the time of embarking on the study was ‘Competitive positioning
in practice’ and the research planned to focus on the cognitive and practical processes
that managers employ to define their competitive positions relative to those of their
rivals, as well as what they do to reposition their brands, products or services.
The question for P1, the Systematic literature review, was:
What are managers’ cognitions in respect of competitive positioning and competitive
strategy?
The research question for P2, the qualitative research project, was:
How do managers construe the competitive actions they take?
The research question for P3 was:
How could managers improve their approaches to the formulation of competitive
actions?
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Summary of research projects and methods
The study is broken into three projects, namely:
1. Project 1 (‘P1’), a Systematic Literature Review
2. Project 2 (‘P2’), field research to understand what happens in practice
3. Project 3 (P3), the development of a guide to assist managers in the formulation of competitive actions
The table below summarises the methods used, the key findings and the contributions to knowledge made in this study.
P1 P2 P3
Research What are managers’ cognitions in How do managers construe the How could managers improve their
question respect of competitive positioning and competitive actions they take? approaches to the formulation of
competitive strategy? competitive actions?
Methods A systematic literature review was 20 semi-structured interviews were The findings and the processual
carried out and a total of 3,187 articles carried out and 26 competitive structure discerned in P2 was
were identified, of which data from 91 actions were recorded and analysed evolved into a guide, which was
was extracted and analysed using CIMO maps (please refer to validated and refined through 7
page 20 for ‘CIMO’ meaning) interviews with 4 managers
Key findings Gaps in the extant literature were The propositions developed in P1 Further interviews were carried out
identified, including that very little were explored and several findings in order to evolve the processual
research has been carried out in relation were made, including: model developed in P2 and the
to individual competitive actions, as • Managers tend to follow processes following findings were made in the
opposed to competitive strategies or that are largely homogenous in context of formulating competitive
positioning, and that not much is known formulating competitive actions. actions:
about how managers respond to their • The tools and techniques offered • Managers objectives are limited
views of their competitive environments. in the extant literature are seldom to either recovering, maintaining
used in practice.
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• Smaller companies tend to or developing their previous
formulate offensive actions while competitive positions.
larger companies tend to • There is a dichotomy between
formulate defensive actions actions that are proactive and
• Older managers tend to rely more result from management or
on tacit knowledge and shareholder plans and those
interactions with others, while that are reactive and result from
younger managers tend to rely emergent factors.
more on tools and formal training
in formulating competitive actions.
Contributions Four propositions were developed for A contribution to knowledge was A contribution to practice was
further research, including: made by developing a processual made in P3 by evolving the
model for capturing the way processual model developed in P2
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A constructivist epistemology was used in developing the research that spans projects
1, 2 and 3 insofar as knowledge was constructed through the research process and a
number of different methods and philosophical approaches were used in developing
this knowledge. These methods included the systematic literature review in P1, semi-
structured interviews with managers in P2 and the development of a framework (the
guide) for improving the formulation of competitive actions that were reviewed,
updated and validated through further interactions with managers in P3. Once the
interviews in P2 were complete, they were organised into CIMO1 maps and the results
were analysed. The table overleaf depicts the research process followed in P2. The figure
below depicts a high-level process flow chart for the research following the scoping
study.
P1 – Systematic literature review
one stimuli to the proactive competitive actions companies take to change the price or
the benefits associated with their brands, products or services, as well as corporate
actions, including mergers and acquisitions, that are taken to compete more effectively
with their rivals. Competitive actions are also triggered by reactive stimuli, such as
external or environmental changes.
This study has strong links to practice, realised through repeated interactions that took
place with industry practitioners during the research process. These interactions
included a pilot qualitative research project, semi-structured interviews and interactions
with a different set of managers during the production of the guide in P3. Five versions
of the guide were produced in P3 through an iterative process in which managers
reviewed it and the guide was then updated accordingly, until they were no longer
contributing anything substantially new.
A body of knowledge was assimilated through the systematic literature review in P1 that
was used to inform P2. Several propositions were also developed in P1 that were
validated in P2 through a deductive process. These propositions were explored in P2 by
including questions about each one in the semi-structured interviews that were
conducted with managers. The key findings from P1 were also summarised and noted
for discussion in the interviews.
An interpretive epistemology was used to understand the phenomena being researched
in P2. The epistemological stance on interpretive approaches is that knowledge of reality
is gained only through social construction such as language, shared meanings, tools,
documents etc. (Walsham, 1993). This epistemological approach was well suited to P2
because there were no predefined dependent or independent variables. Instead, P2
focused on the complexity of human sense-making as the research participants’
competitive environments emerged.
The CIMO framework (Denyer et al., 2008) was used in P2 to structure the interviews,
insofar as the framework guided the data sought and, therefore, the questions asked in
the interviews. The data gathered was mapped in a logical and easily understandable
format using CIMO maps. Specifically, the four categories of the framework were used
in the following manner:
• Context (C) was used to articulate the stimulus to the action and the applicable
environmental settings, such as the intensity of rivalry and the levels of
education and experience of the manager or managers involved in formulating
the action.
• Intervention (I) was used to describe the approach the manager or managers
took in formulating the action, including the data and tools that were used.
• Mechanism (M) was used to describe the actual action that was executed in
response to the stimulus and as a result of the intervention.
• Outcome (O) was used to articulate the end-result, or results, that the action or
Mechanism produced.
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The output of P2 was, therefore, a set of 26 CIMO maps and an analysis of the findings,
which were used to develop the first draft of the guide for formulating competitive
actions in P3. Development of the guide was preceded by the identification and
documentation of patterns and approaches to different types of competitive actions
from P2.
The guide was discussed with managers and updated accordingly in a total of five
iterations. The objective of these discussions was to validate the assertions made in the
guide, as well as its practical applicability. These discussions also sought to capture
divergent views and emergent issues expressed by the participants. Before these
discussions were held with the participants, the guide was sent to them to review. Based
on this approach, the unit of analysis was the competitive action.
The validity and applicability of the guide was based on the complexity of human sense
making, as the outcomes of the discussions with managers were based solely on how
they interpreted the validity and applicability of the guide relative to their own
experiences. The interpretive approach is inductive and concerned with discovering and
interpreting social patterns (Chen and Hirschheim, 2004).
The research revealed that the sources of competitive actions are either proactive or
reactive. Proactive actions are often the outcomes of a plan that the shareholders or
management have. These plans include competitive strategies and the actions could
form part of the strategy. In this context, competitive strategy can be viewed as an
aggregation of competitive actions, which can be viewed as individual routines
associated with the strategy. The focus of the study was on how managers construe both
these competitive actions, as well as reactive ones, as well as the tools they use and the
processes they follow to formulate them.
The corollary of this study, and the focus of P3, is a guide based on the findings of the
research that offers managers insights into how competitive actions are formulated.
Furthermore, it provides them with a process to follow and recommendations and
points to consider when formulating their own competitive actions.
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that little has been carried out in relation to individual competitive actions. Extensive
literature is also available on how managers interpret their competitive environments
but not much is available regarding how managers respond to these interpretations and,
specifically, how they formulate and execute competitive actions as a result. In fact, the
following search strings yielded 1,433 results using the EBSCO, ProQuest and Science
Direct databases:
• manag* perception AND competition
• manag* perception AND competitive advantage
• manag* perception AND competitive strategy
Using the search string ‘competitive actions in practice’ and limiting the search to
academic journals and the fields of marketing, economics, business and management,
yields 565 results, of which not a single article was concerned with the formulation of
competitive actions in practice. Amongst the 565 results, there were only three practical
studies, which are:
• In ‘Supporting strategy with competitive analysis’ (Coburn, Greenwood and
Matteo, 2002) a case study of Boehringer Ingelheim Pharmaceuticals Inc. is used
to illustrate how competitive analysis can be used to support managers’ efforts
in developing strategies.
• In ‘Competitor analysis – A prize-centred approach’ Otenfeldt and Moore (1981)
provide an approach that they’ve termed the ‘Prize-centred’ approach, to
analyse the competitive environment.
• The article ‘Understanding competitors’ strategies: the practitioner-academic
gap’ (Lyndon, 1997) is predicated on a study of how well companies understand
their competitors and to what extent they monitor their rivals’ strategies and
tactics in the British electronics industry.
The abovementioned studies are all concerned with how managers construe their
competitors. Not a single study was found on how managers formulate the competitive
actions they take. Neither was anything found regarding the formulation of competitive
strategies in practice. In summary, no evidence of research having been carried out
regarding what managers actually do in practice to formulate competitive strategies or
actions could be found and P2 sought to address this gap.
Methods and objectives
The units of analysis in P1 were the company’s competitive position and its competitive
strategy. P1 was used as a foundation for research that was to be carried out
subsequently in P2. The term ‘foundation’ means a basis from which to start the
research and to build on what was already known.
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Six interviews were carried out with industry practitioners when scoping the study and
they showed that there are certain processes and techniques that are applied in
practice. This informed the research question and the findings of the interviews were
explored further in P1.
The Systematic Literature Review (‘SLR’) sought to review and catalogue the literature
that is available and relevant to management cognitions and sense-making in the
context of competitive positioning and the development and execution of competitive
strategy in practice. The scope of P1 was limited to the decisions senior managers make
and the actions they take to position their firms in relation to their competitors in order
to optimise their profits, in the context of marketing actions involving price, brand and
product or service attributes.
P1 covered both the cognitions employed by managers in understanding their
competitive environments and their relative positions, as well as the cognitions
employed by managers’ in formulating competitive strategies. The starting point was
how they construe and, as a result, define their competitors and how they make
decisions to respond to competitive forces and compete more effectively.
The EBSCO, ProQuest and Science Direct databases were searched using a number of
pre-defined search strings. The search yielded a total of 3,187 articles, which were
reduced to 91 after removing duplicates and after title, abstract and full title screenings.
The data was synthesised with the objective of describing, analysing and drawing
conclusions from the research evidence gathered, and to summarise it so it could
effectively be used to inform the qualitative research carried out in P2.
Findings and contributions to knowledge
From the literature reviewed, it was clear that understanding the competitive landscape
is the first step in the process of developing competitive strategies. This is because
knowing where a brand or product is positioned relative to its competitors is antecedent
to understanding what its ideal or desired position should be, as well as the formulation
of a plan with actions to attain that position.
One of the conclusions of P1 was that further research was needed into the link between
the competitive positioning tools and techniques offered in the extant literature and the
processes employed in practice, and vice versa. The scope of this DBA study was further
developed and refined to focus on the formulation of competitive actions in the
subsequent projects, as it was revealed that a gap existed in this area of the extant
literature. Based on the findings of P1 and the gaps found in the extant literature, the
focus of P2 and P3 was on competitive actions, rather than competitive positioning or
competitive strategy.
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P1 propositions
As a result of the findings of P1, four propositions that required clarification were
developed, namely:
1. Manager’s approaches to the formulation of competitive actions are
environment dependent
2. Managers’ backgrounds influence their competitive actions
3. Managers focus on narrow sub-sets of their competitor universes
4. Competitive actions are carried out in an iterative manner
While these propositions are covered thematically in the extant literature, the findings
appeared inconclusive in certain respects and required additional research, which I
tried to undertake as part of P2.
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broad sample set so that the results of the research could be applied to a wide range of
different environments and competitive situations.
Step Description
1 Identify and recruit suitable participants
Managers were located using both my personal network of contacts and
through the contact networks of the Cranfield Centre for Customised
Executive Development and the current Cranfield DBA cohorts. The
participants were all managers involved in the formulation and execution of
competitive actions within their respective organisations.
2 Identify specific competitive actions
Each participant was asked to identify at least one specific competitive action
(action) to be included in the research. A review of participants’ organisations
websites and documentation related to the action allowed for the
triangulation of the interview findings.
3 Gather information about the environment and the participating managers’
backgrounds
Information regarding the company and the environment related to the
action, as well as the participating managers’ backgrounds, were gathered
before they were interviewed.
4 Interview participating managers
In most cases, the interviews were voice recorded and extensive notes were
always taken. Additionally, interviewees were asked for documentation that
supported the formulation and the execution of the competitive action.
5 Transcribe, code and analyse interviews and the associated material
The interviews were transcribed and then coded. To add more depth to the
information gathered in the interviews, the associated material, such as
business plans, advertising briefs and advertising material was collating and
analysed.
6 Produce CIMO2 maps
The coded interviews, as well as other information, were used to produce
CIMO maps
7 Analyse CIMO maps in response to the two propositions
The maps were analysed in response to the two propositions, namely that:
1. The formulation and execution of competitive actions is environment
dependent
2. The formulation and execution of competitive actions is influenced by the
relevant managers’ backgrounds
8 Compare and contrast ‘CIMO’ maps
The maps were compared and contrasted in order to identify anomalies and
differences in managers’ approaches to the formulation and execution of
competitive actions and to draw conclusions in this regard.
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In every one of the 20 interviews and the 26 competitive actions that were discussed,
the four propositions developed in P1 (see page 24) were explored by asking the
interviewees questions specifically related to them. This yielded data that was then
analysed using CIMO maps to respond to the propositions.
Findings and contributions to knowledge
A number of findings were made in P2, including an understanding of the influences that
managers’ environments and backgrounds have on the way in which they formulate and
execute competitive actions, as well as an understanding of how managers’ use tools
and techniques to support the formulation and execution of competitive actions. The
sections below have been organised according to the four propositions developed in P1,
followed by the findings and the contributions to knowledge in relation to emergent
phenomena.
P1 propositions
The findings in relation to the four propositions that were developed in P1 are listed
and discussed below.
Proposition 1 - Manager’s approaches to the formulation of competitive actions are
dependent on environmental competitiveness
Walsh (1995) explains that managers in non-hypercompetitive environments are able to
base both their own actions and their interpretations of others' actions on a cognitive
framework that includes beliefs shared within the firm, as well as beliefs shared among
companies. Bogner & Barr argue that many of these beliefs are no longer shared
between managers in hypercompetitive environments. P2 sought to provide an
understanding of how varying competitive environments affect the sophistication of the
formulation of competitive actions by managers. The state of development of the
macro-economy and the maturity of industry in which actions were formulated were
used as proxies for environmental competitiveness.
No relationship could be found between the degree of development of the economy in
which the action was formulated and the sophistication of methods used. Neither could
a difference in the types of competitive actions or the methods used to formulate and
execute them be found between those carried out in developed markets, developing
markets and emerging markets. The conclusion is that the sophistication of methods
used in the formulation and execution of competitive actions is not influenced by the
nature of the macro-economic environments, whether the economy developed,
developing or emerging.
Based on the sample, the structure of the industry in any specific market is normally
related to its maturity. In mature industries, such as the automotive or the Fast Moving
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Consumer Goods (FMCG) industries, managers were very aware of whom their
competitors were and their relative positions in the market. As a result, they acted with
very specific objectives when gathering market intelligence and when formulating and
executing competitive actions. The managers who were interviewed at IT companies,
whose industrial structures were still evolving and, therefore, their competitive sets
were not as clearly defined as those of the automotive or FMCG industries, gathered
market intelligence and formulated and executed competitive actions with objectives
that were less clear.
Ten industries were covered in the research. None of these could be considered stable
without change or innovation taking place. From the interviews we can conclude that
the reasons for competitive actions and the ways in which they are formulated and
executed, are not functions of the rate of change or the level of innovation of a particular
industry. Rather, they are situation-specific and such situations relate to specific
changes in the competitive landscape, corporate actions, economic crises, desired
changes in customer perceptions or poor sales performance as perceived by managers.
Proposition 2 – Managers’ backgrounds influence their competitive actions
The second proposition was that managers’ approaches are influenced by their national,
cultural, educational, functional and experiential backgrounds. It is noteworthy that two
of the youngest managers interviewed were very sophisticated in their approaches to
formulating and executing competitive actions and they accounted for two of only four
managers that used a tool or technique to assist them. These two managers also
possessed high levels of relevant formal training. In contrast, managers in the
automotive and fashion industries with no relevant formal training but many years
experience relied on the tacit knowledge they had accumulated over many years, as well
as dialogues with other managers, sales staff and customers in formulating competitive
actions.
Regarding managers’ training and the size of their organisations relative to the
sophistication of the methods used in formulating and executing competitive actions, a
very distinct relationship is evident between the level of managers’ training, as well as
between the sizes of their organisations, and the sophistication of the methods used.
Therefore, it is not clear whether larger organisations use more sophisticated methods
because they tend to place greater emphasis on qualifications when employing
managers or because the size, culture and the processes employed within larger
organisations cause them to use more sophisticated methods.
It was clear that managers’ functions within their organisation have a bearing on the
types of actions they formulate and execute and the methods they use. Bowman &
Daniels (1995, pg. 165) found that “When managers are asked to reflect their firms’
situations, there is evidence of functional bias”. The interviews confirmed that
functional biases exist in the formulation and execution of competitive actions and this
was pervasive across the study. For example, marketing managers used surveys to
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gather information while those with sales backgrounds replied more on personal
dialogues and managers with engineering backgrounds placed more emphasis on the
technical differentiators of their product or service offerings.
It was also evident that managers operating in their home markets had an advantage
insofar as they had an affinity with local cultural and national norms, while managers
operating in foreign markets had an advantage insofar as they were able to apply
learned experiences from previous actions and tacit knowledge gained in their home
markets to the new ones. However, in every instance of managers from foreign markets
successfully formulating and executing competitive actions, they did so with the support
of local managers.
Proposition 3 - Managers focus on narrow sub-sets of their competitor universes
The third proposition derived from the Systematic Literature Review is that manager’s
focus on narrow subsets of their competitors due to their limited capacities to rigorously
comprehend and analyse their comprehensive competitive sets. These assertions were
confirmed in the interviews that were conducted. The interviews also affirm the
existence of strategic groups (Porter, 1980) and cognitive oligopolies as described by
Porac, Thomas and Baden-Fuller (1989), who used the term to refer to the tendency of
managers to limit their competitive subsets.
A manager at a mobile telephony company, for example, was only really aware of his
two closest competitors, their business models and their competitive advantages. It is
also evident from the interviews that oligopolies act in a coordinated fashion in relation
to their competitive actions.
Proposition 4 - Competitive actions are carried out in an iterative manner
The fourth proposition from P1 was that the formulation and execution of competitive
actions are carried out on an iterative basis. P2 sought to understand how the complete
strategy process, or loop, could function in an integrated manner and what the benefits
would be. The interviews not only confirm that competitive actions are indeed carried
out in an iterative manner but also showed that interactions with customers are often
relied on in the formulation of competitive actions. Specifically, 15 of the 26 competitive
actions covered in this study relied on customer interactions to inform and guide their
formulation and execution and 10 of them relied on multiple customer interactions.
In other words, a customer’s comments may trigger the competitive action process and,
as certain tasks are completed, customers, as well as other managers and business
partners, are engaged again to provide guidance. Knowledge gained from previous
competitive actions, most often tacit knowledge, is also used to inform the formulation
of competitive actions.
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Emergent phenomena
Phenomena that emerged during the interview are:
The link between academic tools & techniques and practitioners’ practices is weak
One of the most significant findings from the early research carried out as part of the
scoping study that was confirmed in P2 is that tools and techniques, such as those
discussed by Rigby (2001) are seldom used. In fact, of the 26 competitive actions
included in the research only three used a tool or technique and these were:
• Competitive Compass
• Michael Porter ‘s Five Forces framework (1980)
• A tool developed internally by an FMCG company to estimate sales volume and
value, as well as the requisite marketing investment. This tool was used in two
of the competitive actions covered.
This is an interesting observation insofar as it shows that, in the context of the P2
research, the link between practice and the tools offered in the extant literature,
including those discussed in Rigby’s 2001 study, is weak. Of course, the question that
could be asked is whether or not a greater use of these tools and techniques would, in
fact, improve the endeavours of managers in relation to the formulation of their
competitive actions. Interestingly, in 13 of the 26 competitive actions, structured
interviews or surveys were used by the respondents.
Offensive vs. defensive actions
The research showed that smaller companies that are still growing tend to formulate
competitive actions from an offensive stance with the objective of gaining market share
from the incumbent competitors. By contrast, larger, more established companies that
were firmly entrenched within their strategic groups, tended to act defensively when
formulating and executing competitive actions with the objective of maintaining their
market positions.
In summary, the larger companies tended to develop and execute competitive actions
in order to fend off competitive threats from smaller competitors or as a reaction to
shrinking sales figures or market share. Smaller companies, by contrast, tended to
develop and execute competitive actions with the objective of growing their businesses.
Formulating competitive actions is an intuitive and iterative process
The interviews in P2 suggest that the formulation and execution of competitive actions
is an intuitive and iterative process. Managers, particularly those that are more
experienced, were found to rely very heavily on direct interactions with other managers,
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business partners and their customers when formulating and executing competitive
actions. It was also found that competitive actions are carried out in an iterative manner,
where the learned experiences from one competitive action, or a set of competitive
actions, are used to inform future iterations of the same action or actions, as well as
new and unrelated actions.
The conclusions drawn from actions taken are often stored as tacit knowledge held by
individual managers, rather than institutional knowledge held formally. This tacit
knowledge is then applied to future actions by the relevant managers. It was revealed
in P2 that more experienced managers rely more on the tacit knowledge they hold and
less on tools, techniques and methods they’ve learnt through formal territory education
than younger, less-experienced managers.
Greater deviation from the norms of strategic groups exists than the extant
literature indicates
Strategic groups are part of the way strategists organise and make sense of their
competitive environments (Reger & Huff, 1993). Porter (1980) defined a strategic group
as a group of companies in the same industry making similar decisions in key areas. As
part of this study, managers were asked to list their competitors, as well as the
competitors they considered in the formulation of competitive actions. Based on the
results, the existence of strategic groups was evident. The managers’ responses also
confirmed that they focus on narrow sets of competitors in defining their competitive
environments. However, based on the 26 competitive actions analysed, there appears
to be far more divergence from the norms of strategic groups in the formulation of
competitive actions than indicated in the extant literature.
Gresov and Drazin (1997) assert that efficiency and efficacy are optimised in the
structures and processes adopted by the strategic group and that deviating from them
results in compromised performance. While the study found there to be mimicking
between competitors in the same strategic groups, in relation to marketing campaigns,
product development and product or pricing policy updates, there were many instances
where the managers interviewed deviated from industry norms with the objective of
achieving or sustaining profit levels above industry norms. An FMCG company launched
a refill pouches initiative in response to the market becoming more and more
commoditised and consumers becoming more and more price sensitive. A
telecommunications company bundled fixed-line and mobile-line products together to
offer a service that none of its competitors could.
Another explanation for managers being reluctant to deviate from industry norms could
be because taking actions that appear to be in their organisations’ best interests may
induce retaliatory actions from their competitors (Baum and Korn, 1996). In the 26
interviews that make up this study, not a single example of this retaliatory fear
behaviour could be found.
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Step Description
1 Patterns and approaches relevant to the formulation of competitive actions
were identified and documented based on the findings of P1 and P2.
2 A guide for formulating competitive actions based on the patterns and
approaches identified and documented in step 1 was developed. Process flow
charts and tables were used as far as possible to describe the guide in a succinct
manner.
3 Four suitable managers involved in the formulation of competitive actions
within their respective organisations were identified and recruited to review
and comment on the guide. The criteria used to recruit these managers and a
summary of those selected is provided in the ‘Research population’ section
below.
4 The guide was discussed with the participating managers and updated
accordingly after every discussion to reflect their particular experiences, as well
as their assessments of its validity and applicability. Ten discussions were held
with the managers, their comments were noted each time and they were used
to produce five versions of the guide in total. The comments and consequent
updates to each of the five versions of the guide are contained in appendix 17.
5 The guide was finalised with ‘version 5’, using the comments from the
discussions held with managers. The last two versions were split into the guide,
which was designed to be used by a broad set of managers on a day-to-day
basis, and a resources manual, which was designed to be used by a smaller set
of managers less frequently. Appendix numbers 1 to 7 contain the five versions
of the guide and the associated resource manuals.
Table 3: P3 Research procedure
The table above depicts the research procedure that was followed in P3. It was
important that the guide could be applied to the formulation of a wide range of different
competitive actions in practice and the competitive actions from P2 were, therefore,
drawn from different industries, territories and different types organisations. A set of
managers different from those used for the P2 interviews was used in order for the P3
process to be as objective as possible. The study population comprised managers that
either make or influence decisions that lead to competitive actions.
The themes that emerged in P1 and P2 were considered in developing P3. Relationships
that existed between the themes were identified and used to explain the dynamics of
the guide, as well as the factors that lead to those relationships. The figure below depicts
the process that was followed.
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Project 1
Competitive actions
Project 3
guide for managers
Project 2
Test guide with managers
Competitive actions
guide for managers
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In discussing the guide with managers, the ideas and recommendations offered were
usually reinforced by their own experiences and anecdotal evidence was often provided.
Through the development of the guide and the interviews in P3, it was confirmed that
managers formulating and executing competitive actions in their home markets have an
advantage over those operating in foreign markets insofar as they have a better
understanding of the local culture and national peculiarities. Managers formulating and
executing competitive actions in foreign markets have an advantage insofar as they
bring learned experiences from competitive actions successfully executed in their home
markets with them. Based on the interviews, it is impossible to determine which position
is more advantageous.
Managers also highlighted some of the situations and some of the decisions they are
often faced with. For example, one of the Chief Executive Officers interviewed
mentioned that they often asked themselves “which businesses, or products and
services, they should continue with and which they should discard, which they should
re-hash and which they should try to improve upon”. Practical examples were also
offered, that either reinforced or questioned the ideas and recommendations provided
in the guide. These included an approach that involved looking for new markets that
could substitute for the loss of sales or market share in markets where sales were
waning.
The qualitative research confirmed that manager’s frames of reference are influenced
by their national and cultural backgrounds, as well as by their experiences and their
training and it became evident in P3 that this can act as both a hindrance and an
advantage in the formulation of competitive actions. Managers with more experience
but less formal education in business or marketing disciplines tend to rely more on their
experience, their intuition and on dialogues with colleagues, customer and partners to
inform the competitive actions they formulate, while managers with less experience and
higher levels of education in business or marketing disciplines place more emphasis on
what they have learnt. Based on the research, the best approach to dealing with
managers’ disparate backgrounds, experiences and training is to map them to the
requirements envisaged for each specific competitive action and, where necessary and
appropriate, to assemble teams with the requisite set of skills, experiences and
backgrounds.
A proposition emanating from P1 was that ‘competitive actions are carried out in an
iterative manner’. This was explored in P2 and it appeared that competitive actions are
indeed carried out in an iterative manner. A particular action is taken, it’s success or
failure is evaluated and it is then used as an input to a further action or actions. P3
confirmed that, because industries and markets are dynamic, companies would benefit
from competitive actions being formulated and executed as an iterative process,
informed by changes in market conditions and the competitive environment, as well as
the use of competitive intelligence. Tight integration between the gathering and
application of competitive intelligence within organisations could lead to more effective
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competitive actions being formulated, as well as actions that are more responsive to
environmental changes.
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Introduction
The aim of this DBA study was to establish how managers formulate the competitive
actions they execute. This encompassed a study of both their cognitions and the
material processes they employ in deciding on particular competitive actions. The scope
of the research was limited to the actions managers take to position their brands,
products and services in relation to those of their competitors in order to optimise their
profits. These were limited to marketing actions involving price, brand and product or
service attributes. This was a practical study involving a number of senior managers who
are responsible for the formulation and execution of competitive actions at companies
across a number of different industries. The overarching research question for the study
was;
How do managers formulate the competitive actions they take?
In the context of the research question, the concept “formulate” includes all the
antecedents to competitive actions. Specifically, it has the following meanings:
• How managers view their competitive environments and categories their
competitors
• How they formulate strategies to compete more effectively with their
competitors
• The decisions they take to execute competitive actions and the information that
informs their competitive actions
This Systematic Literature Review (‘SLR’) sought to review and catalogue the literature
that is available and relevant to management cognitions and sense-making in the
context of competitive positioning and competitive strategy. This encompasses the
mental maps that managers use to construe their competitive environments, the
subsequent decisions they take to compete more effectively, and what informs these
decisions. The SLR was used both to understand what has already been found in the field
and as a foundation for research that that was carried out subsequently as part of this
study. The term foundation means a basis from which to start the research and to build
on what has already been learnt. The research question was:
What are managers’ cognitions in respect of competitive positioning and competitive
strategy?
In the context of this study, competitive positioning refers to the way in which managers
map rival brands, products and services to those of their own, as well as the actions they
take to improve their competitive positions. Competitive strategy refers to the plans
managers formulate and the decisions they take to compete as effectively as possible.
This includes actions to change the price or the benefits associated with their brands,
products or services, as well as corporate actions, including mergers and acquisitions
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that are taken to compete more effectively. The research was not concerned with
actions that managers take to streamline their operations, nor to procure inputs more
economically nor any other actions they may take to become more profitable and that
are related to the operations of the business rather than to the price and benefits
associated with their products and brands and corporate actions.
The research is broken into three separate projects, namely Project 1 (P1), which is this
SLR, Project 2 (P2), in which field research to understand what happens in practice was
undertaken, and Project 3 (P3), in which a guide was developed to assist managers in
formulating competitive actions. Management cognition is a nascent field and little is
known about the constructs that managers use or where and how they think about
competitive positioning and competitive strategy in practice. Subsequent to P1, a series
of interviews were carried out as part of P2 to understand how managers think about
their competitive environments, how they formulate competitive actions and how they
make decisions with regard to competitive actions. The figure below depicts a high-level
process flow chart for the research.
P1 – Systematic literature review
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Relevant appendices
The table below lists the appendices to this study that are relevant to P1.
No. Title Description Pages
8 Previous consulting A list of previous consulting assignment and 185
assignments & businesses that I’ve been involved in and that
businesses are relevant to this DBA study
9 Quality appraisal Form that lists the Likert scale and the binary 186
criteria applied to criteria used decide on whether or not to
articles include the use of each article identified in the
study
10 Data extraction Specimen of the form used to systematically 187
form extract and record data from the articles
identified.
11 Summary of key A table containing the key findings from the 36 188 -
findings from most important articles. 200
literature
Table 1: Relevant appendices
Methodology
Literature was reviewed to understand what has already been established regarding the
constructs and processes employed by managers in practice in the context of
competitive positioning and competitive strategy. Appropriate search strings were
identified and used to locate the relevant literature. A process was employed to extract
the relevant data from the literature by funnelling through a process that started with a
systematic evaluation of the title, followed by a systematic evaluation of the abstract
and then an evaluation of the article itself. A sample data extraction form is provided in
Appendix 10.
Articles that passed the full text screening successfully were subjected to a quality
appraisal and only articles that made it through to this final stage of the process were
used. The quality appraisal criteria are provided in Appendix 9. The selected articles
were systematically reviewed and themes, key findings, their limitations and the
contributions they make to the review question were identified and recorded for
inclusion in the SLR.
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Identify key words and search strings
Identify databases
Recommendations,
cross-referencing
Run search strings in selected databases
Eliminate duplicates & title/abstract screening
Full text screening
Quality appraisal
Final papers for systematic review
Figure 2: Search strategy
Keywords
To facilitate the creation of appropriate search strings for the review question ‘What are
managers’ cognitions in respect of competitive positioning and competitive strategy?’,
the key words in the table below were identified:
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Keywords/terms Synonyms
Management Manager
Executive
Cognition Perception
Comprehension
Cognitive
Cognitive mapping
Mental models
Sense making
Competitive positioning Competitive position
Competitive positioning
Competitive environment
Competitive strategy Competitive strategy
Competitive advantage
Competition
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Databases
The following databases were used, which jointly indexed a large amount of business
literature and resulted in a very comprehensive search.
• EBSCO – EBSCO covers more than 375 full-text and secondary research
databases providing a very comprehensive platform from which to search for
relevant literature. There is also a strong emphasis on academic journals, which
translates into better search results and fewer article disqualifications.
• ProQuest (ABI/Inform) – The ProQuest, ABI/Inform database coverage is very
broad and, apart from academic journals, includes many trade journals,
periodicals and news wires. While its coverage is comprehensive, the search
results yield many articles that are not useable because they are either irrelevant
or lack robustness and quality of research that this study demands.
• Science Direct – Science Direct is a leading full-text scientific database offering
journal articles and book chapters from nearly 2,200 active journals and close to
26,000 books.
Using additional databases beyond those mentioned above would have resulted in a lot
of duplication and would have sharply diminished the efficiency of the search process.
The Psych Info database was also tested but yielded very limited results.
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Cross-referencing
In addition to evaluating the results produced by the databases; reference lists from the
documents selected for the review were also examined in order to identify additional
relevant literature that might have been missed in the search. The cross-referenced
literature was subjected to the same selection criteria and quality assessment as the
literature initially identified through the use of databases.
Panel recommendations
Panel recommendations have proved to be a very good source of literature to review.
They were considered and subjected to the same selection criteria and quality
assessment as the literature identified through database searches.
Selection criteria for articles
In order to determine the relevance of each article identified using the search strings, a
four-stage process has been used. Specifically:
1. The titles were scrutinised for relevance
2. The abstract was read and the article’s themes identified
3. The full text of the article was screened to determine its relevance
4. The article and the quality of the article was evaluated using the criteria listed
below
Title and abstract screening was subjected to the following criteria:
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The full articles that make it through the tile and abstract screening were subjected to
the screening criteria:
Criteria Inclusion Exclusion Rationale
Relevance Article discusses Article does not Provides insight into
for review management, discuss management, how executives or
question manager or executive manager or executive managers map their
cognition, cognitive cognition, cognitive competitive positions
processes, processes , and develop and
comprehension or comprehension or implement
perception in the perception in the competitive strategy
context of competitive context of competitive in practice
positioning, positioning,
competition, competition,
competitive advantage competitive advantage
or competitive or competitive strategy
strategy and provides or does not provide a
a conclusion/s conclusion/s
Type of Journal articles, Conference papers and Good conference
publication extracts from books proceedings, press and working papers
and working papers articles, reports, will most likely be
less than a year old theses, working papers developed into
older than a year journal articles. Press
articles lack the
rigour of academic
articles. Reports or
theses are not
always identifiable or
obtainable
Table 6: selection criteria for full articles
Selected articles
Following the process described above, the search produced the results set out in the
table overleaf. The numbers in the ‘Search string no.’ column relate to the search string
numbers indicated in table 3 above. Relevant data from all 91 articles were extracted to
a standardised data extraction form designed to capture themes, methods and key
findings in the literature. Data extraction facilitated the rendering of a descriptive
account and a synthesis of the literature.
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Quality appraisal
After selecting the papers using the search strings referred to above based on their titles,
abstracts and their full texts, these were appraised for quality. Tables 7 and 8 depict the
criteria used to appraise each article. Table 7 depicts the scores where a Likert scale was
used, while table 8 relates to criteria with a binary score. Appendix 9 lists the quality
appraisal criteria. For every article, each criterion was either scored from 1 (not at all)
to 5 (completely) or on a ‘yes’ or ‘no’ basis if they elicited binary scores. Articles scored
between 1 and 5 had to meet a minimum score of 3 for each criterion in order not to be
excluded. For binary criteria, only those articles that met the criteria were included. To
negate the assumption that papers in top rated journals are all necessarily of good
quality, journal rankings were not considered as part of the quality appraisal criteria.
However, the source of each article was borne in mind when reviewing it.
Data synthesis
The objective of the synthesis was to describe, analyse and draw conclusions on the
research evidence gathered in the review and to summarise this so that it could
effectively be used to inform the qualitative research carried out as part of P2. To
achieve this, the synthesis process started by mapping manager cognitions related to
competitive positioning and competitive strategy. These were then organised in a
structure that makes it easy to relate them to competitive strategy in practice. The
synthesis sought to expand the understanding of competitive strategy in practice.
Evidence from primary qualitative studies has been synthesised.
Findings
The field of management cognition in the context of competitive positioning and
competitive strategy is broad. The literature reviewed researched a wide variety of
different topics and made many and diverse suggestions and assertions. Whilst
reviewing the literature, notes were taken regarding themes, key findings and the
limitation and suggestions for further research. A total of 31 themes were identified and
were then collated and distilled into a number of key themes. Specifically, these key
themes included:
1. Managers’ cognitive categorisations of competitors
2. Influences on managers’ frames of reference
3. Shared intra-industry management cognitions
4. Automatic versus controlled processing
5. Functional biases in the perception of competitive strategy
6. Does deviating from industry norms result in lower profits?
7. Competitive intelligence
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Strategic groups are invoked by strategists to organise and make sense of their
competitive environments (Reger & Huff, 1993). Specifically, managers simplify their
competitive environments by focusing upon a subset of firms competing within an
industry (Daniels, Johnson and de Chernatony, 2002; Easton et al. 1993; Gripsrud and
Gronhaug 1985; Hodgkinson and Johnson 1994; Lant and Baum 1995). They simplify
their competitive environments further by categorising their competitors (Porac,
Thomas and Baden-Fuller. 1989; Porac and Thomas 1990, 1994; Reger and Huff 1993).
They define their own business in terms of the label they use to define the cognitive
category in which their business is placed (Porac, Thomas and Baden-Fuller, 1989) and
hence consider their firm to be competing most closely with other firms in that category
(Porac and Thomas 1994), especially if those firms are larger or more typical of that
category (Porac et al, 1995). Porac, Thomas and Baden-Fuller (1989) use the term
‘cognitive oligopolies’ to refer to the tendency of managers, even in fragmented
environments, to select a few, very similar organisations as competitive referents.
Porac, Thomas and Baden-Fuller (1989) propose two criteria to distinguish competitors
from non-competitors:
1. The industry criteria suggest that this distinction should be made on the basis of
technology – firms are competitors when they share similar technological
attributes.
2. The market criterion suggests that this distinction should be made on the basis of
product substitutability – firms are competitors when they produce products that
can be substitutes for one another in the satisfaction of a customer need.
In their research, Porac and Thomas (1994) ask whether subjective rivalry, being the
managers cognitive view of their competitors, is similar to or different from material
competition that is defined by the more standard technological of market criteria and
argue that there is no reason to expect that employee definitions of competitors would
be isomorphic with the more analytical definitions of researchers. This research
comprised two studies that suggested two sources of divergence. Firstly, respondents
did not see market and technological factors as mutually exclusive. For example,
supermarkets were subjectively defined as much by their technology (e.g. having delis)
as by the customer markets (e.g. upscale shoppers). Secondly, respondents tended to
make fine-grained distinctions among organisations and thus defined rivals somewhat
narrowly. For example, supermarkets, rather than grocery stores, were the level of
abstraction at which rivals were perceived, even though material criteria would, in all
likelihood, define rivalry at a more general level.
Researchers of competitive strategy adopting a cognitive stance have employed a
variety of methods for revealing managerial mental models, ranging from the simple
process of having participants list competitors by name (Hodgkinson, 1994), to more
sophisticated procedures such as the development and multivariate analysis of
questionnaire items derived through a thorough analysis of relevant literature
combined with expert opinion. Repertory grid and related procedures such as
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multidimensional scaling have also been employed to reveal the basis upon which
managers distinguish competitors (Reger, 1990).
Gripsund and Gronhaug (1985) asked grocery managers in a small Norwegian city to list
all the local firms that they considered to be competitors and, although Gripsund and
Gronhaug did not directly assess business definitions, their data suggested that
respondents perceived very narrow competitive boundaries. Despite the fact that over
50 groceries existed in the local community, 90% of the managers cited five or fewer
rivals. Porac and Thomas (1990) argued that the focusing effect of business definition is
a result of managers matching the characteristics of known organisations of cognitive
taxonomies of organisational types.
In their study in 1989, Porac, Thomas and Baden-Fuller adopted a ‘within-subjects’
assessment procedure. Managers were asked to discuss the nature of their business, to
categorise their business, what related classes of business there are and what sub-
classes of each there might be. The process was continued upwards until the managers
are unable to generalise usefully any further, laterally, until all related classes of
business they can recall have been recorded, and downwards, until they can make no
further useful distinctions.
Figure 3: Elicited ‘cognitive taxonomy’ of one of the managing directors of a Scottish knitwear firm
(Porac, Thomas and Baden-Fuller 1989)
Hodgkinson and Johnson (1994) carried out a very similar study to Porac, Thomas and
Baden-Fuller (1989) and argued that researchers adopting a cognitive approach to
competitive analysis tended to focus their data collection and analyses at an aggregate
level, particularly at the level of the industry. Whilst of value, the aggregate level
approach has a number of drawbacks and limitations. In particular, it implies a level of
consensus within and between organisations, which is questionable (Wooldridge and
Floyd, 1989) and it fails to take into account individual differences in mangers'
perceptions that may exist (Reger, 1990).
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In their study, Hodgkinson and Johnson (1994) explored the nature of individual
differences and similarities in managers' mental models of competitive structures, how
they might be explained, how such differences in perception are resolved, and the
consequent implications for future research within the field of strategic management.
Their study was undertaken in the United Kingdom (‘UK’) grocery retailing industry and
revealed considerable diversity amongst the research participants' organisations in
terms of the overall structure and contents of their mental models of competitive
environments. The study also revealed considerable intra-organisational agreement
regarding the categories that describe the self-identity of the research participants'
organisations and their major competitors.
The result of Hodgkinson and Johnson’s (1994) study demonstrates that there is
considerable variation in the contents and structural complexity of the cognitive
taxonomies of individual managers, both within and between organisations, in the same
industry sector. The study, as with other studies carried out around the same time,
focuses on how managers construe the market positions of their brands or products
relative to competitors, rather than the decision-making processes they follow in
developing competitive strategies.
Reger and Huff (1993) sought to compare individual-level mental models of competitive
structures. Using a repertory grid procedure (Kelly, 1955), Reger (1990) found
considerable variation in terms of the personal constructs elicited from managers from
different banks within the Chicago area. However, Reger and Huff (1993) re-analysing
the same dataset noted considerable agreement in terms of the research participants'
categories of competitors. Thus, it would appear that individuals might hold somewhat
different construct systems, yet share common category structures at the level of the
industry. In contrast to the Reger and Huff study that compared managers' mental
models across rival firms, the later study focused primarily on the nature and extent of
cognitive consensus and diversity within particular organisations. Nevertheless, their
focus on individual managers allows comparisons with the findings of the Reger (1990)
and Reger and Huff (1993) studies. The use of the taxonomic interview approach also
allowed comparisons with the findings of the industry-level aggregate studies of Porac
et al. (1987, 1989).
Daniels, Johnson and de Chernatony (2002) argue that the competitive, or task
environment, may encourage divergence of management cognition between
organisations, management functions and amongst senior managers, and that the
institutional environment may encourage cognitive convergence at the level of the
industry, the strategic group and within institutionalised practices linked to
management functions and level. They suggest that the institutional environment is
influenced by the convergence of middle managers’ mental models across specific
industries and that there is also some influence of the task environment through
cognitive differences across organisations. It has been found that greater differentiation
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exists amongst senior managers' mental models than amongst those of middle-
managers.
Study Results of study Limitations/scope for further research
Gripsund Managers view and focus on The research is based on a very peculiar
and only a sub-set of all their industry and territory and fails to ask
Gronhaug competitors – the most why managers focus on the sub-set of
(1985) direct competitors competitors that they do.
Porac, Managers actions are based The study included research on the
Thomas on their interpretations of interpretation of competitors and
and environmental cues, resulting suggested ways in which mental
Baden- in firms within competitive models of competitors are linked to
Fuller groups enacting their tactics competitive actions. Further research is
(1989) in similar ways needed regarding this link.
Reger The study found significant The study uses the Chicago financial
(1990) differences in managers’ services industry, which was going
personal constructs through change. Further research could
be carried out to contrast stable and
dynamic industries
Reger and The Reger study carried out The article focuses on a manager’s
Huff in 1990 was re-analysed and comprehensions of competitors in
(1993) considerable agreement in strategic groups. The dataset is drawn
the categorisation of from a very specific set of respondents
competitors between (managers of financial institutions in
respondents was found Chicago during a period of
deregulation) and is, therefore, biased
Porac and The article comprises two The focus of the two studies is on the
Thomas studies and they suggest respondents as a collective rather than
(1994) managers’ select few, very on individuals, which may limit the
similar organisations as results. While these, and other studies
competitive referents and too, shed light on how managers’
that these selections are construe their competitors, there is
structured not only by little research on how these mental
cognitive taxonomies but models are applied in practice and how
also by geographic proximity. they influence the decisions managers
Respondents didn’t view make with regard to competing within
market and technological their industries or strategic groups.
factors as mutually exclusive
in categorising competitors
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In the case of subjective rivalry, Porac and Thomas (1994) argue that the relevant
cognitive taxonomies consist of categories of perceived organisations varying from the
abstract to the specific. Each category is cognitively represented by a category label and
a set of attributes that describes the essential features of members’ firms. Defining a
business essentially entails matching a firm’s characteristics to a category feature list
and then using this match as a reference point around which competitive boundaries
are cognitively constructed. The table above provides a summary of the various studies
conducted regarding managers’ mental models in the context of competitors.
Summarising the results of the literature that has been reviewed, it is clear that
managers focus on a comparatively narrow set of competitors, comprised of those they
perceive to be most similar to their own companies. It would also appear that individuals
might hold somewhat different construct systems, yet share common category
structures at the level of the industry. Furthermore, it appears that there is divergence
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between the mental models of senior managers, which results from the task
environment and their objectives of differentiating their products and brands through
competitive strategy, yet cognitive convergence exists at the functional management
level, where managers are influenced by the institutional environment and motivated
by conformity with industry standards and processes.
Every study reviewed was based on a narrow and very specific dataset. The studies
either took the managers surveyed at an aggregate level as the unit of analysis or took
managers as individuals as the unit of analysis. While all studies pointed to managers
construing their competitors within the parameters of strategic groups, carrying out
research on a wider and more diverse group of respondents could further shape our
knowledge in terms of the divergence or convergence of managers’ construct systems,
category structures, as well as the influence of the task and institutional environments
on managers’ mental models and how they make decisions in the context of competitive
strategy. Further analysis on a wider and more diverse group would be particularly
interesting in terms of the following dichotomies:
1. Stable versus dynamic environments
2. Nascent versus mature industries
3. Senior managers versus middle managers
The literature reviewed, apart from the Daniels, Johnson and de Chernatony (2002)
study to some extent, is silent on how the mental models are used. In other words, how
they inform managers’ decisions and decision-making processes in the context of
competitive strategy. It would be interesting to establish links between how managers
construe their competitive environments and how they use this to make decisions
regarding competitive actions.
Influences on managers’ frames of reference
Subjective judgments are a major component in the process of strategic planning (Porac
and Thomas, 1994). According to Wissema et al (1980), managerial characteristics such
as creativity and intuitive-irrational thinking are important, and are being increasingly
recognised in the literature of strategic management. Jankowitz (2001) concurs and
adds that many occupations require people to draw on their experience to make
decisions based on subjective judgment, as opposed to the rational deductive chain of
logic, due to either gaps and/or an overload of information as well as time and cost
constraints. Therefore, the ways in which managers analyse and make sense of their
environments (Weick, 1995), perceive and categorise their competitors (Porac and
Thomas, 1990) and take decisions about competitive strategies (Simons and Thompson,
1998) have real implications when attempting to understand, contextualise and explain
competitive landscapes.
Theory and empirical research suggest that managerial interpretation is linked to
experience (Reger and Huff 1993, Fiske and Taylor 1984, Prahalad and Bettis 1986,
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Simon 1957). Hodgkinson and Johnson (1994) argue that the diversity of managers’
frames of reference influences their perceptions of competition and how their brands
or products are positioned in the market. It also suggests that the diversity of frames of
reference goes still wider than the organisation or industry level and that there is
increasing evidence that national culture affects managers' interpretations and
responses to strategic issues (Hodgkinson and Johnson, 1994; Calori et al., 1992;
Schneider and de Meyer, 1991). Hofstede (1980) suggests that managers’ frames of
reference influence their perceived control of the environment and strategic behaviour.
There are, of course, and inevitably, also factors within the organisation that influence
managers’ mental models. At the level of functional groups, for example, there are
functionally specific belief systems and perceptions of issues (Dearborn and Simon,
1958; Handy, 1985). Whitley (1987) argued that managers' views of the world are
shaped, at least in part, by their career backgrounds.
Study Influences on managers’ Scope for further research
frames of reference
Dearborn Functions within How do different functional
and Simon organisations influence backgrounds impact on competitive
(1958) managers’ frames of mental models and the formulation
reference of competitive strategy?
Hofstede Managers’ frames of What impact does greater perceived
(1980) reference influence their control of the strategic environment
perceived control of the have on the efficacy of managers’
environment and strategic strategic decision making processes
behaviour and the decisions they make?
Whitley Career backgrounds Further research into the effects
(1987) influence managers’ frames that different career backgrounds
of reference have on the decisions managers
make and their implications for the
formulation of competitive actions.
Hodgkinson Managers frames of Are managers more adept at making
and Johnson reference are influenced by strategic decisions in their home
(1994) their experiences, national markets, where they have strong
culture is a strong frames of reference, or can exposure
influencer, and their frames to different national cultures act as
of reference are, as a result, an advantage? How do managers’
broader than organisational frames of reference at the individual
or industry level ones level compare with organisation-
wide or industry-level frames of
reference at the aggregate level?
Table 9: Influences on managers’ frames of reference
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top managers need to focus their attention on some selective dimensions since they are
unable to comprehensively evaluate all variables relevant to a decision (Cheng & Chang,
2010; Hambrick and Abrahamson, 1995; Calori, Johnson, and Sarnin, 1994; Garg et al.,
2003). Managers construct simplified mental models to make decisions (Cheng & Chang,
2010; March and Simon, 1958).
In their article, ‘Intra-industry shared cognitions and organizational competitiveness’,
Bloodgood, Turnley and Bauerschmidt (2007) explore the concept of shared mental
models within cognitive groups and the influence that shared cognitions have on
individual decision-making. Firstly, the article examines how being a part of a specific
cognitive group in an industry influences general managers’ perceptions of the
importance of certain organisational activities.
Although general managers are often responsible for determining their organisation’s
strategy, the structure of the industry also plays an important role because it influences
perceptions regarding which activities are most likely to influence organisational success
(Porac, Thomas and Baden-Fuller 1989). Specifically, the study examines how
membership in a specific sub-group of an industry influences individual general
managers’ perceptions of two critical organisational activities, namely; innovation and
customer service. Secondly, and most importantly, the article examines the impact that
deviating from a shared mental model can have on an organisation’s competitiveness
within its industry.
Especially in relatively stable environments, it is expected that conforming to widely
shared beliefs will have a positive impact on an organisation’s competitiveness. In
contrast, deviating from the shared mental model that has developed over time is likely
to negatively impact organisational performance. This research examines whether
having a general manager who holds discrepant beliefs (either higher or lower)
regarding the importance of innovation and customer service, negatively impacts their
plant’s competitiveness. This paper attempts to highlight the important role that shared
mental models have on organisational performance.
Porac, Thomas and Baden-Fuller (1989) state that managerial actions are based upon an
information processing sequence in which individuals attend to cues in the
environment, interpret the meaning of such cues and then externalise these
interpretations via concrete activities. Porac, Thomas and Baden-Fuller (1989) suggest
that consensual recognition is a defining feature of such primary competitive groups and
that firms which define each other as rivals enact their competitive tactics in similar
ways.
Bogner and Barr (2000) provide a hierarchical cognitive framework in which mental
models of individuals within the firm contribute to firm level frameworks that, in turn,
create industry-level competitive frameworks or recipes. It is these interactions at the
industry and firm levels that perpetuate competitive behaviour patterns in times of
perceived industry stability (Porac, Thomas and Baden-Fuller 1989). These cognitive
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Table 9: Shared intra-industry management cognitions
The structure of competitive groups partly emerges from the strategies of individual
firms (Porac, Thomas & Baden-Fuller, 1989). Conversely, the strategies of individual
firms, both realised and intended, reflect the nature of the broader competitive
environment. This non-independence means that a complete understanding of
competition will be possible only when the reciprocal links between firm-level strategies
and group-level structures are uncovered. Strategic groups are part of the way
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strategists organise and make sense of their competitive environments (Reger & Huff
1993). Porter (1980) defined a strategic group as a group of firms in the same industry
making similar decisions in key areas. As managers within an industry interact with
common suppliers, customers and others, and as they face similar situations over time,
their individual cognitive structures become more similar and their shared mental
models become a part of a socially reinforced view of the environment (Berger and
Luckman, 1967).
It is clear that shared mental models exist and that cognitive oligopolies pervade
industry. Further research could be carried out to test and validate these theories across
greater and more diverse sets of respondents and to establish differences in shared
mental models in different environments, such as stable versus dynamic ones. The
overarching questions that are spawned from the review of this literature in the context
of shared intra-industry management cognitions include how shared mental models
affect organisational activities such as the formulation of strategy and the execution of
strategy and what affect they have on firm performance. It would be interesting to
understand what the correlation between the complexity of mental models and firm
performance is.
Automatic versus controlled processing
Bogner & Barr (2000) suggest that as industries move toward hypercompetition, the
cognitive frameworks that managers had used to make sense of and act within their
industry are significantly compromised. To act effectively under such circumstances, and
to build new understandings of the environment, managers must engage in "adaptive"
sense making processes. They propose that the very sense-making actions that
managers undertake to build new frameworks can result in industry-level beliefs that
perpetuate competitive turbulence and, in effect, institutionalise hypercompetition.
Schneider and Shiffrin (1977) observed two qualitatively distinct processing modes in
their study, being ‘Automatic’ and ’Controlled’. Automatic processing is described as
unintentional, involuntary, effortless, autonomous and occurring outside of awareness
(Reger and Palmer 1996, Bargh 1989, Johnson and Hasher 1987, Kahneman and
Treisman 1984, Logan and Cowan 1984, Uleman 1989). In contrast, controlled
processing is described as flexible, within an individual’s intentional control, effortful,
active, constrained by short-term attentional resources and motivated or strategic
(Reger and Palmer 1996, Atkinson & Shiffrin 1968, Bargh 1989, Logan, 1980, Neely 1977,
Uleman 1989). Uleman (1989) formulated an expanding continuum of multiple, fuzzy
and overlapping cognitive processing modes that form a progression from absolutely
automatic to unconditionally controlled.
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Figure 5: Controlled processing versus automatic processing
in the context of competitive positioning
Reger and Palmer (1996) examined the differences between automatic and controlled
processing by executives in an increasingly dynamic industry. First of all they explored
the differences in ways strategists categorise competitors in a cross-sectional field study
conducted during a period of significant environmental upheaval and found that
managers relied on cognitive maps that reflected obsolete industry boundaries rather
than configurations representative of the deregulated market. Secondly, managerial
competitive schemas of competitive positioning were compared across three research
projects conducted in the financial intermediary industry. The results indicate that
change creates diversity of thought between managers in the same environment.
Managers at competing firms therefore tend to view competition quite differently in
turbulent environments.
Figure 6: A continuum of cognitive mode processing (Reger & Palmer, 1996)
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Figure 7: Cognitive interpretation in stable and changing environments (Reger & Palmer, 1996)
When environments are relatively stable for long periods of time, reinforcement of well-
learned, ready-made categories occur (Reger and Palmer 1996, Dutton 1993). This
results in a strong convergence between automatic and controlled schemas. Automatic
and controlled mental models are expected to remain similar until the environment
changes substantially enough to render them obsolete (Reger and Palmer 1996).
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From the literature reviewed, it is clear that two modes of mental processing exist -
automatic and controlled, and that, in times of market turbulence, managers have a
tendency to revert to the mode of automatic processing. It would be interesting to
understand variances in this construct that occur due to environmental peculiarities,
such as those related to national cultures. It would also be interesting to gain a better
understanding of its consequences for management decision-making, company
performance and the performance of strategic groups that are exposed to turbulent
market environments and stable market environments.
Functional biases in the perception of competitive strategy
Walsh (1988) notes that there are two ways in which managers process information:
1. Bottom-up, data driven
2. Top-down, based on experience in similar circumstance
Dearborn and Simon (1958) asked managers to categories problems in a study and
found that functional experience influenced the perception of problems in the business.
Walsh’s (1988) study showed managers to have a more generalist view to problems in
their organisations but also showed there to be functional biases in the perception of
problems and the sources of information and the methods to understand the problems.
Bowman and Daniels (1995) make reference to a study carried out by Nystrom in 1991
in which respondents were asked to rate how important competitive methods derived
from Porter’s work are to their company’s overall strategy, and concluded that there is
functional bias. Bowman’s and Daniels (1995) study on the influence of functional
experience on perceptions of strategic priorities concludes that when managers are
asked to reflect on their own company’s situations, there is evidence of functional bias
in the perceptions of priorities derived from generic competitive strategies.
The results of the Walsh (1988) study and the reworking of the Dearborn and Simon
(1958) study suggest that when managers are faced with an unfamiliar case situation,
and where they are also engaged in programmes designed to develop a general
management perspective, they tend to perceive problems or issues as disconnected to
their functional backgrounds.
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Moreover, managers in these industries may have well-established mental models that
provide a blueprint for organisational success. This idea is somewhat similar to the ideal
profile model proffered by Gresov and Drazin (1997). They suggested that firms that
deviate from the ideal pattern of design can suffer lower performance through
inefficient or ineffective firm behaviour. Deephouse (1999) found that high levels of
strategic similarity were associated with higher levels of performance than were low
levels of strategic similarity.
Study Conclusion regarding the effects on Does divergence
performance resulting from divergence from from strategic
the norms of the strategic group norms compromise
performance
according to this
study?
Gresov and Efficiency and efficacy has been optimised in Yes
Drazin (1997) the structures and processes adopted by the
strategic group. Deviating from them results in
compromised performance
Deephouse High levels of strategic similarity are Yes
(1999) associated with higher levels of performance
than low levels of strategic similarity
Porac (1989) The access to specific resources is more easily Yes
achieved by strategic groups than by singular
firms and, as a result, accessing the same
resources as competitors in the strategic group
improves performance
Baum and Managers can be reluctant to take actions that Not necessarily
Korn (1996) appear to be in their organisations’ best
interest because they induce retaliatory
actions from their competitors
Bloodgood, Cognitive groups influence managers’ Yes
Turnley and perceptions of the importance of specific
Bauerschmidt organisational activities and, therefore, can
(2007) influence strategic change. Deviations from
shared cognitions within industry groups can
negatively impact firm performance, while
conformity to shared cognitions can positively
impact it.
Table 12: Does deviating from industry norms result in lower profits?
Porac et al. (1989) suggest that much of a firm’s performance can be tied to its ability to
access resource niches. This access is afforded through a degree of similarity to other
firms that are accessing the same resource niches. Managers are sometimes reluctant
to take actions that appear to be in their organisation’s best interest for fear of inducing
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retaliatory actions from their competitors (Baum and Korn, 1996). All of these factors
can lead to the emergence of group-level rationality and a similarity of understanding
that is shared by members of the cognitive group (Porac et al., 1989). In such cases,
managers within cognitive groups are likely to interpret events using a common frame
of reference and to respond similarly to environmental stimuli. Within industry
subgroups, shared cognitions are likely to influence the way that plant managers
interpret and respond to environmental stimuli (Hodgkinson, 2003).
All the literature that has been reviewed indicates that the phenomenon of
compromised performance as a result of deviations from the strategic group norms is
more applicable to stable industries than it is to dynamic ones. Further research will
need to be carried out to substantiate this assertion.
Competitive Intelligence
Petriso and Strain (2013) define competitive intelligence as an instrument to improve
competitiveness that contributes to the continuous improvement of the quality of
products, services and solutions offered by the company. They state that the need for
intelligence arose due to the decision-making process, which involves the development
of different courses of action.
Systematic competitor scanning is core to gathering competitive intelligence. This
involves noticing and interpreting competitive stimuli through the monitoring of market
variables. In order to sustain a competitive advantage, companies must respond
promptly to changes in customer preferences, competitor strategies and technological
advancements (Qui 2008). Shoemaker and Day (2009) provide a framework for
gathering competitive intelligence that encompasses three steps, namely:
1. Scanning
2. Sense-making
3. Probing and acting
Constantineau (1995) suggests that those involved in gathering competitive intelligence
that provoke discussions with decision makers have more input and are more highly
valued. He also suggests that making competitive intelligence information relevant to
the company’s situation and to its strategic initiatives, going beyond simply reporting
the facts, synthesizing seemingly disparate sources of data and representing the findings
in an inviting and compelling manner will provide a mechanism for increasing action-
ability. Lastly, he suggests that developing alternative scenarios of likely outcomes also
tends to elicit reaction.
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that have been validated using an empirical study. The scope for further research lies in
the application of competitive intelligence in the formulation and execution of
competitive strategy and the outcomes that different methods of competitive
intelligence may have in the context of firm performance.
The alignment of strategy and performance management
González, Calderón and González (2012) examine the alignment of managers’ mental
models with the strategy map provided by the balanced scorecard developed by Kaplan
and Norton (1992). The research focuses on how managers construe competitive
advantage. The authors use the cognitive maps technique and their unit of analysis is
managers of a printing firm. Cognitive maps are used to analyse a situation or problem,
the interviewees’ most important concepts or ideas relating to the situation are elicited
and the cause and effect relationships are then plotted, connected and established
(Eden, Ackermann, & Cropper, 1992). González, Calderón and González (2012) then use
the distance ratio method to analyse managers’ different perceptions of the firm's
resources and capabilities in the context of the balanced scorecard (‘BSC’). One of the
problems related to the use of the BSC approach is that biases might be introduced by
the active participation of the interviewer, and during the process of entering the
concepts into the computer program. To avoid any such bias, the authors used the
repertory grid technique (Kelly, 1955) to elicit concepts from the respondents.
The González, Calderón and González (2012) study shows that individual manager’s
mental models are strongly correlated with the mental models associated with the
strategy map. Thus, the balanced scorecard’s strategy map can be used as a reference
point for the convergence of mental models. González, Calderón and González (2012)
conclude that implementing the balanced scorecard strategy map can help reduce
managers’ causal ambiguity with regard to the objectives they need to pursue in order
to improve a firm's competitive position.
Causal ambiguity (King & Zeithaml, 2001) describes managers’ misunderstanding of the
competencies that are directly or indirectly associated with a firm’s improved results.
Managers’ causal ambiguity of competencies refers to their perceived ambiguity when
attempting to determine the relationships between their firm’s competencies and
competitive advantage. The better the managers’ understanding of the systems related
to the contribution and generation of organisational competencies, the lower the causal
ambiguity. In the resource-based view literature, the majority of studies of the concept
of causal ambiguity view it as a precursor to the generation and maintenance of
competitive advantage. Causal ambiguity therefore is a concept that describes the
managers’ cognitive limitations about how a given resource may generate a competence
and, in turn, improves the firm’s performance (King & Zeithaml, 2001; King, 2007;
Lippman & Rumelt, 1982).
The intermediate goal of the BSC is to shape the mental models of the firm’s managers
(Capelo & Ferreira, 2009) and it could therefore be used as a tool to avoid causal
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ambiguity. Another outcome of the BSC should be a better understanding of the internal
and external sources of competitive advantage by helping the managers’ mental models
to converge, which would facilitate and accelerate an understanding of the causal links
between the essential components of the firm’s strategy (Capelo & Ferreira, 2009).
McNamara et al. (2002) hypothesised that there is an inverse U-shape relationship
between the degrees of cognitive complexity of strategic groups and performance. They
tested the hypothesis by empirically investigating the curvilinear relationship between
cognitive complexity and performance using the data from banks in three U.S. cities.
They use three variables to measure the complexity:
1. The number of strategies identified by the managers
2. The number of competitors categorised by the managers
3. The size of groups identified by top managers
In their study, they find a positive relationship between the last two complexity variables
and a negative relationship between the first one. Furthermore, they do not find an
inverse U-shape relationship between complexity and performance with the first two
measures of complexity.
Study Results of studies Implications for performance
management in competitive
strategy
McNamara The study suggests that there is an The findings of this study
et al. inverse relationship between the support the assertion that a
(2002) cognitive complexity of strategic simpler strategy yields better
groups and performance. The tests results, particularly with regard
carried out as part of this study to the firms’ performance. It
revealed that there is a negative would be useful to test this
relationship between the number of using a broader and more
strategies identified by the managers diverse set of firms.
and the performance of the strategic
group and a positive relationship
between the number of competitors
categorised by the managers, as well
as the size of groups identified by top
managers, and performance of the
strategic group.
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and Lampel (1999) make a number of observations in their study regarding the
formation of business strategy, including:
• New kinds of strategies emerge from collaborative contacts between
organisations and firms cannot avoid learning and borrowing when they trade
and work together
• The evolution of strategy is also pushed along by competition and
confrontation
• New strategies are often a recasting of the old
• Strategy is pushed along by the sheer creativity of managers, because they
explore new ways of doing things
Study Results of studies Implications for the strategy
loop in competitive strategy
Chandler There is a cycle of innovation in It would be interesting to know
(1962) strategy, comprising spurts of what effect the different phases
innovation followed by imitation of the cycle of innovation have
and consolidation. Strategy is on the formulation or
iterative and requires change or competitive strategy and on
revisions as the firm or the industry competitive actions and how
moves through the innovation cycle. strategies are updated or can be
updated to respond to moves
through the cycle of innovation.
Mintzberg Strategy evolves creatively and, This study relates to the
and therefore, unpredictably because outcomes of the studies
Lampel organisations seek to be unique. concerned with strategic groups
(1999) The study’s principal finding is that and the debate over the
the processes proposed by different benefits and the problems
schools of strategic management associated with divergence from
can all be used in the formulation of a strategic group. It would be
a single strategy and all have interesting to know more about
different and unique contributions how the evolution of strategy in
to make in the formulation of that the context of this study relates
strategy. Furthermore, it proposes to the results of the ‘strategic
that these different schools work to groups’ studies
form a complete loop in the
strategy formulation and
implementation process.
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Discussion
Summarising the results of the literature that has been reviewed:
• Managers focus on a comparatively narrow set of competitors, which represent
a sub-set of all their competitors. This leads to the emergence of cognitive
oligopolies and shared mental models between managers
• Divergence exists in the cognitions of senior managers between organisations,
while cognitive convergence exists at the level of the industry and the strategic
group at functional management level
• Personal backgrounds and experiences shape managers’ mental models and
decision making processes
• Two modes of mental processing exist, namely automatic and controlled, and
managers tend to revert to automatic processing in turbulent markets and
controlled processing in stable markets
• Prolonged environmental upheaval results in shared industry frameworks being
disrupted and prolonged disruption results in hypercompetitive environments
• High levels of strategic similarity are associated with higher levels of
performance than low levels of strategic similarity. This is partly because
efficiency and efficacy have been optimised in the structures and processes
adopted by the strategic group and deviating from them results in compromised
performance. It is also because strategic groups than by singular firms more
easily achieve accessing specific resources and, therefore, accessing the same
resources as competitors in the strategic group improves performance.
• Managers’ often avoid deviating from the conventions set by strategic groups for
fear of rivalry from other firms in the strategic group
• Because industries and markets are dynamic, strategy development and
execution needs to be an iterative process informed by changes in market
conditions; in the competitive environment; and in the use of competitive
intelligence. The tight integration of the gathering and application of competitive
intelligence within organisations can lead to more effective competitive
strategies and improved decision making in the context of competitive actions
While the literature reviewed is split into key themes that were identified as discreet
topics in this SLR, these themes and the focus of the research undertaken in the
literature can be viewed as components of a single process, namely competitive
strategy. This process encompasses competitive intelligence, competitive strategy
formulation and competitive strategy execution. Managers’ interpretations of their
competitive positions can be regarded as a snap shot in time, rather than being part of
a process. The term competitive positioning can mean a process or a set of actions, as
the term ‘positioning’ is, after all, a verb.
Articles, including Sanchez and Heene (1997) and Mintzberg and Lampel (1999), sought
to integrate different approaches to strategy formulation, different phases in the
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strategy formulation and execution process, as well as cognitive and material processes
related to strategy. These articles take the approach of integrating existing theories,
tools and techniques, rather than taking a ‘clean slate’ approach by researching how
strategy is actually formulated and executed in practice. Many of the gaps identified in
this SLR could be addressed through such a study.
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The literature reviewed often focused on one aspect of the complete strategy
formulation and implementation process, while very few studies sought to integrate
competitive intelligence, managers’ mental maps of their competitive landscapes, the
formulation of competitive strategy and the execution of competitive actions. It would
be interesting to know more about the links between competitive intelligence,
competitive strategy, the trigger of competitive actions and the execution of
competitive actions and to how the complete strategy process, or loop, functions in
practice on a holistic basis.
Managers’ take
decisions about 5. Implementation 1. Competitive
Managers’ develop a view
actions that of competitive intelligence of how their brands or
need to be actions products are positioned
taken in order relative to competitors
to attain the
ideal or desired
positioning of
their brands or Managers’
develop
products
views on the
relative to 2. Strategy 3. Setting ideal or
competitors
formulation performance desired
targets positioning of
their brands
4. Identification or products
of desired relative to
competitive competitors
position
Figure 9: Competitive strategy cycle
For the purpose of projects P2 and P3, and in order to apply a structure to them, the
starting point of the competitive strategy cycle will be assumed to be an overall view of
the competitive landscape. This is followed by the development of views of where
brands or products should be positioned relative to those of competitors. The end point
will be the decisions that managers make about actions that need to be taken to attain
their ideal or desired competitive positions and what informs these decisions and how
they are arrived at.
It would be very interesting to understand what outcomes the theories offered in the
literature reviewed have on firm performance. For example, is firm performance
compromised by automatic mental processing and, if so, how and to what extent. Also,
if different aspects of the entire strategy process, or the strategy loop, were more tightly
integrated and the process was made to be more responsive to changing internal and
external environmental factors, what effect would this have on firm performance? As
asked by Bowman and Daniels (1995), could functional bias, in the context of perceived
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Project 2 Proposal
The objective of the proposed research for P2 was to better understand how managers
construe the competitive actions they take. The research sought to identify and explore
how managers interpret their competitive environments and how they formulate and
execute competitive actions, as well as the links and the chain of causality between their
interpretations of their competitive environments and the formulation of competitive
actions. Therefore, the research question for P2 is:
How do managers construe the competitive actions they take?
In response to the findings of P1, the gaps in the extant literature, as well as the four
propositions set out on page 24. Specifically, 26 competitive actions were recorded and
through a series of semi-structured interviews with managers, in which questions were
asked and discussions were stimulated in relation to the gaps identified, and the
propositions developed in P1.
The proposed approach for P2 involved using the CIMO framework to understand the
cognitions and the processes that led managers to take certain competitive actions. The
interviews were used to understand the following elements related to a wide variety of
different competitive actions:
• Context
• Intervention
• Mechanism
• Objective
Based on this approach, the unit of analysis of Project 2 was the competitive action. Each
action was analysed through a process of constructing CIMO maps for each interview
and considering supporting material, such as business plans, research, internal
memorandums and notes taken by managers.
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Data related to 26 different competitive actions were collected, analysed and mapped.
Before starting P2 in earnest with all participants, the approach was validated using a
single participant to verify its efficacy and to verify that it can be successfully deployed
in practice. A participant that I have a good relationship with and that I’ve known for
some time was used.
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Introduction
The research aim of this DBA study was to establish what managers actually think and
do in formulating and executing competitive actions and the inputs they use in this
regard. This encompasses a study of both their cognitions and the material processes
they employ in formulating and executing competitive actions. The scope of the
research is limited to senior managers’ cognitions in relation to the competitive actions
they take to position their firms relative to their competitors in the context of marketing
actions involving price, brand and product attributes in order to optimise their profits.
This is a practical study involving a number of senior managers who are responsible for
the formulation and execution of competitive actions at companies across a number of
different industries. The overarching research question for the research is:
How do managers construe the competitive actions they take?
In the context of the research question, construe includes the antecedents to
competitive actions. Specifically, it has the following meanings:
• How managers view their competitive environments and categorise their
competitors
• How they formulate actions to compete more effectively
• Their cognitions in relation to competitive actions and the inputs that inform
these actions
In relation to this study, competitive positioning refers to the way in which managers
map their rivals’ competitive positions and their own brands’ or products’ relative prices
and benefits. Competitive action refers to specific actions that managers’ plan and take
with the objective of competing more effectively. This includes, inter-alia, actions to
change the price or the benefits associated with their brands or products. The research
is not concerned with actions that managers take to streamline their operations, to
procure inputs more economically or any other actions they take to become more
profitable, and that are related to the operations of the business rather than the prices
and benefits associated with their products and brands. Specifically, the actions have
been classified into a number of broad categories, namely:
• Product re-pricing
• The development or launch of a new product
• The update or repackaging of an existing product or service offering
• The development and execution of a marketing campaign
• The development and execution of a market segmentation campaign in which
different prices or benefits are targeted at different segments of the market
• Corporate actions in which a business is acquired for competitive purposes
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The CIMO3 framework (Denyer et al., 2008) were used to structure the interviews,
insofar as the framework guided the data being sought and, therefore, the questions
that were asked. The framework was also used to map the data gathered in a logical and
easily understandable format. An example of the CIMO-based coding system is provided
in Appendix 15 (see page 237).
The research is broken into three projects, namely Project 1 (‘P1’), which was a
Systematic Literature Review, Project 2 (‘P2’), which is comprised of field research to
understand what happens in practice and is the subject of this protocol, and Project 3
(P3), which will be undertaken subsequent to this research and will include the
development of a framework to improve the formulation and execution of competitive
strategy in practice. The end goal is to understand what the implications are for practice
based on the overarching review question. The figure below depicts a high-level process
flow chart for the research.
P1 – Systematic literature review
3
Context, Intervention, Mechanism, Objective
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Panel member Title/organisation Role
Professor Cliff Professor of Strategic Management at the School of Panel Chair
Bowman Management, Cranfield University and domain
expert
Professor Professor of Business Strategy at the School of Supervisor
Mark Jenkins Management, Cranfield University
Dr Palie Smart PhD Programme Director and Reader in Innovation Panel
Management and Corporate Sustainability at the member
School of Management, Cranfield University
Relevant appendices
The table below lists the appendices to this study that are relevant to P1.
No. Title Description Pages
8 Previous consulting A list of previous consulting assignment and 185
assignments & businesses that I’ve been involved in and that
businesses are relevant to this DBA study
12 CIMO Maps A unique CIMO map for each of the 26 201 -
competitive actions that were recorded and 227
analysed.
13 Internal & external A table that lists the external and internal 228 -
factors relevant to environmental factors associated with the 239
competitive actions manager/s and company of each competitive
actions.
14 Points to be covered A checklist of factors that were captured and 240 -
in the semi- questions that were asked when carrying out 242
structured interviews interviews with each of the managers
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Background
This study was preceded by a Systematic Literature Review (SLR), in which gaps in the
existing literature were identified. While many academics have offered theories on how
managers can effectively formulate and execute competitive actions, little has been
done to understand what actually happens in practice or to understand the gap between
theory and practice. The SLR also served to better understand the field and to develop
a foundation for this project. The focus of the SLR was on the role of decision-makers
when evaluating competitive dynamics and their cognitions. Cognitive scientists suggest
that how individuals make sense of, and act, within their environments is tied to their
cognitive frameworks or mental models (Fiske and Taylor, 1991). Cognitions are
developed over time and through experience, vicarious learning, and direct
communication from others (i.e. teaching) (Fiske and Taylor 1991). The development of
these frameworks is path-dependent; as individuals interact with their environments
and build cognitive frameworks, they use those frameworks to make sense of future
interactions. The SLR’s research question was:
What are managers’ cognitions in respect of competitive positioning and competitive
actions?
The field of management cognition in the context of competitive positioning and
competitive actions is broad. The literature reviewed covered a wide variety of different
topics and made a broad and diverse set of assertions. Whilst reviewing the literature,
notes were taken regarding themes, key findings, limitations and suggestions for further
research. A total of 31 themes were identified, which were then collated and distilled
into a number of key themes. These key themes were:
1. Managers’ cognitive categorisations of competitors
2. Influences on managers’ frames of reference
3. Shared intra-industry management cognitions
4. Automatic versus controlled processing
5. Functional biases in the perception of competitive strategy
6. Does deviating from industry norms result in lower profits?
7. Competitive intelligence
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phases in the formulation and execution process, as well as cognitive and material
processes related to competitive actions. These articles have taken the approach of
integrating existing theories, tools and techniques, rather than taking a ‘clean slate’
approach by researching how competitive actions are actually formulated and executed
in practice.
The various studies reviewed concerning managers’ mental maps of their competitive
environments are limited to specific industries and territories. For example, the study
carried out by Daniels, Johnson, de Chernatony (2002) is limited to the personal financial
services industry, which is a relatively stable one, as well as being limited to the United
Kingdom. A gap exists in the knowledge of competitive actions across all or various
industries, territories and markets and across different sizes and types of companies, as
well as differences in the formulation and execution of competitive actions between
them. Further research could also be undertaken into competitive actions in stable
industries versus dynamic industries, and into nascent industries versus mature
industries. Lastly, further research could be taken into competitive actions in
fragmented industries versus oligopolies or industries with just a few dominant players.
Based on this SLR, it is apparent that further research could be undertaken into how the
cognitive and the material categorisations of competitive positions, both current and
desired, intersect. Sanchez and Heene (1997) sought to integrate several strategic
management theories provided by researchers with the logic employed by managers.
However, the theories used in the study were limited to those developed by Sanchez in
collaboration with other researchers. Further research that is based on what actually
happens in practice, in other words how managers integrate their mental maps and
cognitive processes with material processes and tools, would be useful.
The literature reviewed often focused on one aspect of the complete action formulation
and implementation process, but very few studies sought to integrate competitive
intelligence, managers’ mental maps of their competitive landscapes and the
formulation and execution of competitive actions.
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5. Implementation of
competitive actions 1. Competitive
intelligence
Managers’ take
decisions about Managers’ develop a view
actions that of how their brands or
need to be
taken in order products are positioned
to attain the relative to competitors
ideal or desired
positioning of 2. Identification Managers’
their brands or 4. Setting of desired develop
products
relative to
performance competitive
views on the
competitors targets ideal or
position desired
positioning of
3. Strategy
their brands
formulation
or products
relative to
competitors
Figure 2: Competitive action cycle
Most of the prior research carried out in the field of management cognition and in the
context of competitive actions is limited to the perception of competitors and one of
the aims of this study has been to understand the process models of the formulation
and execution of competitive actions. This was a cognitive-based study that also
considered material inputs and tools that are used to support the competitive action
process. The aim of the study was to increase our understanding of the cognitive and
material processes associated with competitive actions that managers take.
In order to obtain a broad understanding of the competitive action process that is as
generalisable as possible, the P2 research covered a number of different industries,
territories, company sizes and industry maturity levels.
Research objective
The objective of the P2 research was to understand managers’ cognitions in the context
of competitive actions. The research sought to identify and explore the links and the
chain of causality between managers’ interpretations of their competitive environments
and the formulation and execution of actions they took as a result. For example, how
well integrated are managers’ mental maps of their competitors with the actions they
formulate and execute and how consistent are managers’ plans with the competitive
actions they take? The research question for P2 is:
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How do managers formulate and execute the competitive actions they take and what
inputs are used?
The focus of the research was on understanding what happens in practice, as there is a
lot of literature that prescribes processes for formulating and executing competitive
actions but there is little or no real evidence that these processes are used in practice
or, indeed, of what practitioners actually do in this regard. The objective was to get a
broad understanding of what practitioners do across different industry sectors,
territories and different types of competitive actions in order for the results of the
research to be as generalisable as possible and to enable comparisons to be made
between the various managers that were interviewed. With this in mind, competitive
actions from a variety of industries and territories, taken by companies of varying sizes
and for different reasons, were sought.
Four propositions were developed based on the outcome of Project 1 (P1), the SLR,
which were explored as part of P2. The findings in this regard are included in the
‘Analysis & Discourse’ section of this document and are summarised in the ‘Conclusions’
section.
Research design
An interpretive epistemology was applied to understand the phenomena being
researched. The epistemological stance on interpretive approaches is that knowledge of
reality is gained only through social construction such as language, shared meanings,
tools, documents etc. (Walsham, 1993). This epistemological approach is well suited to
the research because there are no predefined dependent or independent variables.
Instead, the research focused on the complexity of human sense making as the research
participants’ competitive environments emerge. The interpretive approach is inductive
and concerned with discovering and interpreting social patterns (Chen and Hirschheim,
2004).
The approach to carrying out research for this project started with the identification of
specific actions. Working backwards to understand their cognitions and the processes
they followed to take these actions, managers were interviewed using semi-structured
interviews. Based on this premise, the unit of analysis of the project was the competitive
action and each action was analysed through a process of interviews with the relevant
managers, as well as by considering supporting material, such as business plans,
research, and notes taken by them. The information gathered was pieced together and
maps based on the CIMO framework describing the context, interventions, mechanisms
and objectives were produced. These maps are provided in appendix 12.
The aim of the study was to produce between 20 and 30 maps for different actions. A
copy of the questions covered in the semi-structured interviews is included in appendix
14.
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Research population
Because the research compared the approaches managers take in formulating and
executing competitive actions, and to produce a study that is as generalisable as
possible, it was important that the respondents were not concentrated around
particular industry sectors, territories, company sizes, industry structures or the
maturity of the industries they operated in. To achieve this, participants were drawn
from different industries, territories and different types and sized of organisations. The
study sought to cover between 20 and 30 different competitive actions and involve
between 10 and 15 managers.
The study population comprised managers that either make or influence decisions that
lead to competitive actions. To this end, managers that were interviewed were involved
in either collecting market intelligence, or formulating or executing of competitive
actions. Preference was given to managers that were either involved in all three of these
aspects in order to obtain a holistic perspective regarding how competitive actions are
formulated and executed in practice.
Recruitment of participants
A two-pronged approach was followed in order to identify and recruit appropriate
research participants:
1. Through the consulting assignments I’ve worked on in the past I’ve built up a
long list of senior executives that are involved in the formulation and execution
of the competitive actions that their respective organisations take. I approached
a number of them and some of them agreed to participate in my research. One
of them participated in the pilot project
2. Cranfield University has been used as a resource for the recruitment of suitable
research participants. Specifically, the Centre for Customised Executive
Development (’CCED’) and the current DBA cohorts were approached and
several past and present CCED and DBA students were interviewed.
Eligibility criteria
While the study focused on the senior and the top management teams of companies,
the practical consideration was whether of not they were involved in the formulation
and the execution of competitive actions. In order words, for the purpose of this study,
I was only interested in interviewing managers involved in aspects of the cognitions and
processes that lead to a competitive action or competitive actions.
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Inclusion criteria
Any manager that is involved in any aspect of the cognitions and the processes that lead
to a competitive action or competitive actions at his or her organisation was eligible for
inclusion in the research.
Exclusion criteria
1. Any manager who was not directly involved in any aspect of the cognitions and
the processes that lead to competitive actions
2. Any manager who was not aware of who his or her direct competitors are or was
not aware of competitive actions that their organisation has taken
3. A manager at an organisation that does not actively formulate competitive
actions
4. Should the research population have become too concentrated around
managers who operate in a particular industry sector, territory, type of industry
structure or industry maturity profile or from company of a certain size range,
then managers who would have further concentrated the population would have
been excluded.
Research Outcomes
The primary outcome of the research was an understanding of how competitive actions
are formulated and executed in practice. It was confirmed that perceptions of
environmental uncertainty and organisational control influence managers’ behaviour.
As national culture influences these perceptions we expect to find cultural differences
in interpretation and response to strategic issues (Schneider and De Meyer, 1991).
Secondary outcomes include understanding the influences that managers’
environments and backgrounds have on their formulation and execution of competitive
actions. An example of an interview with a manager is provided in appendix 16.
Another secondary outcome is an understanding of how managers’ use tools and
techniques to support the formulation and execution of competitive actions. Consistent
with Rigby’s (2001) ‘Management Tools and Techniques’ study, a log was kept of the
tools and techniques used by the research participants. P2 was succeeded by P3, in
which the results of P2 were used to produce a guide to assist managers in the
formulation of competitive actions.
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Research procedure
The table below depicts the research procedure that was followed.
Step Description
1 Identify and recruit suitable participants
Managers were located using both my personal network of contacts and
through the contact networks of the Cranfield CCED and the current Cranfield
DBA cohorts. The participants were all managers involved in the formulation
and execution of competitive actions within their respective organisations.
2 Identify specific competitive actions
Each participant was asked to identify at least one specific competitive action
(‘action’) to be included in the research. A review of participants’
organisation’s websites and documentation related to the action allowed for
the triangulation of the interview findings.
3 Establish environmental factors and factors concerning participating
managers’ backgrounds
Specific factors regarding the company and the environment related to the
action, as well as specific factors related to the participating managers
backgrounds, were gathered before their cognitions and the processes that
led to the action were established.
4 Interview participating managers
In most cases, the interviews were voice-recorded and extensive notes were
always taken. Additionally, respondents were asked for documentation that
supported the formulation and the execution of the competitive action.
5 Transcribe, code and analyse interviews and the associated material
The interviews were transcribed and then coded. To add more depth to the
information gathered in the interviews, the associated material, such as
business plans, advertising briefs and advertising material was collated and
analysed.
6 Produce ‘CIMO’ maps
The coded interviews, as well as other information, were used to produce
‘CIMO’ maps
7 Analyse ‘CIMO’ maps in response to the two propositions
The maps were analysed in response to the two propositions, namely that:
1. The formulation and execution of competitive actions is environment-
dependent
2. The formulation and execution of competitive actions is influenced by
the relevant managers’ backgrounds
8 Compare and contrast ‘CIMO’ maps
The maps were compared and contrasted in order to identify anomalies and
differences in managers’ approaches to the formulation and execution of
competitive actions and to draw conclusions in this regard.
Table 3: Research procedure
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The type of company and the environment it operates in was noted at the start of each
interview, as were the managers’ backgrounds. Specifically, the following attributes
were noted and used to categorise each competitive action in relation to the first
proposition.
• Industry sector
• Territory (region or sub-continent) where the competitive action was formulated
and where it was executed
• Size of company, defined in terms of the number of employees
• The structure of the managers’ organisations
• The structure of the industry in which the manager’s organisations operates
• The maturity of the industry in which each manager’s organisations operates
• The rate of change and the rate of innovation in the industry in which the
managers’ organisation operates
Regarding the background of the manager being interviewed, the following factors were
ascertained in order to deal with the second proposition:
• Nationality and cultural background
• Education
• Age
• Current and previous function/s within the company
• Exposure to, and training in the use of, specific tools and techniques for
formulating and executing competitive strategy
Pilot study
Before starting P2 in earnest with all participants, the approach was validated using a
single participant to verify its efficacy and to verify that it can be successfully deployed
across all participants and their respective organisations. Specifically, a participant that
I have a good relationship with and that I’ve known for some time was used and the
following points were addressed:
1. The method of identifying actions
2. The process of starting with an action and working backwards to determine
management cognitions and the processes that informed particular competitive
actions
3. The interviewing process, with particular attention to questioning techniques,
the way in which the manager responds to specific questions and their general
mood when using a recording device, as opposed to not using one
4. The types of supporting material that should be sought, such as business plans,
e-mail communications and managers’ notes, and how they could be used
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Analysis
The focus of P3 was to analyse and make sense of the insights and the information
gathered in the SLR (P1) and from the interviews (P2) with the objective of developing a
framework for improving the formulation and execution of competitive actions in
practice. Therefore, the analysis carried out as part of P2 has been relatively limited. The
CIMO maps of 26 actions from a wide variety of different environments produced as
part of P2 were used for analytical purposes.
The CIMO framework (Denyer et al., 2008) was used to synthesise and organise the data
collected from the interviews. They were synthesised using a combination of:
• Quotations from the interviewees
• Information obtained from supporting documentation and sources such as
company websites, advertising briefs and advertising material
• The interviewers own interpretations and analysis of the interviews
The CIMO model was developed with the objective of providing a framework for
formulating review questions in management and organisation studies, taking into
account why and how relationships occur and under which circumstances. The CIMO
model comprises four inter-related questions, namely:
• C – Context. Which individuals, relationships, institutional settings or wider
systems are being studied?
• I – Intervention. The effects of what event, action or activity are being studied?
• M – Mechanisms. What are the mechanisms that explain the relationship
between interventions and outcomes? Under what circumstances are these
mechanisms activated or not activated?
• O – Outcomes. What are the effects of the intervention? How will the outcomes
be measured? What are the intended and unintended effects?
In the context of P2, the CIMO framework has been applied in the following manner:
1. C – The stimulus relates to the context of the competitive action. Of course,
environmental factors also define the context in which the competitive action is
formulated and these are covered in the ‘Context’ section of this guide.
2. I - Intervention describes what managers think and do to formulate mechanisms
that will yield the desired outcomes, or objectives, to the action. As stated above,
the interventions analysed as part of P2 were usually initiated with a clear set of
outcomes, or an outcome, in mind.
3. M - Mechanisms relate to the action that was taken to produce the outcome, or
set of outcomes. Consistent with the CIMO model, the mechanism explains the
relationship between the interaction and the outcomes.
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4. O - Outcomes relate to either the objective or objectives that the manager had
before embarking on the intervention and the actual outcome or outcomes that
were realised as a result of the competitive action.
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In the figure in the previous page, which is based on the findings of P2, the order of the
components of the CIMO model have been laid out to reflect the process that the
managers interviewed in P2 generally followed, which includes:
C – Context and the stimuli of the competitive action. The ‘context’ section has been
clustered around eight different categories of stimuli, including:
1. Consumer misperceptions
2. Threats from new market entrants
3. Changes in market conditions, including regulatory, economic or consumer
behavioural changes
4. Shareholder pressure to improve performance
5. The emergence of new technologies
6. Poor sales performance
7. Customer requests
8. Top management pressure to diversify businesses
O – The desired outcomes or objectives that managers envisaged as a result of the
context and the stimuli have been clustered into the following four groups:
1. Increase share of existing market
2. Maintain market position and profit levels
3. Expand business through new unit, product or service
4. Generate or increase sales in a new market
I – The intervention that led to a particular mechanism being executed with the objective
of achieving the desired outcome or outcomes.
A total of 26 CIMO maps were produced and are included in appendix 12. Each map
relates to a singular competitive action. In some cases, actions comprise more than one
intervention and, far as possible, and so long as the intervention could be regarded as a
discrete event for synthesis and analysis purposes, each intervention relates to only one
competitive action. The maps vary in length and density depending on the complexity
of the particular competitive action and the factors surrounding it. In the context of this
research, the CIMO maps method is an integral part of the data synthesis and analysis
process. Antecedent to developing the CIMO maps, the data was coded and each
quotation was analysed to understand the subtext. In parallel to producing the CIMO
maps, the environmental factors related to each interview were documented for
analysis purposes, including:
• Size of the company and the industry sector and territory it operates in
• Industry structure, including the presence of strategic groups and the intensity
of rivalry and the maturity of the industry
• Rate of change and innovation in the industry
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No Description of Industry Territory Maturity of Size of Manager’s Type of competitive Type of trigger to the
action sector industry immediate function action action
organisation
(employees)
6 New mortgage Financial Mauritius Mature 85 Head of Update or Growth through
product services Strategy, repackaging of an product development
developed by a Research existing product or or reconfiguration
bank and service offering
Innovation
7 Market Retail East Africa Mature 27 Managing Market Growth through
segmentation by Director segmentation product development
flooring business or reconfiguration
8 4G service with Mobile Kazakhstan Mature 93 Managing Update or Response to rivalry
voice & data in an telephony Director repackaging of an
emerging market existing product or
service offering
9 Sales to fellow Information Kazakhstan Growth 67 Managing Marketing Poor sales
state institutions Technology Director campaign performance
in the last fiscal
quarter
10 Bundling of Mobile Kazakhstan Mature 93 Managing Development/launc Poor sales
mobile and fixed- telephony Director h of a new product performance
line services
11 Bundling of Information South Africa Growth 65 Sales & Update or Growth through
services by large technology Marketing repackaging of an product development
financial software Director existing product or or reconfiguration
vendor service offering
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No Description of action Industry Territory Maturity of Size of Manager’s Type of Type of trigger to
sector industry immediate function competitive the action
organisation action
(employees)
12 Product re-pricing by Financial United Decline 27 Chief Product re-pricing Economic crisis
a credit default trading4 States of Executive
swaps underwriter America Officer
13 Re-launch of a Automotive South Mature 12 Managing Update or New ownership
luxury motorcar Africa Director repackaging of an with new business
brand existing product goals and objectives
or service offering
14 Strategic acquisition Media South Decline 56 General Corporate action New ownership
by media group (traditional) Africa Manager: with new business
Revenue goals and objectives
15 Bundling of value Media (new South Emerging 56 General Update or New ownership
added services by a mediums) Africa Manager: repackaging of an with new business
media group Revenue existing product goals and objectives
or service offering
16 Product FMCG South Mature 100 Marketing Update or Poor sales
discontinuation by Africa Director: repackaging of an performance
drinks manufacturer Fruit existing product
Juices or service offering
17 Product line FMCG South Mature 88 Marketing Development/lau Growth through
expansion by a Africa Manager nch of a new product
confectionary product development or
manufacturer reconfiguration
4
Underwriting credit default swaps
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Discussion
This section explores the major themes that emerged in analysing the interviews and
seeks to offer possible explanations for the anomalies and the similarities found
between the different competitive actions. It also addresses four propositions that
emanate from the findings of Project 1 (P1), the SLR, namely:
1. In the context of this research, managers’ approaches to the formulation and
execution of competitive actions are environment dependent.
2. The way in which managers’ approach the formulation and execution of
competitive actions are influenced by their backgrounds.
3. Managers focus on narrow subsets of their competitors due to their limited
capacities to rigorously comprehend and analyse their comprehensive
competitive sets.
4. Managers’ mental maps and the processes related to the formulation and
execution of competitive actions are integrated and carried out on an iterative
basis.
These four propositions are dealt with in the following sections:
Proposition 1 – Environmental dependency of managers’ approaches
In the context of this research, managers’ approaches to the formulation and
execution of competitive actions are environment-dependent. Specifically, managers
operating in different environments have mental maps of their competitive structures
that differ and follow disparate processes in the formulation and execution of their
competitive actions. This disparity can be attributed to environmental factors that
include, inter alia:
• State of development of the economies in which the competitive actions are
formulated and executed, specifically whether they are developed, emerging
or developing economies.
• Maturity and the structure of the industry, particularly whether it is
monopolistic, oligopolistic or if all companies are price-takers and how intense
rivalry is between them.
• Rate of change and innovation in the industry.
• Size and structure of the participating companies.
The sophistication of methods used to formulate and execute the competitive action
is defined as the methods used to perform the functions listed below, as well as the
tools used and the breadth and depth of the managers’ cognitions in this regard:
1. Gathering intelligence about competitors
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5
Underwriting credit default swaps
6
Fast Moving Consumer Goods
7
This score relates specifically to the alcoholic beverages industry on the African continent and not
the global alcoholic beverages industry
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8
The fashion industry has recently experienced innovation through brand extension actions, which
include the extension of brands into other product categories, such as fragrances, watches and
mobile phone accessories through licensing agreements and other arrangements.
9
Restrictions were placed on giving gifts to civil servants, a practice that had been going on in
Mainland China on a large scale in return for favours from the civil servants.
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As with the British fashion brand example, most competitive actions can be regarded
as market innovations and are associated with industries that are in a state of flux
and, therefore, undergoing change and this is often confined to a specific set of
competitors, a specific part of their businesses or a specific territory. Of the 26
competitive actions covered in the research, only four can be considered standard
market or product extension actions with little or no innovation.
Of the 10 industries covered in the research, none could be considered to be stable
without change or innovation taking place. The corollary is that competitive action,
and specifically the number of competitive actions that take place, the reason for such
actions and the ways in which they are formulated and executed, is not a function of
the rate of change or the level of innovation of a particular industry. Rather, they are
situation-specific and such situations relate to specific changes in the competitive
landscape, corporate actions, economic crises, desired changes in customer
perceptions or poor sales performance. The table above lists the different types of
triggers to the competitive actions analysed in this study and the number of
occurrences of each one.
10
Rate of change & innovation in the
9
8
7
6
industry
5
4 Innovation & dynamism
3
2
1
0
0 5 10 15
Sophistication of competive action methods
Figure 4: Rate of change & innovation of the industry and the sophistication of methods used
The chart above depicts the relationship between a score of 1-10 for the perceived
state of the innovation and dynamism of the industry sector and the sophistication of
the methods used by firms in that particular industry to formulate and execute
competitive actions. The scores given to each industry for their rates of innovation
and dynamism were based on general perceptions of the industry. For example, the
IT industry is perceived to be more innovative than the automotive industry. The chart
shows that, based on the sample, there is not a relationship between the perceived
rates of change and levels of innovation of industries and the sophistication of the
methods used in them to formulate and execute competitive actions. However, based
on the interviews, it is apparent that innovation and dynamism ebbs and flows in all
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industries. This concludes that, based on the results of the study, it is not possible to
draw conclusions about the sophistication of the methods used by managers to
formulate and execute competitive actions based on the perceived rates of change or
the levels of innovation of industries.
Size and structure of the participating companies
The results of the interviews showed that larger companies tended to develop and
execute competitive actions in order to fend off competitive threats from smaller
competitors or as a reaction to shrinking sales figures or market share, when
compared to smaller companies that tended to develop and execute competitive
actions with the objective of growing their businesses. This is also applicable to the
maturity of the industry, which isn’t surprising as the size of the companies within an
industry is often a function of the maturity of that industry. For example, a small,
entrepreneurial, United Kingdom based IT company initiated a competitive action in
order to use their existing resources to extend their product range while a large and
established United Kingdom based IT company initiated their competitive action to
fend off a competitive threat from a new, small competitor.
It was also observed that managers at large companies make a mental assumption
that their companies should be able to compete more effectively than their smaller
competitors because of their more comprehensive and more developed resource
bases. For example, the manager at a large IT company stated that by combining their
resources, including both internal resources and those made available to them by
partners at preferential rates because of their size, they would have a competitive
advantage over smaller competitors in price and in the functional breadth of their
solution offerings. A manager at another large IT company was surprised that a small
competitor could enter their competitive set because he thought they would not be
able to fulfil their customers’ rigorous procurement requirements.
There was often a prosaic assumption made by managers at larger companies that
their organisations had a right to remain entrenched as market leaders in their sectors
and that being challenged by smaller competitors was anomalous. This is
accompanied by a view, whether cognitive or not, held by managers of small
businesses that competing with large companies in their industry would be difficult
and result in lower profits. The manager of the smart card company (Competitive
action no. 4) interviewed said, “part of the business produces smart cards, which is a
highly commoditised market to be in. If that was all the business did, and if we
operated solely in the smart card producing environment, it would be challenging, as
we would be under pressure to act responsively to changes in market conditions”.
To support the notion that large companies should be able to compete more
effectively than smaller ones, the processes employed in formulating competitive
actions amongst the large companies interviewed were more rigorous than the small
companies interviewed. In one of the two dominant universal banks in a developing
market, very structured processes are followed to formulate competitive actions. For
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example, customer surveys and mystery shoppers are used, input is obtained from the
bank's Asset/Liability committee and annual planning meetings are held in which the
banks strategic initiatives are agreed and prioritised.
12
Sophistication of methods used
10
6
Level of sophistication of
4 methods used
0
0 50 100 150
Size of immediate organisation
Figure 5: Size of immediate organisation and the sophistication of methods used
In the chart above the level of sophistication of the methods used to develop the
competitive actions were rated between 1 and 10 for each of the 26 competitive
actions and were plotted with the size of immediate and relevant organisation within
each company (the particular organisation within the company for which the
competitive action was being formulated and executed). While there are some
outliers, a clear relationship can be seen between the size of the organisation and the
level of sophistication of the methods used and we could conclude that, based on the
26 competitive actions sampled, the size of the organisation has an influence on the
sophistication of the methods used to formulate and execute competitive actions.
Proposition 2 – Managers’ approaches are influenced by their
backgrounds
This section responds to the proposition that the way in which managers’ approach
the formulation and execution of competitive actions is influenced by their
backgrounds. The following three factors have been considered in relation to the
influence managers’ backgrounds can have on their approaches:
1. The nationality, culture and age of managers.
2. The educations of managers and, specifically, whether they received formal
marketing or business education at a graduate or post-graduate level that
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would have influenced the ways in which they formulate and execute
competitive actions.
3. The current and previous organisational functions of the managers
interviewed.
12
Sophistication of methods used
10
6
Level of sophistication of
4 methods used
0
30 40 50 60
Managers' ages
Figure 6: Managers' ages and the sophistication of methods used
Regarding the sophistication of the methods used, amongst the managers
interviewed, there didn’t appear to be any significant anomalies based on nationality,
culture or age. The chart above plots age against the sophistication of methods used
and no relationship can be seen between them. It is noteworthy that two of the
youngest managers interviewed were very sophisticated in their approaches to
formulating and executing competitive actions and they accounted for two of only
four managers that used a tool or technique to assist them. These two managers also
possessed high levels of relevant formal training. The explanation that could be
offered for this phenomenon is that, with less practical experience and more formal
training, managers would be inclined to be more methodical in formulating and
executing competitive actions and would do so in a formulaic fashion, compared to
managers with more experience and less formal training. This is confirmed by
competitive actions formulated and executed in the automotive and fashion
industries by managers with no relevant formal training but many years of experience.
They relied on their tacit knowledge that they had accumulated over many years, as
well as dialogues with other managers, sales staff and customers.
Another observation from the study is that more emphasis was placed on publicly
available information in developed markets for market intelligence gathering than in
developing or emerging markets. The Chief Executive Officer of a software company
in the United Kingdom mentioned reading government white papers and studying
research on the reasons businesses fail to develop new business ideas. The causality
could possibly be explained by the availability of such information in developed
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(competitive action no. 22), who always appointed a local ‘second in command’
manager to assist in the rollout and development of the business in the new territory.
Education
Based on the research, the dichotomy between competitive actions carried out by
managers with relevant and formal graduate and post-graduate business or marketing
qualifications and those without, primarily entrepreneurs, is clear. This applies mainly
to the methods used to formulate the competitive actions. In the case of several
competitive actions taken in the automotive industry by a General Manager who
worked in the luxury car industry ever since leaving school and who had no relevant
graduate or post-graduate marketing or business qualification, the methods
employed in developing the actions were based on intuition and direct feedback from
customers. No formal research was used because the manager and the companies
that he was employed by did not see the value in using them. A CRM system was used
and relied on quite heavily to provide market intelligence and the manager stated that
his was a ‘customer-centric’ organisation. This contrasts with the founder and CEO of
an IT company that doesn’t have a relevant and formal graduate and post-graduate
business or marketing qualification but attended the Cranfield Centre for Executive
Development’s Business Growth Programme. Her company used interviews and
surveys quite extensively to gain market intelligence and made use of a software tool
to establish their position in the market.
While the methods used by managers without relevant graduate and post-graduate
business or marketing qualifications are somewhat divergent, what is clear is that that
there is a relationship between the level of training of the manager and the
sophistication of the methods they used in developing their competitive actions.
Particularly, it is clear that managers with more extensive relevant graduate and post-
graduate training used more sophisticated methods. For example, the manager at the
retail bank, who has a BSc in accounting and finance and an MBA with marketing and
service management modules, used macro-economic analysis, customer surveys,
market analysis and discussed the competitive action in their Asset and Liability
committee before finalising and executing it.
In the chart below the level of the relevant manager’s training and the level of
sophistication of the methods used to develop the competitive action were rated
between 1 and 10 for each of the 26 competitive actions and plotted. The chart
supports the second proposition in this study’s protocol, namely ‘the way in which
managers’ approach the formulation and execution of competitive actions are
influenced by their backgrounds’. Furthermore, two distinct clusters can be seen in
the chart. The one in the bottom left-hand corner represents the managers with little
or no formal business or marketing training while the other, in the top right hand
corner, represents those managers who had undergone formal business or marketing
training.
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12
6
Level of sophistication of
4 methods used
0
0 2 4 6 8 10
Level of managers' formal training
Figure 7: Managers’ training and the sophistication of methods used
On the issue of causality, it could be argued that larger companies tend to use more
sophisticated methods and also place greater emphasis on formal qualifications when
employing managers and, therefore, the sophistication of methods employed is a
function of the size of the company and their recruitment policies, rather than directly
a result of the level of training of the manager. To support the proposition, the flooring
business in a developing market (competitive action no. 7) is a family-owned business
with a turnover of US$9 million/annum after the competitive action, yet Porter's 5-
forces, ethnography10 (observing consumer behaviour), interviewing consumers and
employees who used to work for competitors were methods used to gather
intelligence and develop the competitive action. The manager has a BSc in accounting
and finance and an MBA that he took with marketing and service management
modules, which indicates that, in this instance, it is the manager who determined the
sophistication of methods employed and is not the result of the size of the company.
Functional biases
As part of this study, one of the propositions is that the way in which managers
approach the formulation and execution of competitive actions is influenced by their
backgrounds and, while it isn’t possible to draw any statistical conclusions regarding
the impact that functional biases have on the formulation and execution of
competitive actions, it is apparent that a relationship does exist. For example, the
Commercial Director of a prominent British fashion brand has a sales background and,
when the CEO of the business decided to address the issue of waning sales in China
the manager said “I decided to go to China for a week and walk around looking at
competitors stores, their product mixes and the pricing of their products”.
10
Ethnography is a research method based on observing consumer behaviour
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launching a Sports Utility Vehicle that will compete with C1’s and C2’s very popular
SUVs and we’ll be pricing ours along the same lines as these two. C3 will also be
launching an SUV at around the same time”. Unrelated to the launch of the SUV, the
manager also commented, “We decided to emulate what C4, one of our closest
competitors, has done in this market but on a smaller scale”.
Proposition 4 - Competitive actions are formulated in an iterative
manner
In this section we deal with the proposition that managers’ mental maps and the
processes related to the formulation and execution of competitive actions are carried
out in an iterative manner. The interviews not only suggest that these actions are
carried out in an intuitive manner, but that tools and techniques are seldom used. 15
of the 26 competitive actions covered in this study relied on customer interactions to
inform and guide their formulation and execution and 10 of them relied on iterative
customer interactions. Examples include the re-pricing of credit default swaps by a
financial trading house that underwrites these products. The manager interviewed
noted, “During this period we monitored what our competitors were doing and we
found they were re-pricing their products. We did this by hiring from competitors,
being friendly with competitors to the point we could talk with them about their
pricing strategies, as well as talking to the banks, which were our common clients,
about how our competitors were pricing their products.
In the case of a software company based in London, after hearing about a new
competitor providing a system to automate ‘Shareholder disclosure notifications’,
they spoke with a few of their existing clients about the functionality the new market
entrant was offering and were told “We are currently performing these functions
manually and would like to automate them but it wouldn’t be worth the trouble of
doing so on our own”. Given this feedback from clients, they started discussions with
a law firm that advised clients on compliance regarding shareholder notification rules
and, the manager interviewed noted, “which led to us forming a partnership with and
we started specifying the functionality for a new product to compete with the new
market entrants”. They then, “mocked up a few web pages to show what the new
functionality would look like and our clients were enthusiastic”, which led them to
develop the new product and piloted it with two clients before launching it. This is a
good example of how competitive actions are developed in a stepped and iterative
process based on dialogues with partners and customers. This example also shows
how competitive intelligence can be integrated with the competitive action
formulation and execution process. This type of iterative process based on dialogue
and competitive intelligence was pervasive across the competitive actions that were
analysed. One of the luxury car distributors relied heavily on the feedback they
received from customers and employees while formulating their competitive actions
and the manager interviewed at the flooring retailer in a developing market spent
over a month in the store observing customer interactions and customer comments
while formulating his set of competitive actions.
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Emergent themes
Deviating from industry norms in search of abnormal profits
While the study found there to be mimicking between competitors in the same
strategic groups, in relation to marketing campaigns, product developments and
product or pricing policy updates, there were many instances where the managers
interviewed deviated from industry norms with the objective of increasing their
profits beyond the standard levels for their industries. An FMCG company launched
refill pouches in response to the market becoming more and more commoditised and
consumers becoming more and more price sensitive. A telecommunications company
bundled fixed-line and mobile-line products together to offer a service that none of
its competitors could offer. A bank broke with the market norm by offering a mortgage
loan product with an incredibly low interest rate for the first two years of the
mortgage term.
In the case of the smart card producer (competitive action no. 4), the manager was of
the view that the only way to achieve improved profit levels was to deviate from
industry norms and based this on her experience in the industry. The manager noted,
“If we operated solely in the smart card producing environment, it would be
challenging, as we would be under pressure to act responsively to changes in market
conditions”. Despite competing in the smart card industry, the manager looked
outside her industry for new applications for smart cards and said, “I read white
papers regarding developments in the transport sector and developments in
government, as well as looking at businesses and why they’re going out of business”.
Differences in competitive actions in different industry sectors
The peculiarities of and the similarities between competitive actions formulated and
executed in industry sectors covered in the study have been analysed and are
summarised in the table below.
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Table 10: Similarities and peculiarities of competitive actions in different industries
Clustering of different types of competitive actions
Each of the competitive actions were categorised as per the table below and
similarities between them were sought.
Types of Similarities and peculiarities
competitive
actions
Product re- The antecedents to re-pricing a product tend to be informal and
pricing based extensively on management cognitions, which are sourced by
informal inputs. In the case of a credit default swaps underwriter,
discussions with employees that used to work for competitors and
with common customers were used as inputs to establish pricing
parameters. In the case of a British fashion brand operating in
mainland China, the manager went into competitors’ stores in the
territory to establish their product mix and pricing structures.
Update or The antecedents of this type of action are normally well structured
repackaging and, depending on the importance to the company, the amount of
of an existing management time, focus and other resources committed to the
product or action vary greatly and can be vast. For example, surveys and
service interviews are used extensively and, in the case of a large telecoms
offering company in an emerging market, consultants were used to develop
the action. In three of the nine actions analysed, managers used
other companies as points of reference in developing their
competitive actions. These companies included direct competitors,
as well as their international counterparts.
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Applicable across all and every industry sector and stimulated by a change in the external environment, such as a change in regulation,
a crisis that precipitates a change in the value of the product or service or a competitive action by an existing competitor or a new
entrant to the market.
Intervention
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The stimuli for these actions, as well as the methods employed in developing and executing them, vary greatly depending on the type of
organisation. For example, a niche brake pad manufacturer relied heavily on a single customer’s requirements and interactions with
that customer, whereas large FMCG companies tended to initiate competitive actions when their sales started waning or they started
losing market share to competitors.
Intervention
Outcomes
• Surveys are used extensively, with one of the
companies using a marketing agency to Mechanism • The first outcome of this action is
establish consumer needs and attitudes regaining lost market share.
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Context
The stimuli to these actions is usually changing or evolving customer requirements and can involve customers placing pressure on
suppliers to reduce costs in markets that are consolidating or are in decline
Intervention
Outcomes
• The formulation of these actions are generally well
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Context
• There is a particular consumer perception that needs to be addressed through communication with customers or prospective customers
• Managers are often not aware of, or thinking about, who their competitors are when formulating and executing marketing
communications to change consumer perceptions
Intervention
• Frameworks or techniques are
Outcomes
not used to formulate these Mechanism
competitive actions.
• When executed successfully,
A message that the
• Manager’s respond directly to the target market’s perception
manager would like to
interactions with customers and of the product or service would
communicate to
prospective customers, so the have changed in accordance
customers and
relationship between their with the message behind the
prospective customers is
knowledge of the market and the marketing campaign
defined and a
competitive actions they take are • The outcome may not be direct
programme is then
very direct. One manager was or immediate (e.g. executing a
developed to
quoted “the feedback from marketing campaign may not
communicate the
customers led me to embark on a result in an immediate
message.
campaign to change that price improvement in sales
perception.” performance)
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Competitive action – Creating multiple sets of price & product attributes to target multiple market segments
Context
The managers who were interviewed operated in environments characterised by a relatively large number of competitors and large and
fragmented markets. They attempted to, firstly, understand their markets better and, secondly, to tailor specific product or service
offerings to different segments within their markets and, thereby, compete more effectively within them. Market segmentation required
extensive technical analysis and usually resulted in substantial changes to the market positioning and the structure of the company.
Intervention Outcomes
• Information on competitors is
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Competitive action – Acquire complimentary product or service offering
Context
The managers that were interviewed made strategic acquisitions to increase and improve product or service offerings in order to be able
to compete more effectively. Adding complimentary products or services to existing offerings allowed the managers to deepen
relationships with their existing client base and distinguish themselves from their competitors.
Intervention
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• The interviewees of this action included managers with products, services and brands that had experienced success in their home markets
but had reached saturation and were, therefore, motivated to emulate the success in other markets
• These actions were also stimulated by increased competitive pressure and/or waning performance in the home market
Intervention
Mechanism Outcomes
• Intelligence is primarily gathered through
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Conclusions
Based on the research, tools and techniques, such as those discussed by Rigby (2001)
are seldom used. In fact, of the 26 competitive actions included in the research only four
used a tool or technique and they included:
• Competitive Compass
• Michael Porter ‘s Five Forces framework (1980)
• A tool developed internally by an FMCG company to estimate sales volumes and
value, as well as the requisite marketing investment. This tool was used in two
of the competitive actions covered.
However, in 13 of the 26 competitive actions, structured interviews or surveys were
used. The interviews suggest that the formulation and execution of competitive actions
is an intuitive and iterative process and indicates that managers rely very heavily on
direct interactions with other managers, business partners and their customers when
formulating and executing competitive actions. Feurer and Chahrbaghi (1995) noted “In
dynamic market environments, the traditional approach to strategy formulation of
establishing an ideal competitive position by analysing the environment will fail and
strategy formulation should, therefore, be regarded as a continuous learning process”.
Shoemaker and Day (2009) proposed a three-step framework for gathering competitive
intelligence that encompasses scanning, sense making, probing and acting. The study
also shows that managers place great importance and act on information received
directly form sales employees, former employees of competitor organisations and
through Client Relationship Management systems. For example, the development of a
set of actions to reposition a prominent British fashion brand in the U.S.A. were based
on interviews with the management and staff of Nieman Marcus11 to establish why sell-
through rates for their collections were very low.
The interviews affirm the existence of strategic groups (Porter, 1980) and cognitive
oligopolies as described by Porac, Thomas and Baden-Fuller, 1989), who used the term
to refer to the tendency of manager’s to limit their competitive subsets. They postulated
“Managers simplify their competitive environments by categorising their competitors
and defining their own businesses in terms of the labels they use to define the cognitive
categories in which their businesses are placed” The interviews further affirm that a
correlation exists between the maturity of an industry and its structure, in terms of the
competitive environment. The interviews also infer that the more mature the industry
is, the more deliberate and methodical managers are in formulating and executing
competitive actions and that these actions are more sophisticated than those of firms
in emerging or growing industries. Gripsund and Gronhaug (1985) noted, “Managers
view and focus on only a sub-set of all their competitors – the most direct competitors”.
The General Manager of a luxury vehicle distributor defined his competitive set as any
11
Nieman Marcus operates large, luxury shopping malls in the U.S.A.
organisation that could provide an alternative luxury purchase yet his cognitions were
based on a small sub-set of his competitors. For example, he used “A-1 sized billboards
advertising our product placed along dual carriageway islands on posts in close
proximity to our two closest competitors” for a marketing campaign. Reger & Huff
(1993) suggested, “Strategists organise and make sense of their competitive
environments by grouping competitors into strategic groups. This is the result of
attending the same conferences and exhibitions, reading the same industry literature
and recruiting employees from the same pool”. Cheng & Chang (2010) concluded that,
“Managers tend to focus their attention on selective and similar dimensions, which
leads to cognitive strategic groups, which influences organisational strategic actions and
subsequent performance”.
It is also evident form the interviews that oligopolies act in a coordinated fashion in the
context of competitive actions. Kelly (1995) noted “Shared belief systems enable
coordinated activity by providing a common framework”. Managers also appear to take
comfort in operating within their established industrial structures and become
protective of these structures once they are cognitively embedded. This could be
explained through the notion that managers conduct industrial inspection by the
method of paired comparisons. These structures are associated with industry maturity.
In other words, as an industry matures so the structures become more and more
engrained. This study confirms this insofar as managers in the mature industries,
including the automotive, financial services, FMCG and fashion industries, were far more
aware of their competitors and, therefore, the structures of their industries, than the
managers operating in nascent (emerging and growth) industries, including the
information technology, smart cards and new media industries. Wiley (1988) asserts
that supra-individual level frameworks emerge as interactions take place among
different individuals within a given social grouping and the commonly shared ideas begin
to take on an existence of their own, independent of the individuals that created them.
While most literature deals with competitive intelligence gathering, managers’ mental
maps of their competitive environments, the formulation of competitive actions and the
subsequent execution of these actions as discreet processes, the study shows that these
are integrated and iterative processes. Constantineau (1995) suggests, “The application
of competitive intelligence would be more effective if those collecting the intelligence
engaged in discussions with decision-makers, made the information more widely
available and if they developed alternative scenarios of likely outcomes to elicit
reaction.”
Dearborn and Simon (1958) observed, “Functions within organisations influence
managers’ frames of reference”. Bowman & Daniels (1995) found that “When managers
are asked to reflect their firms’ situations, there is evidence of functional bias”. The
interviews confirmed that functional biases exist in the formulation and execution of
competitive actions and this was pervasive across the study. For example, marketing
managers used surveys to gather information while those with sales backgrounds
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The study found that managers operating in their home markets had an advantage
insofar as they had an affinity with local cultural and national norms. Likewise, managers
operating in foreign markets had an advantage insofar as they were able to apply
learned and tacit knowledge gained in their home markets to the new ones. However,
in every instance of managers from foreign markets successfully formulating and
executing competitive actions, they did so with the support of local managers.
Hodgkinson and Johnson (1994) noted, “Managers frames of reference are influenced
by their experiences, national culture is a strong influencer, and their frames of
reference are, as a result, broader than organisational or industry level ones”. Based on
the findings of the study it isn’t possible to determine whether it’s more advantageous
for managers to operate in their home markets or to operate in foreign markets once
they had gained significant knowledge in the formulation and execution of competitive
actions in their home markets.
The study concludes that the competitive actions, and specifically the number of
competitive actions that take place, the reason for such actions and the ways in which
they are formulated and executed, is not a function of the rate of change or the level of
innovation in a particular industry. Rather, they are situation-specific and such situations
relate to specific changes in the competitive landscape, corporate actions, economic
crises, desired changes in customer perceptions or poor sales performance. D'Aveni
(1994) postulates “hypercompetition is a relatively permanent situation, though it may
be punctuated by brief periods of stability”. Furthermore, the study found that the
intensity of competition is also a function of cultural and national norms, as well as
regulation. For example, the anti-corruption laws introduced in Mainland China caused
considerable competitive upheaval in the fashion industry and the procurement
regulations imposed on state-owned entities in Kazakhstan guided the way in which
other state-owned entities marketed and sold their products and services. D'Aveni
(1994) noted that the airline, banking, and telecom industries in the United States had
been hypercompetitive for some time; yet in Japan, and to a lesser extent continental
Europe, social and cultural norms imposed constraints on adapting such rapid and
discontinuous change frameworks.
The smart card producing company that was interviewed developed a programme called
‘you can do it’ that provides a novel solution to incentivising the use of public services
through reward points into a successful business that their Chief Executive Officer aims
to sell as a stand-alone business one day (competitive action no. 4). Her cognitions and
her approach are consistent with Kim & Mauborgne (2015), who suggested companies
could succeed not by battling competitors, but rather by creating ʺblue oceansʺ of
uncontested market space.
Gresov and Drazin (1997) assert that efficiency and efficacy are optimised in the
structures and processes adopted by the strategic group and that deviating from them
results in compromised performance. This may be true when considering the cost
structures and the collective relationships that strategic groups have with suppliers and
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is consistent with Porac (1989) who noted, “The access to specific resources is more
easily achieved by strategic groups than by singular firms and, as a result, accessing the
same resources as competitors in the strategic group improves performance”. However,
the findings of this study do not necessarily support this assertion in respect of market
performance and the company’s ability to generate revenue when deviating from
industry norms and there were a number of examples of managers deviating from
industry norms through marketing campaigns, new product developments or the
updating of products or pricing policies with the objective of achieving or sustaining
profit levels above the industry norms. Another explanation for managers being
reluctant to deviate from industry norms could be because taking actions that appear
to be in their organisation’s best interests may induce retaliatory actions from their
competitors (Baum and Korn, 1996). In the 26 interviews that make up this study, not a
single example of this behaviour was identified.
Summary of findings
The following list summarises the findings of this P2 study.
1. Tools and techniques are seldom used in the formulation and execution of
competitive actions. Structured interviews and surveys were used in 50% of the
actions covered in this survey but tools, such as Michael Porter’s (1980) Five
Forces, were only use for four of the 26 actions.
2. Managers rely heavily on interactions with other managers, customers and
employees, as well as their own intuitions in the formulating and executing
competitive actions.
3. The study affirms the existence of strategic groups and cognitive oligopolies and
shows that managers focus on narrow subsets of all their competitors, limited to
their most direct ones, when formulating and executing competitive actions.
4. The more mature the industry, the more deliberate and methodical managers are
in formulating and executing competitive actions.
5. No difference could be found in the way in which competitive actions are
formulated and executed between developed, developing and emerging
economies. In other words, the methods used in formulating and executing
competitive actions are not dependent on the relative developmental state of the
economies in which they are executed.
6. There is a very clear correlation between the level of a manager’s training and the
sophistication of the methods used in formulating and executing competitive
actions.
7. The competitive actions of large companies tend to focus on defending their
market positions while small companies tend to focus on growth in the
competitive actions.
8. Young managers tend to rely on frames of reference developed through training
in the formulation and execution of competitive actions while older managers
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Introduction
The focus of Project 3 (‘P3’) was the development of a guide to assist managers in
formulating competitive actions based on the findings of Projects 1 and 2. The guide is
accompanied by a Resources Manual that acts as a tool kit to support the guide. The
Resources Manual includes a number of categories, namely:
• Data, including data sources and methods for gathering data.
• Tools, including, inter alia, the Customer Matrix developed by Bowman and
Faulkner (1994) and the 5-Fources model developed by Michael Porter (1980).
• Competitors, including points to consider and methods to use in analysing
competitors and competitive environments.
• Benchmarks, including ideas regarding benchmarks that can be used when
formulating competitive actions.
• Team, including points to consider when assembling teams to formulate
competitive actions.
• Industry, including points to consider and methods to use in analysing industries
and industrial dynamics.
Both the guide and the Resources Manual were designed to act as reference documents,
provoking thought and providing ideas to managers in the formulation of their
competitive actions. The guide and the resources manual were validated in the field
through discussions with managers, who also reviewed them. A total of 10 discussions
were held with managers and five iterations of the guide and the Resources Manual
were produced. These discussions focused on the practical applicability of the guide and
the Resources Manual. The guides and Resources Manuals that were produced are
included in appendices 1 to 7. Notes were taken after each discussion, which were used
to update the guide, and have been summarised in appendix 17.
The guide and the resources manual evolved through this process of iteration until the
interviewees were no longer able to make meaningful contributions. To start with, the
two documents were merged but were separated into two in order to distinguish
between material that could be used by all managers on a day-to-day basis, and material
that would typically only be used occasionally and not by all managers. P3 also explains
the progressions between each of the iterations and the outcomes of the discussions
with the managers.
The research protocol and the methods used in this study are covered in the
introduction to the P1 section. The DBA research is broken into three projects, namely
Project 1 (‘P1’), which was a Systematic Literature Review, Project 2 (‘P2’), which
comprised field research to understand what happens in practice and Project 3 (P3),
which is the subject of this protocol and which focused on the development of a
framework to improve the formulation of competitive actions.
Page 151
The unit of analysis is the competitive action. The guide developed as part of P3 was
validated in practice through discussions with a number of senior managers who are
responsible for the formulation of competitive actions, by asking them to apply it to
specific actions their organisations’ had formulated and executed in the past.
Relevant appendices
The table below lists the appendices to this study that are relevant to P1.
Nos. Title Description Pages
1-7 Competitive actions Five subsequent versions of the guide and 171-
guides & resources the resources manual to support the 184
manuals formulation of competitive actions that were
produced as part of P3 are contained in
these appendices. In the first three versions
the guide and the resources manual are
integrated and presented in single
appendices, while they are separated into
two separate documents, presented in
separate appendices, in the last two
versions.
8 Previous consulting A list of previous consulting assignment and 185
assignments & businesses that I’ve been involved in and
businesses that are relevant to this DBA study
17 Summary of Summary of the changes made between the 255-
iterations of the five iterations and an account of the 262
guides & resources progression made between iterations in
manuals developing the guide and the resources
manual.
Table 1: Relevant appendices
Research objective
The ultimate aim of the P3 research was to use the findings of P1 and P2 to provide a
guide that managers can use in practice to improve the formulation of their competitive
actions. To achieve this, P3 makes use of the processual framework discerned in P2,
offers recommendations and proposes approaches. This includes the use of tools and
external inputs, such as data, for the formulation of competitive actions depending on
the type of action, as well as its stimuli and the objectives of the action. This guide was
developed as the corollary of P1 and P2 and was discussed with managers in the field in
order to ensure its validity and applicability. The research question for P3 was:
Page 152
Step Description
1 Patterns and approaches relevant to the formulation of competitive actions
were identified and documented based on the findings of P1 and P2.
2 A guide for formulating competitive actions based on the patterns and
approaches identified and documented in step 1 was developed. Process flow
charts and tables were used as far as possible to describe the guide in a succinct
manner.
3 Four suitable managers involved in the formulation of competitive actions
within their respective organisations were identified and recruited to review
and comment on the guide. The criteria used to recruit these managers and a
summary of the those selected is provided in the ‘Research population’ section
below.
4 The guide was discussed with the participating managers and updated
accordingly after every discussion to reflect their particular experiences, as well
as their assessments of its validity and applicability. 10 discussions were held
with the managers, their comments were noted each time and they were used
to produce five versions of the guide in total. The comments and consequent
Page 153
updates to each of the five versions of the guide are contained in appendix 17
to this thesis.
5 The guide was finalised using the comments from the discussions held with
managers. The five versions of the guide that were produced based on the 10
discussions were finalised with ‘version 5’. The last two versions were split into
the guide, which was designed to be used by a broad set of managers on a day-
to-day basis, and a Resources Manual, which was designed to be used by a
smaller set of managers less frequently. Appendix numbers 1 to 7 to this thesis
contains the five versions of the guide and the associated Resource Manuals.
Table 2: Research procedure
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Page 155
• Recover
• Maintain
• Grow
The fourth iteration was only circulated to interviewees 1 and 4 and, after several
discussions with them, a number of changes were made to the guide and the Resources
Manual to update and improve version 4 and create the final iteration, version 5. Most
importantly, several changes were made to the diagrams, the resources key was moved
from the Resources Manual to the guide itself to make it easy to refer to the various
resource categories when using the guide and to create a tighter link between the guide
and the Resources Manual and the icons for each resource category were colour coded
to make them user-friendly.
Research outcomes
The primary desired outcome of the research was a guide that can be applied by
managers to the formulation of a wide range of different competitive actions. Secondary
desired outcomes included an understanding of when and why the themes identified in
P2 emerged in the formulation of competitive actions. After seven interviews and
extensive discussions with the managers that participated in the research and 10
iterations of the guide, as well as the Resources Manual in the more recent iterations,
the outcome of P3 includes:
1. A guide to assist managers in formulating competitive actions that comprises
three A4 size pages and four A3 size pages and uses diagrams and tables to make
its use as visual and intuitive as possible.
2. A Resources Manual that supports the guide by delving into more detail and
offering ideas and recommendations in relation to resources that can be used to
support the competitive action formulation process. These resources include
data, tools and human resources, as well as approaches to analysing
competitors, industries and to identifying and employing benchmarks.
The guide was designed to be quick and easy to understand and to appeal to a broad
range of managers of varying ages, levels and experience and educational backgrounds.
The Resources Manual is more theoretical in its approach and is not intended to appeal
to all managers. Rather, it is designed to offer deeper insight into issues to consider
when formulating competitive actions, as well as providing a set of resources to support
the process, for those managers who require it.
Page 157
Page 158
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Page 1
Page 2
Objectives
The objectives that managers set themselves as a result of their stimuli and the
context under which they operate are listed and discussed. These have been clustered
into the following four groups:
1. Increase share of existing market
2. Maintain market position and profit levels
3. Expand business through new unit, product or service
4. Generate or increase sales in a new market
Competitive environment
• Industry maturity
• Degree of turbulence in the industry
• Industry fragmentation
Company-level variables
• Company size relative to competitors
• Company profitability relative to competitors
Manager-level variables
• Manager’s age
• Level of formal training of manager
• Manager’s location relative to home market
• Broadness of functional background of manager
Page 3
Stimuli
Competitive Consumer Threat Change in Shareholder New Poor sales Customer Top
action mis- from new market pressure to technology performance request management
perception market conditions improve (3) (6) (1) pressure to
stimuli
(3) entrant (5) performance diversify
(1) (6) business (1)
Competitive Maintain
Increase share Expand Generate or
action of existing market
business increase sales
desired market position and through new in a new
outcomes (15) profit levels unit, product market (4)
(2) or service (5)
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This part of the guide covers the factors that are antecedent to the action and that
cannot be changed, including the stimuli. The stimuli are the factors that trigger the
competitive action and they’ve been clustered into the following eight categories
covered below. The stimuli or the stimulus can be regarded as the initial step in the
process of formulating competitive actions.
Consumer misperception
‘Consumer misperception’ relates to the market perceiving the attributes of a
company’s products or services, or their prices to be different to what they actually
are. Consumer misperceptions can also be associated with a myriad of brand
attributes, such as the values associated with the brand.
In the actions analysed as part of the research, the stimuli emanated from feedback
received form customers. This feedback could be received through interactions that
salesmen have with customers, public surveys, focus groups, interactions that call
centre agents have with customers that are logged through a CRM1 system or any
other relevant source. This does imply that the company must have regular and
substantial interactions with their customers in order to be aware of their
misperceptions in relation to the company’s products, services or its brand values.
This particular type of stimulus is not peculiar to any particular environment and can
apply to all companies, regardless of size, profitability, the maturity of the industry
they operate in, the degree of turbulence in the industry or any other factor. In the
sample set of competitive actions analysed, this stimulus always led managers to strive
to increase their share of an existing market and was the trigger to interventions that
gave rise to a number of mechanisms, as outlined in the figure overleaf.
1 Customer Relationship Management
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Management intervention
Figure 1: Adjustment of a consumer misperception
In every instance, the consumer misperception stimuli led the manager to set the
objective of increasing his or her company’s share of an existing market.
Threat from new market entrant
In the 26 competitive actions analysed in this research, only one was triggered by a
threat from a new market entrant. As would be expected, the company was firmly
entrenched in the industry and part of a well-defined strategic group2. The industry
was, however, still experiencing significant growth and was in a relatively turbulent
state, which presented the new entrant with an opportunity to enter the fray.
Specifically, as the industry and, by implication, the products being produced by its
participants, were still evolving, the new and much smaller competitor was able to fill
a niche by offering new product functionality.
2 A ‘strategic group’ is a group of direct competitors that typically procure raw materials form the same
suppliers, hire from the same talent pools and target the same customers
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The incumbent’s response was to quickly develop the new functionality being offered
by the new entrant in partnership with pilot customers. They then proceeded to roll it
out to as many existing customers, as rapidly as possible in a defensive action to clip
the new entrant’s wings. Based on the Project 2 analysis, the incumbents desired
outcome relative to this stimulus was to maintain its current market position and level
of profitability.
3 Fast Moving Consumer Goods
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The objectives of the competitive actions envisaged by these managers were largely
dependent on whether they were responding to threats or opportunities. As would be
expected, threats were met with simply wanting to maintain their current market
positions, profit levels and, in one case, wanting to provide the best possibly return to
shareholders even if it meant repositioning or discontinuing the business. On the other
hand, managers responded to opportunities by trying to increase their share of an
existing market or, where there was opportunity for it, launching new products,
services or new business units.
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All the competitive actions analysed that were triggered by pressure from
shareholders to improve performance were offensive, as opposed to defensive, insofar
as they were formulated with the intention of gaining market share from competitors,
rather than being formulated to defend an existing market position. The actions
included introducing new offerings to an existing market or penetrating new markets
and, in every instance, a high degree of interaction with customers and prospective
customers was undertaken to inform the formulation of the competitive action. A
number of different tools were used, including:
• The competitive compass, a tool that used the Resource Based View (Penrose,
1959) to assist managers in identifying the market position best suited to their
respective organisations
• Market segmentation
• Porter’s five forces (Porter, 1980)
• Customer surveys
• Research carried out by marketing agencies
The Competitive Compass and market segmentation are particularly well suited to
crowded industries but would be less relevant in nascent or growth industries.
Shareholder pressure to improve
performance
Expand business
Generate or increase
Increase share of through a new
sales in a new
existing market product/service or
market/s
new business units/s
Figure 2: Outcomes envisaging and the mechanisms that were applied
The figure above depicts the objectives set by managers interviewed when
experiencing pressure from their shareholders to improve performance.
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In every instance, these competitive actions involved using the new technology to
update, repackage or extend an existing product or service offering. Managers were
very methodical in their approaches to formulating competitive actions and went to
great lengths to research and collect data to support their efforts in this regard.
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Stimulus to action
Customer provides requirements for a new product
the company is sure it can satisfy
Objective defined
Company wishes to expand its business based on
being able to satisfy a customer requirement
Mechanism
Company researches, develops and launches the
new product in response to the customer’s
requirement
Figure 4: Competitive action process triggered by a customer request
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Top management pressure to diversify business
Of the 26 competitive actions that were analysed, only one was triggered by pressure
from top management to diversify the business. It was a bank with an auto-finance
business that performed very well in its home market and that wanted to expand but
couldn’t in its home market without compromising the quality of loans it made. It was
a U.S. bank and it made the decision to establish subsidiaries in other states and tried
to replicate the success there that it had experienced in its home state.
The action was successful and the subsidiaries were able to compete effectively by
combining the knowledge and business culture managers from the home market
brought with them to the subsidiaries with the local market knowledge that managers
that were hired in the new markets had. Of course, they were also starting from a
‘zero base’ in the new markets where they established subsidiaries and were,
therefore, able to grow far more rapidly than they would have been able to in their
home market.
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Objective setting
The objectives of the 26 competitive actions recorded and analysed have been distilled
into four categories, including:
Increase share of existing market
Increasing their share of an existing market was the most prevalent objective that
managers set themselves. In fact, this was the objective of 15 of the 26 actions
analysed. Managers that set the objective of increasing their share of an existing
market went on to use one or more of three mechanisms, as depicted in the figure
below.
Increase share of an existing market
Updating,
Communication to
repackaging, Development or
change consumer
extending or re- launch of a new
perceptions or to
pricing an existing product
create awareness
product
Figure 5: Mechanisms used to increase the share of an existing market
Updating, repackaging, extending or re-pricing an existing product was the most
prevalently used mechanism to achieve a larger share of an existing market. Poor sales
performance was the most prevalent stimulus to this action. The use of data, collected
mainly through surveys, was used extensively to arrive at the most appropriate
mechanism, as well as tools such as Porter’s (1980) 5-forces and external consultants
and marketing agencies.
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Mechanism 1 Mechanism 2
Develop or launch a new product or Acquire a company with complimentary
service offering internally products or services
Figure 6: Mechanism options related to the outcome of expanding a business through new products,
services or units
Customer surveys were used in around 50% of all cases to better understand the
markets. International industry trends were also analysed and approaches such as the
Resource Based View were used.
Tips and implications for managers
1. When the desired outcome is to expand the business through the introduction
of a new product, service or business unit, it is worthwhile considering other
products or service in the market that could be bundled with the company’s
existing products or services in order to create unique offerings. These
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mechanisms employed were always offensive, in that they were formulated with the
goal of penetrating new markets and capturing market share from the incumbent
market participants. High reliance was placed on customer feedback, which was
derived from a number of different sources, including marketing agencies, surveys and
interviews with existing customers and consultants.
Desired outcome
Generate or increase sales in a new market
Mechanism 3
Establish a presence in a
Mechanism 1
Mechanism 2 new market with either
Update, repackage,
Development or launch an existing product or
extending or re-pricing
a new product or service service or one of the
an existing product
newly updated or
developed products or
services
1. Entering a new market is costly and adequate budget should be available to do
so. It’s important to understand the new markets properly, which requires data
and advice that could be obtained through surveys, from marketing agencies
and consultants and through discussions with existing customers to understand
what can be replicated elsewhere and how the company’s product or service
may be updated.
2. Experienced managers that have a good knowledge of the company’s products
and services and of the successes the company has experienced that could be
replicated or used in new ventures should formulate these actions.
3. In highly competitive or turbulent industries, the use of new technology should
be viewed as a way of distinguishing market offerings and raising competitive
barriers, as should the bundling of existing products and services, either with
each other or with new technologies, products and services.
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Competitive environment
This section is concerned with the competitive environment in which the firm
operates. Specifically, phenomena such as the number of direct competitors, as well as
competitors in the broader competitive set, the intensity of rivalry between the
competitors, the state of evolution of the industry and the rate of change being
experienced within the industry in relation to technology, processes and operating
models is important. In some instances, the variables below have been used as proxies
for these phenomena.
Industry maturity
Based on the research, the structure of the industry in any specific market is normally
related to its maturity. In mature industries, such as the automotive or the FMCG4
industries, managers were very aware of whom their competitors were and their
relative positions in the market. As a result, they acted in very deliberate ways when
gathering market intelligence and when formulating and executing competitive actions.
Managers operating in emerging or growing industries, and whose industrial structures
were therefore still evolving, tended to not have defined their competitors that clearly.
They were also less deliberate in their approaches to gathering market intelligence and
formulating and executing competitive actions than managers operating in mature
industries.
Managers operating in mature industries had very precise sales data for their brands,
as well as for their competitors’ brands and were able to estimate the income and
expenses associated with producing and marketing them. The approach to formulating
competitive actions was also very precise. Surveys were used to gauge market
acceptance and tools were often used to estimate sales volumes related to new
products being considered and how much would need to be spent on marketing to
achieve these volumes. The managers operating in emerging or growing industries
were, by contrast, less aware of alternative products to theirs and were less aware of
the compositions of their competitive sets. These managers usually operated in
nascent markets and their industries were relatively unstructured and the players in
the industry were fragmented. Therefore, there wasn’t really a need to be all that
aware of their rivals or to use sophisticated methods for gathering market intelligence
and for formulating competitive actions.
The interviews also showed that managers operating in emerging or growing industries
often sought to develop products that filled specific market needs, which is a function
of the maturity of the industry they operate in and its relatively fluid structure. In
contrast, managers at the larger companies that were interviewed formulated and
4 Fast Moving Consumer Goods
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Managers should be aware that, as industries become more turbulent, managers’ tend
to revert to automatic sense-making frameworks that are often based on out-dated
experiences and knowledge. In examining the differences between automatic and
controlled processing by managers in an increasingly dynamic industry, Reger and
Palmer (1996) found that managers relied on cognitive maps that reflected obsolete
industry boundaries during a period of significant environmental upheaval. They also
found that managers’ cognitive maps, on a collective basis, became less consensual as
the environment became more turbulent. Managers at competing firms, therefore,
tend to view competition quite differently in turbulent environments to stable
environments.
By contrast, when environments are relatively stable for long periods of time,
reinforcement of well-learned, ready-made categories occur (Reger and Palmer 1996,
Dutton 1993). This results in a strong convergence between automatic and controlled
schemas. Automatic and controlled mental models are expected to remain similar until
the environment changes substantially enough to render them obsolete (Reger and
Palmer 1996).
Changing environment
CONTROLLED
MODE
RE-INTERPRETATION
CONTROLLED
MODE OF ENVIRONMENTAL
AUTOMATIC EVENTS
MODE
AUTOMATIC MODE
Inertia
Stable environment Changing environment
produces strong produces weaker
correspondence between correspondence between
cognitive processing cognitive processing modes
modes and accurate and less accurate
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3. Parallels can be drawn between the fragmented industry setting, the ‘Blue
ocean strategy’ (Kim and Mauborgne, 2005) phenomenon and the ‘new value
curve’ approach that Kim and Mauborgne allude to in their 1999 article
‘Creating New Market Space’, published in the Harvard Business Review
(January-February, p 83-93). Fragmented industries provide the perfect setting
to develop new and innovative products. As such, fragmented industries offer
managers the possibility of acting in environments less constrained by industry
standards, engrained technical and functional product attributes and benefits.
Fragmented industries also provide managers with a blank canvas to apply
marketing approaches, possibly from other industries, that haven’t been
applied before.
4. For industries where competitors are concentrated, Kim and Mauborgne’s ‘new
value curve’ can be applied. They propose a ‘systematic approach to value
innovation’ as a way of avoiding head-to-head competition, which they state
“can be cutthroat, especially when markets are flat or growing slowly”. As
mentioned previously in this guide, the research found there to be a strong
correlation between the maturity of the industry and the concentration of
competitors. The pretext of Kim and Mauborgne’s research is that most
companies focus on matching and beating their rivals and that they should,
instead, consider substitute industries to establish new value curves. To
discover where a new value curve lies, they suggest manager’s should ask four
basic questions:
• What factors should be reduced well below the industry standard?
• What factors should be eliminated that the industry has taken for granted?
• What factors should be created that the industry has never been offered
before?
• What factors should be raised well beyond the industry standard?
Company-level variables
As the title suggests, The ‘Company-level variables’ section is based on the influence
that attributes associated with the company have on the competitive actions. The
section makes recommendations that managers can use in the formulation of
competitive actions and different approaches they could adopt, based on their own
companies attributes and operating conditions, relative to those of their competitors.
Company size relative to competitors
From the 26 competitive actions that were analysed, it is evident that the larger the
company, the more sophisticated it tends to be in formulating competitive actions and
the more it tends to rely on tools, such as surveys and software to predict sales
performance based on a competitive action and the marketing budget that would
required to achieve that performance. It is also evident that there is a correlation
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between the size of the company and the level of formal training that its managers
have received. Consequently, the larger the company is, the more methodical
managers tend to be in formulating competitive actions.
The research also showed that managers at larger companies became comfortable
with their competitive sets over time and were psychologically resistant to new
entrants. This attitude resulted in them reacting very strongly to threats from new
entrants, often with the intention of blocking these threats and defending their
positions with incredible energy and resources and couldn’t be matched by the
smaller, new entrants.
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competitive actions as a means of maintaining their profit levels when the industry
started tending towards market equilibrium and, consequently, profit levels started to
normalise.
An interesting phenomenon that emerged from the research was a dichotomy
between companies whose market behaviour was convergent with that of their
competitors, predicated on the objective of maintaining industry profit levels, and
companies whose market behaviour diverged with the general behaviour of their
competitors in an attempt to increase their profit levels beyond those of their
competitors. Based on the research, this phenomenon can’t be attributed to the size
of the company, to the maturity of the industry or the degree of turbulence being
experienced in it. In other words, it applies to companies large and small, mature and
growing or emerging and to all sorts of industries. Competitive actions formulated with
the objective of diverging from industry norms tended to be formulated and executed
by companies whose profits were either waning, who were in the emerging or growth
phases of their business life cycles and trying to grow and become profitable as quickly
as possible or companies whose managers or shareholders were dissatisfied with the
profit level of their industry or their direct competitive set.
Tips and implications for managers
1. When the industry that a company operates in, or the strategic group that the
company is part of or aspires to become part of, is enjoying attractive profit
levels, it may be worthwhile formulating competitive actions that will result in
convergence with the other industry participants or with the target strategic
group5, as similarity of perceived similarity will allow the company to price its
products or services in line with those of its competitors and will allow it to
procure inputs from the same suppliers at the same or similar prices, including
human resources, as it should be able to recruit from the same talent pool.
2. As the profits in an industry, or within a strategic, that has been enjoying
abnormal profits start to wane, it would be a good idea to start formulating
competitive actions that will result in divergence from industry or strategic
group norms with the objective of generating profits in excess of those
generated by other industry or strategic group participants.
3. Often due to budget constraints, less profitable companies are forced to be
innovative in the competitive actions they formulate and execute. Leadership
plays a large role, as leaders are able to motivate managers and employees to
be innovating, by doing more with less resource.
Manager-level variables
5
Porter (1980) defined a strategic group as a group of firms in the same industry making
similar decisions in key areas.
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The manager-level variables focus on suggestions and different approaches that could
be followed on the basis of the manager or managers involved in formulating the
competitive action or actions.
Age of manager
In the research age has often been used as a proxy for experience for the analysis
purposes. This is because it is hard to quantify experience but there is a general
correlation between the level of experience a manager has and his or her age. From
the competitive actions analysed, it is apparent that more experienced managers, or
older managers to be accurate, employ different methods in formulating competitive
actions than their less-experienced or younger counterparts do. Specifically,
experienced manager’s tend to rely on the tacit knowledge they’ve accumulated over
the years while less experienced managers rely more heavily on tools such as Porter’s
(1980) five forces and data from sources such as surveys and focus groups.
The phenomenon of managers’ experiences being applied in their decision-making
processes is not new. Schneider and Shiffrin (1977) identified two qualitatively distinct
processing modes, being ‘Automatic’ and ’Controlled’. Automatic processing was
described as unintentional, involuntary, effortless, autonomous and occurring outside
of awareness (Reger and Palmer 1996, Bargh 1989, Johnson and Hasher 1987,
Kahneman and Treisman 1984, Logan and Cowan 1984, Uleman 1989). In contrast,
controlled processing was described as flexible, within an individual’s intentional
control, effortful, active, constrained by short-term attention resources and motivated
or strategic (Reger and Palmer 1996, Atkinson & Shiffrin 1968, Bargh 1989, Logan,
1980, Neely 1977, Uleman 1989). Uleman (1989) formulated an expanding continuum
of multiple, fuzzy and overlapping cognitive processing modes that form a progression
from absolutely automatic to unconditionally controlled.
Decision-making continuum
Controlled processing Automatic processing
\
Competitive actions
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Reger and Palmer (1996) found that as situational uniqueness increases, accurate
interpretation becomes more difficult and, in unfamiliar environments, automatic
category assignments based on out-dated maps are likely to result in erroneous
actions, as automatic judgments are made without reflection. They also found that
managers’ cognitive maps tended to diverge as the environment became more
turbulent. Many decisions are made under stress and time pressure and, despite
sophisticated planning and decision support systems aimed at guiding managers
towards controlled processing, automatic processing may be the dominant mode in
formulating competitive actions.
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knowledge sources
Formulation and execution of
competitive actions
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Each of the above scenarios has advantages and disadvantages and, if possible, it is a
good idea to combine, or team, the two categories of managers described for the
formulation and execution of competitive actions.
Tips and implications for managers
1. If the competitive action requires a fresh or different approach, a manager
operating in a different market to his or her home one could be advantageous.
By the same token, if the action requires an understanding of local market
dynamics and cultural nuances, it could be disadvantageous.
2. In many instances, the best approach may be to combine the new thinking and
knowledge that the manager from a different location brings with the
understating of local cultural and business norms that a manager or managers
operating in their home market possess.
Broadness of functional background of manager
The 26 competitive actions analysed showed that managers’ backgrounds resulted in
functional biases in their formulation of competitive actions. For example, a manager
with a sales background would tend to focus on sales and marketing oriented actions
in response to stimuli while a manager with a research and development background
would tend to focus on product development oriented actions in response to stimuli.
Marketing managers used surveys to gather information while those with sales
backgrounds replied more on personal dialogues. Managers with engineering
backgrounds placed more emphasis on the technical differentiators of their product or
service offerings.
Dearborn and Simon (1958) observed, “Functions within organisations influence
managers’ frames of reference”. Bowman & Daniels (1995) found that “When
managers are asked to reflect their firms’ situations, there is evidence of functional
bias”. The interviews confirmed that functional biases exist in the formulation and
execution of competitive actions. This was pervasive across the research. The corollary
of this is that the skills and knowledge required applied to the formulation of particular
competitive actions should be matched to those required for it to be as effective as
possible. It’s possible that these skills sets and knowledge bases in certain instances
exist in one manager but it is more likely that they will be found in a combination, or
team, of different managers with disparate functional backgrounds.
Tips and implications for managers
1. Where the skills and knowledge needed to effectively formulate a particular
competitive action don’t reside in one single manager, a team with a mix of
different functional backgrounds may be more effective. If you’re a specialist
without a broad functional background, think about the skills and knowledge
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that are needed to effectively formulate your specific action requires and
acquire the additional skills and knowledge that you need.
2. Because actions typically require an array of different skills, a manager with a
broad functional background is likely to be better at co-ordinating and
managing the efforts of the team formulating the competitive action.
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Formulating competitive actions
A practical guide to the formulation of competitive actions for strategy and marketing managers
The guide uses the abovementioned process to offer insights and recommendations to managers at every
step in formulating a competitive action. The figure titled ‘Process flow - competitive action development’
provides a summary of the processes followed by the managers interviewed as part of the research. The
actions have been distilled into a three-step process, comprising ‘stimulus’, ‘objectives’ and ‘actions’. Each
of these has been clustered in accordance with the findings of the research. A contingency approach has
been used to propose processes to follow and resources to employ in formulating competitive actions. In
other words, the recommendations offered in this guide are predicated on the use of different resources
and processes depending on environmental factors, as well as the stimuli and the objectives related to
the action.
The guide also proposes resources that managers could consider using in the formulation of their
competitive actions. In summary, the objective if this guide is to provide managers with a toolbox to assist
them in efficiently formulating effective competitive actions.
Declining or External or
Stimulus to the Shareholder or
compromised environmental
action (context) management plans
performance change
Restore or
Objective Increase market
maintain Innovate
(desired outcome) share
performance
Feedback loop
Actual outcomes
Why does this action work or not?
The abovementioned inputs are described in greater detail later in the guide in ‘Competitive action
resources’ section.
STIMULUS
Unsuitable product Declining profitability
Declining or
mix or pricing for a due to increased
compromised
particular market competition
performance
OBJECTIVE
In terms of objective setting, the logical desired outcome to these stimuli is an increase in market share.
The permutations to the objective of increasing market share are dealt with in the ‘Objectives’ section of
this guide.
STIMULUS
Threat from new External or Regulatory change
market entrant environemtal
change
OBJECTIVES
Restore or maintain
Increase market share Innovate
performance
OBJECTIVES
The objectives that managers set themselves as a result of their respective stimuli are listed in this section
and the levers that can possibly be used to execute actions that follow on from each of the objectives
are discussed. The objectives have been clustered into the following three broad sets of objectives that
managers could choose from:
1. Restore or maintain performance
2. Increase market share
3. Innovate
The applicability of employing the various levers is often constrained by internal and external factors and
influenced by the stimulus to the action and the context in which the managers formulate them. Five broad
groups of levers have been identified, including:
1. Price
2. Product
3. Place
4. Business model
5. Communication
For each of the three objectives, the corresponding levers have been clustered into the columns below the
objective. The focus of this section is on the internal and external factors that managers could think about
when deciding which lever or levers to use, as well as the influence that the stimulus and the context could
have on them.
This section describes very specific actions associated with the five levers listed above that could be used.
This section is indented to spawn ideas, in terms of actions that could be formulated to meet managers’
objectives. The specific actions listed in this section are also meant to help managers think about the
appropriateness or relevance of applying one or more of the five levers before deciding on a course
of action. In considering the five levers and the specific actions listed in this section, managers should
ask themselves:
1. How could each of the five levers be used to achieve my objective?
2. In the context of my objective, which lever or levers would be most relevant and why?
FEEDBACK LOOP
Competitive intelligence gathering, competitive positioning, the formulation of competitive actions
and the subsequent execution of these actions are often treated as discreet processes in literature
on the subject. The research found that these these are usually, but not always, well-integrated and
iterative processes. The research also showed that competitive actions were far more effective when
tight integration exists between these processes. Constantineau (1995) suggests, “The application
of competitive intelligence would be more effective if those collecting the intelligence engaged in
discussions with decision makers, made the information more widely available and if they developed
alternative scenarios of likely outcomes to elicit reaction.
1.
Stimulus triggers
competitive
action
Managers take 2.
5.
decisions about Data is collected
Execution of
actions that need to to equip the
competitive
be taken in order to manager
actions
attain the ideal or for the action
desired positioning of
their brands or
products relative to
competitors 4.
3.
Competitive
Objectives
action
are set
formulation
A good example is a bank that used their anticipation of a downward shift in interest rates to develop
a new mortgage product. The product’s principal feature was a reduced rate on the mortgage loan for
the first two years - they initially thought of setting this at 5.5% (from 8%) by ended up setting it at 4.5%
deciding this would make the impact they needed based on interactions with the marketing department
and, ultimately, with customers.
In this example the communication channels between customer-facing staff, the marketing department,
the Strategy & planning department, the banks economists and the Asset & Liability committee (ALCO)
were open and fluid. The different inputs, including macro-economic analysis, customer surveys, market
analysis, ALCO committee discussions used to develop the new product were tight and, for example, the
marketing department and the economists knew of the ALCO’s objective of growing the mortgage book,
the Strategy & planning department and the ALCO were informed by the economists of the anticipated
decrease in interest rates and the marketing department worked with the Strategy & Planning department
and the customer–facing departments of the bank to ensure the successful roll-out of the new product.
Feurer and Chahrbaghi’s (1995) research asserts that gaps exist between companies’ knowledge and
their competitive positions and concludes that it is difficult to formulate strategies through a process
of conception using a mechanistic approach. Therefore, strategy formulation should be regarded as
a process of continuous learning, which includes learning about the organisations goals, the effect of
possible actions towards these goals and how to implement these actions. They argue that the speed and
the quality of implementation of actions will be influenced by the organisations cognitive and behavioural
learning capabilities.
Data
Customer surveys
Useful in objective setting and formulating actions
Customer surveys are an effective way to gather large amounts of quantitative data as the starting point
to formulating a competitive action. However, the data is not rich, insofar as it is usually limited to a
relatively small set of questions and answers and fails to capture the emergent issues, or the opinions of
respondents that lie outside the scope of the questions. The data may also be biased by the profile of
the respondents.
The advantages of customer surveys and the data that is gathered is that, provided the sample set is large
enough, the data is generalisable and can be used for quantitative analysis. Customer surveys can also be
used to raise awareness of a product or brand amongst the respondents and, in the research for this guide,
one of the companies involved had surveyed one million respondents to both gather data to guide them
in the development of a new, replacement product and to promote the brand and its associated products.
The disadvantage of focus groups and interviews is that the sample sets are normally too small for the
results to be generalisable and, therefore, they cannot be used for quantitative analysis. Based on the
research, focus groups and interviews are generally used further into the competitive action formulation
process than customer surveys and are more effective after some data has already been gathered, through
a method such as customer surveys, and the manager or interviewer, therefore, has a foundation from
which to ask questions and interrogate issues and opinions.
Ethnographic studies
Useful in objective setting and in formulating actions related to ‘price’, ‘product’ and ‘place’
Ethnography is a research method based on observing consumer behaviour. As the name implies, it
has its roots in observing and understanding the behaviour of different ethnic groups. In the context of
formulating competitive actions, an ethnographic study would involve spending time, possible days or
even weeks, with consumers, observing, recording and analysing their behaviour.
For example, an airline wishing to improve its customer service may assign a manager to check-in, wait for,
board and take flights with paying customers right up to the point they collect their baggage on arrival
at their destinations and leave the terminal buildings. The manager would observe the comments, their
actions and, particularly, what they like and dislike, what they appreciate and what frustrates them. This
data could then be analysed to affirm what they airline is doing well and could be used as a competitive
advantage and what could be improved on and how this could be achieved in a ways that will best
respond to customers’ dislikes and frustrations.
Managers interested in using ethnographic studies to collect data and understand the behaviour of their
consumers could read an article by Richard Elliott & Nick Jankel-Elliott published by the Quantitative
Market Research journal (2003: 6, 4, pg. 215) called Using ethnography in strategic consumer research.
Informal channels
Useful in formulating actions related to ‘price’, ‘product’, ‘business model’ and ‘place’
Informal channels were widely used amongst the managers interviewed and the quality and relevance of
the data was often underrated. These informal channels include, inter alia:
1. Discussions with customer facing employees, such as the sales staff and call centre operators, about
the feedback they receive from customers. This feedback ranged from how customers perceived the
prices of products and the relative perceived value to how well garments fitted them and what they
thought made products special and distinguished them from competitors’ products or services.
2. A discussion with employees that had previously worked for competitors and were able to share
information regarding competitors pricing strategies, product research and development plans and
processes, distribution networks etc.
3. Discussions with customers, either through telephone or email communication, or at the point of sale,
such as on the shop floor, about issues and opinions relevant to the competitive action.
4. Discussions with partner organisations that understand the external environment, particularly the
requirements, policies and actions of competitors and customers alike.
In every instance, the data gathered through informal channels was valuable, as it was rich and pertinent
to the issues customers were confronted with and that were important to them. In cases were data was
gathered from staff, it was often the same staff that executed the actions and being part of their research
and formulation made them feel they were part of the end-to-end process and served to motivate them to
ensure its success.
Examples include the re-pricing of credit default swaps by a financial trading house that underwrites
them. The manager that formulated and executed the action noted, “during this period we monitored
what our competitors were doing and we found they were re-pricing their products. We did this by
hiring from competitors, being friendly with competitors to the point we could talk with them about
their pricing strategies, as well as talking to the banks, which were our common clients, about how our
competitors were pricing their products”. One of the luxury car distributors that participated in my
research relied heavily on the feedback they received from customers and employees while formulating
their competitive actions.
Another good example is a software company based in London. After hearing about a new competitor
providing a system to automate a particular function, they spoke with a few of their existing clients about
the functionality and were told “we are currently performing these functions manually and would like
to automate them but it wouldn’t be worth the trouble of doing so on our own”. Given this feedback,
they started discussions with a law firm that advised clients regarding this function and, the manager
interviewed noted, “this led to us forming a partnership with them and we started specifying the
functionality for a product to compete with the new market entrants”. They then, “mocked up a few web
pages to show what the new functionality would look like and our clients were enthusiastic”, which led
Tools
Customer matrix
Useful in objective setting and in using the product and price levers to formulate competitive actions
The Customer Matrix was developed by Bowman and Faulkner and is described in their 1994 article titled
‘Measuring Product Advantage Using Competitive Benchmarking and Customer Perceptions’ published in
the Long Range Planning journal (Vol. 27, No. 1, p 110-132). The matrix was measures product advantage,
which is premised on the notion that “competition is acted out through the purchasing behaviour of
individual customers” and, therefore, the basic unit of analysis should be the individual customer and not
the firm, the market or the industry. The matrix comprises ‘Perceived Use Value’ along the one axis and
‘Perceived Price’ along the other.
Perceived* High
use value
B C
D A
Low
The most desirable quadrant is the one with the highest perceived use value and the lowest perceived
price, while the least desirable is the one with the highest perceived price and the lowest perceived
use value. The matrix was designed to help managers better understand a product or brand positions
in relation to their competitors through the lens of the individual customer. Constructing the matrix is
an iterative process that starts with the application of hard information that is then supplemented by
experience and perceptions and refined further as more data is gathered.
Low
The authors have also applied their matrix to the producer view and the relationship between ‘innovation’
and ‘cost’, which allows producers to marry their internal dynamics with their customers’ perceptions
regarding price and use value.
Primo
Projected 1999
Samur-Ion
Tokyo Tech
Primary benefits can be defined as either the relative market position of a particular product or a specific
functional or technical attribute of the product. The Primary benefit map was published in D’Aveni’s article,
“Mapping Your Competitive Position”, in the Harvard Business Review in November 2007 (p 110-120)
Increasing risk
Product
Existing products New products
Market
Increasing risk
Porter’s 5-forces
Useful in objective setting and determining which of the 5 levers to use in formulating competitive
actions
The Five forces model published by Michael Porter in his 1980 book ‘Competitive Strategy: Techniques
for Analysing Industries and Competitors’, provides a framework for analysing the level of competition
within industries. In the book, Michael Porter asserts that firms will have unique strengths and weaknesses
in dealing with industry structure and industry structure shifts over time and, therefore, understanding
industry structure must be the starting point for strategic analysis. The ‘Five Forces’ is a model for
assessing a number of important economic and technical characteristics of an industrial organisation and
Porter suggests that, once the industry structure has been analysed, offensive or defensive actions can be
taken to reposition the brand or product to compete optimally.
Threat of new
entrants
Threat of substitute
products or services
Because the model is aimed at understanding the dynamics of the industrial organisation, and precludes
factors pertinent to the formulation of competitive actions, such as relative product or service attributes,
consumer trends and attitudes and the experiences and skill sets of the managers formulating the actions,
it has limited applicability in this context. It’s real value, in this context, lies in analysing competitive
forces as inputs to the formulation of the action and, therefore, in setting objectives for the action and in
deciding which of the five levers referred to in this guide to use, possibly in combination with each other.
Core competency
Useful in deciding which of the five levers to use and in formulating competitive actions once a lever or
a combination of levers have been selected
Prahalad and Hamel described competencies as the root of competitiveness in their 1990 article ‘The core
competence of the corporation’ published in the Harvard Business Review (v. 68, no. 3, p 79–91). They
postulate that a core competency results from a specific set of skills or production techniques that deliver
additional value to the customer. These lead to the development of core products that can be used to
build many products for end users, which enables the company to access a wide variety of markets.
End products
1 2 3 4 5 6 7 8 9 10 11 12
Core
product 2
Core
product 1
Core competencies are developed through the process of continuous improvements over the period
of time rather than a single large change. The article is particularly useful in helping managers analyse
their companies competencies when deciding on which new markets to enter, how to update or enhance
existing products or business models or which new products to develop to ensure optimal success.
Kim and Mauborgne contend that firms can position their products or brands in new market spaces by
employing different patterns of strategic thinking. This approach to competitive positioning is premised
primarily on considering substitute industries to establish new value curves. The key to discovering a new
value curve lies in four basic questions:
1. What factors should be reduced well below the industry standard?
2. What factors should be eliminated that the industry has taken for granted?
3. What factors should be created that the industry has never been offered before?
4. What factors should be raised well beyond the industry standard?
New value curves attempt to transform enormous latent demand into real demand. Strategic groups can
generally be ranked in a rough hierarchical order built on two dimensions; price and performance. The
key to creating new market space across existing strategic groups is to understand what factors determine
buyers’ decisions to trade up or down from one group to another. This requires that companies challenge
the functional-emotional orientation of their industries.
Competitors
Competitors’ products and services
Useful in formulating actions related to the ‘Product’ lever
In conjunction with some of the use of tools described above, including the Customer matrix, the
Primary benefit map, Ansoff’s growth matrix and the Core competence model, information about
competitors products and services would be needed to formulate actions related to the ‘product’ lever.
This information would be used as inputs to the tools listed above and would typically include details of
competitive product’s functional and technical features, particularly those features that are unique to that
product or services. Information about how the product or service in question has evolved in the past and
how it is likely to evolve would also be useful, particularly for use in conjunction with the Primary benefit
map. This information can be obtained from a number of sources, including:
• Publicly available marketing material, such as advertisements, brochures and other sales collateral
• Employees that used to work for competitors and have good knowledge of their products or services
• Managers or employees of either customers or suppliers that are common to the company and its
competitors
• Marketing agencies, consultants and market research agencies, such as GfK, that either gather industry
data or work with competitors
Intensity of rivalry
Useful in objective setting
The intensity of rivalry within an industry and between competitors should serve to inform the objective
or objectives set for an action and, as a consequence, the actions themselves. For example, where rivalry
is intense, managers may consider innovating by developing a new product or a new business model in
order to avoid further competitive pressure, as proposed by Kim and Mauborgne suggest in their article
‘Creating new market space’. Where rivalry is less intense and the industry may still be growing and
enjoying abnormal profits, managers would probably feel less compelled to devote capital expenditure
to the research and development of a new product or service and would rather pursue an action such as
launching a communications campaign to make consumers more aware of existing products or service with
the objective of increasing market share.
This is affirmed by Giaglis and Fouska’s (2011) study published in their article ‘The impact of managerial
perceptions on competitive response variety’. The study explores the relationship between management
perceptions of their competitive environments and their responses to rivalry. It finds that management
perceptions of the intensity of competition; threats of substitution and increased buyer power are
correlated with broader and more innovative competitive reactions.
It should also be pointed out that managers’ often avoid deviating from the conventions set by strategic
groups for fear of rivalry from other firms in the grouping. This is particularly applicable to oligopolies. For
example, managers of an airline or a bank may be reluctant to decrease their pricing below that of their
competitors because of the rivalry it may trigger.
For example, if it is known that there is a much larger competitor, with the advantage of greater economies
of scale and, therefore, lower production costs, already fulfils a particular customer requirement it would
not make sense to try to satisfy that same requirement, even in an indirect manner, as this would probably
mean ending up in the ‘gap in the middle’, as described by Michael Porter (1980) and as illustrated in the
figure below.
It was observed that managers at large companies make a mental assumption that their companies should
be able to compete more effectively than their smaller competitors because of their more comprehensive
and more developed resource bases. For example, the manager at a large IT company stated that
by combining their resources, including both internal resources and those made available to them by
partners at preferential rates because of their size, they would have a competitive advantage over smaller
competitors in price and in the functional breadth of their solution offerings. A manager at another large IT
company was surprised that a small competitor could enter their competitive set because he thought they
would not be able to fulfil their customers rigorous procurement requirements.
It is also worth noting that, based on the research, larger companies tend to formulate and execute
competitive actions in order to fend off competitive threats from smaller competitors or as a reaction
to shrinking sales figures or market share, while smaller companies that tend to formulate and execute
competitive actions with the objective of growing their businesses.
Relative profitability
Useful in objective setting and in deciding on which of the 5 levers to use
Better profitability usually translates into more retained earning and, therefore, a larger war chest to use to
defend a market position, increase market share or innovate new products, services or business models.
This war chest could, however, also be funded through a rights issue or debt or, in the case of one of the
companies used in the research, the investment of a new shareholder. In this instance, the war chest was
used to acquire companies that own complimentary services that could be bundled with the acquirers
existing products and services to create new and unique solutions and to cross sell products and services
between the collective companies customer bases.
Although this practice it is now perceived as anti-competitive behaviour in most jurisdictions, more
profitable businesses have often used their financial positions to supress or drive rivals out of their
markets. A good example of this was British Airways and American Airlines ganging up on Laker Airways
and, more recently, on Virgin Atlantic to drive them out of the trans-Atlantic airline market. In the case of
Laker Airways, they forced the airline into bankruptcy by colluding to cut their prices to point where Laker
could only compete on a loss-making basis. They continued to do so until Laker Airways was forced out of
business and then raised their prices again. Partly due to the intervention of the regulator, British Airways
and American Airlines weren’t as successful with Virgin Atlantic.
Higher profits need not necessarily be used to defend market positions or increase market share as
blatantly as in the example above. They could, for instances, be used to innovate by either updating
existing or developing new products, services or business models, placing less profitable companies, that
are unable to do so, at a disadvantage. It’s important for managers to be aware of the ramifications of their
profit positions relative to their competitors when they set objectives and when they decide which of the
five levers to use, and how to use them, in the formulation of their competitive actions.
Scarcity
Value creation zone
Demand Appropriability
The framework combines the internal analysis of phenomena within the company and the external analysis
of the industry and the competitive environment. Specifically, the framework suggests companies should
focus on defining their valuable resources that enable them to perform activities better or more cheaply
than their rivals. The article lists five key characteristics that valuable resources should have, including:
• They’re difficult to copy
• They depreciate slowly
• The company, not its employees, suppliers, or customers, control its value
• They can’t be easily substituted
• They’re superior to similar resources that competitors own
Customer recognition
Brand with minimal advertising
reputation
No promotional sales
Intangible
Capabilities
Amongst a number of other companies, the article by Collis and Montgomery (1995) analysed the retailer
Marks & Spencer’s to illustrate the application of the RBV using practical examples. The figure above
summarises the RBV of Marks & Spencer’s.
Benchmarks
Competitive actions in parallel industries and other territories
Useful in deciding which of the 5 levers to use and how to use them in formulating competitive actions
Replicating or learning from competitive actions in other territories or parallel industries can be applied
to any of the five leavers. For example, ride-hailing service, Uber’s, business model has been used in of a
number of other business applications, including food delivery services, corporate jet rentals and home
appliance rentals. In the research we also came across competitors pricing policies and communication
campaigns being copied and competitors’ product features being adapted for application in another
market or to provide a competitive advantage.
The same or similar industries in different territories often follow the same evolutionary patterns but at a
staggered pace. It may be a good idea to identify territories that are evolutionary front-runners and study
them for ideas and input into in deciding which of the 5 levers to use and how to use them in formulating
competitive actions.
Team
Education & training
Useful in creating teams to formulate competitive actions at the point of the stimulus
Based on the research, the dichotomy between competitive actions carried out by managers with relevant
and formal graduate and post-graduate business or marketing qualifications and those without, primarily
entrepreneurs, is clear.
Sophistication of methods used
While the methods used by managers without relevant graduate and post-graduate business or marketing
qualifications are somewhat divergent, it is clear that there is a relationship between the level of training
of the manager and the sophistication of the methods they use in developing their competitive actions.
Particularly, it is clear that managers with more extensive relevant graduate and post-graduate training
used more sophisticated methods.
1 Telecommunications corporation
When selected team members to formulate and execute competitive actions, managers should be
aware that, if the tasks leading up to the action require a thorough and deliberate approach, they would
probably be better served using staff with formal educations in business or marketing disciplines. Should
the formulation of the action require a more entrepreneurial approach, for example combining products
in new and innovative ways where no data is available to predict how the market would respond or in
addressing to sagging sales due to evolving customer tastes, a more experienced manager should
probably be sought and less emphasis could be placed on his or her education and formal training.
Other skills and training backgrounds could also be considered, depending on the type of action. For
example, if the action involves trying to understand how consumer behaviour is changing or tastes are
evolving and responding to these changes, the skills of an anthropologist could prove to be useful.
Both approaches are valuable in the formulation of competitive actions and companies would often be
well served by creating teams that comprise both younger but well educated managers with older and
more experienced one, provided possible conflicts and clashes between the different approaches can
be managed.
Hofstede (1980) suggests that managers’ frames of reference influence their perceived control of the
environment and strategic behaviour. There are, of course, also factors within the organisation that
influence managers’ mental models. At the level of functional groups, for example, there are functionally
specific belief systems and perceptions of issues (Dearborn and Simon, 1958; Handy, 1985). Whitley
(1987) argued that managers’ views of the world are shaped, at least in part, by their career backgrounds.
There is a continual interplay between the individual, the context in which he or she operates, the frames
of reference related to these contexts, and the political and social processes at work (Hodgkinson and
Johnson, 1994).
When assembling teams to formulate and execute competitive actions, it may be a good idea to list
the skill sets and the experiences that are ideally required. Thereafter, you could shortlist the staff that
could possibly participate in formulating and executing the specific action and, lastly, map the skills
and experiences of the shortlisted staff to those required for the action. A mix of staff with different
functional backgrounds and biases could prove to be very valuable in covering all bases when formulating
competitive actions.
Managers draw on a series of frames of reference to make sense of their worlds. Hodgkinson and Johnson
(1994) found that managers’ frames of reference are influenced by their experiences and that national
culture is a strong influencer. As a result, their frames of reference are broader than organisational or
industry level frames. It also suggests that the diversity of frames of reference goes still wider than the
organisation or industry level and that there is increasing evidence that national culture affects managers’
interpretations and responses to strategic issues.
My research showed that a mix of different national and cultures backgrounds could be advantageous
in the formulation of competitive actions, particularly when the frames of reference of a manager that
has successfully responded to a particular stimulus in a foreign territory is combined with those of a local
manager, who understands local national and cultural nuances. It’s worth considering the national and
cultural backgrounds of staff that will be, or could be, employed in the formulation of competitive actions
in relation to the external environment at the point the team is assembled.
It may be useful to take stock of the experiences that staff that could be employed in the formulation
and execution of the requisite competitive action have had in other territories or industries to ascertain
possible relevance.
Industry
Industry maturity
Useful in objective setting and in deciding on which of the 5 levers to use
The structure of the industry in any specific market tends to be related to its maturity. In mature industries,
such as the automotive or the FMCG2 (soft drinks, fabric softener, confectioneries and under-arm
deodorants) industries, managers are very aware of whom their competitors are and their relative positions
in the market. As a result, they act very deliberately when gathering market intelligence and when
formulating and executing competitive actions. Managers operating in emerging or growing industries,
whose industrial structures are therefore still evolving, tend not to have their competitors defined that
clearly. They are also less deliberate in their approaches to gathering market intelligence and formulating
and executing competitive actions than managers operating in mature industries.
Industry maturity
A fruit juice manufacturer had very precise sales data for his brands and those of his competitors and
was able to estimate the income and expenses associated with producing and marketing his brands, as
well as those of his competitors’. The approach to formulating competitive actions was also very precise,
surveys were used to gauge market acceptance and a tool was used to estimate sales volumes related
to new products being considered and how much would need to be spent on marketing to achieve
these volumes.
One of the managers interviewed at a company that produces smart cards, was aware that if all they
did was produce and market them, their competition would be intense and their margins would be low.
The manager also took a resource based view of the business and, taking into account their size and the
relatively high skills sets and the corresponding cost of their personnel, decided to use the smart cards
they produced as a mechanism to deliver services that fulfilled very specific needs. In doing so, they
were able to achieve much higher margins than they could otherwise. The manager wasn’t aware of what
the alternatives to the solutions they provided were. Neither was she aware of their competitors. As the
business was highly innovative and the markets they entered or created were nascent, the industry was
unstructured and the players in the industry were highly fragmented. Therefore, there wasn’t really a need
to be all that aware of their rivals or to use sophisticated methods for gathering market intelligence and for
formulating competitive.
It is useful to be aware of high mature the industry you operate in is and how well developed it’s structures
are. This has an impact on the data that is available to you and your competitors and it’s sources, as well
as the rivalry you are likely to experience, which affects the objectives you can set for yourself and the type
of actions that are likely to be successful. It is also worth reading the section that follow, particularly those
about ‘Fragmentation’ and ‘Strategic groups & cognitive communities’.
In mature industries Competitors’ data (sales data etc.) should be available through formal channels, such
as marketing agencies to use in formulating competitive actions. You could try to augment this data with
data obtain through informal sources, such as employees that used to work for competitors and shared
customers that are prepared to talk about your competitors to gain a more well-rounded view of your
competitors’ plans and actions. In nascent industries competitors’ data (sales data etc.) won’t be readily
available so you will need to use informal sources, such as employees that used to work for competitors
and shared customers that are prepared to talk about your competitors.
Fragmentation
Useful for understanding industry structures, particularly in objective setting and in deciding on which of
the 5 levers to use
The fragmentation of competitors in an industrial structure is more likely to be evidenced in a nascent or
growing industry than a mature one, where industrial structures have been established over many years.
In my research, we analysed the way in which a smart card producer that uses the cards as mechanisms
to develop and launch products that fill specific market needs view and relate to competitors and
potential competitors. The company sought to avoid competing with other smart card producers’ head
Fragmented industries can present great opportunities and the smart card producer is a very good
example of how companies can avoid head-to-head competition by seeking out unsatisfied customer
requirements in parallel industries that are nascent and fragmented. This is the approach advocated by
Kim and Mauborgne in their 1999 article in their article ‘Creating New Market Space’ published in the
Harvard Business Review. They describe the approach as seeking ‘new value curves’.
If you are operating in a nascent or growing industry, it is worth asking yourself if you are aware of
possible new market entrants? In many organisations, the links between the market intelligence gathering
function and the sales, marketing and planning functions are weak. With these functions integrated, the
organisation will be in a better position to anticipate and deal with threats from new market entrants
as early on as possible, which is particularly pertinent to fragmented industries whose structures are
still evolving.
If you’ve identified a threat from a new market entrant, you should be able to clearly describe their
product or service offerings and identify the market segments or niches they’re targeting. As an integrated
organisation, it would be worth scanning the market periodically to identify threats from possible new
entrants as early on as possible. Once identified, you should gather intelligence on their product or service
offerings and identify the market segments or niches they are targeting.
The construction of cognitive groups allows managers to estimate the effects of environmental changes
on sets of organisations within an industry, instead of having to estimate the effects on all firms individually
(Porac, Thomas and Baden-Fuller, 1989). Firms that produce similar products or provide similar services are
often similarly affected by the conditions to which they are exposed (Tallman et al., 2004). Prevailing wage
rates, raw material availability and shifting customer demands are examples of environmental conditions
that similarly impact organisations within a cognitive group. These conditions can possess both limiting
and enabling characteristics that can affect the direction of change for the organisation (Bloodgood and
Though essentially an individual-level concept, cognitive frameworks are influenced by the interactions
individuals have with others (Bogner and Barr, 2000). As interactions occur among a number of different
individuals within a given social grouping, the commonly shared ideas begin to take on an existence of
their own, independent of the individuals that created them, and frameworks that exists at supra-individual
levels begin to emerge (Wiley, 1988). These “shared belief systems” make coordinated activity possible
by providing a common framework for observing and interpreting new stimuli and for coordinating
appropriate action (Kelly, 1955).
Individuals in an industry interact with each other. They go to the same conferences and exhibitions,
they read the same industry literature and they recruit staff from the same labour pool (Reger and Huff,
1993). They share the same suppliers in their value chain activities and observe what competitors do
through benchmarking (Porac et al., 1989). As a result, shared beliefs about competitive challenges and
opportunities are created through the cross-fertilisation of such interaction. Potentially, this may lead to the
adoption of similar ideas and practices and thus may hinder differentiation.
Over time, individuals within the firm share experiences and knowledge with one another, and a base of
common knowledge and ‘views of the world’ begin to form (Bogner and Barr, 2000). Interactions among
firms within an industry create a similarity in beliefs and actions that has led others to suggest the existence
of industry-level frameworks. It would also appear that individuals might hold somewhat different construct
systems yet share common category structures at the level of the industry. Furthermore, it appears
that there is divergence between the mental models of senior managers, which results from the task
environment and their objectives of differentiating their products and brands through competitive actions,
yet cognitive convergence exists at the functional management level, where managers are influenced by
the institutional environment and motivated by conformity with industry standards and processes.
It is also evident form my research that oligopolies act in a coordinated fashion in the context of
competitive actions. Kelly (1995) noted “Shared belief systems enable coordinated activity by providing
a common framework”. These structures are associated with industry maturity. In other words, as an
industry matures so the structures become more and more engrained. My research confirms this insofar
as managers in the mature industries, including the automotive, financial services, FMCG and fashion
industries, were far more aware of their competitors and, therefore, the structures of their industries,
than the managers operating in nascent (emerging and growth) industries, including the information
technology, smart cards and new media industries. Wiley (1988) asserts that supra-individual level
frameworks emerge as interactions take place among different individuals within a given social grouping
and the commonly shared ideas begin to take on an existence of their own, independent of the individuals
that created them.
Managers operating within defined strategic groups may consider deviating from industry norms, in the
context of product development, communication campaigns and the reconfiguration of product or service
offerings or the way in which they are packaged, in an attempt to increase their profit levels above their
industry norms. Managers may also prefer to take comfort in not to deviating from industry norms for fear
of possibly compromising their profits.
Degree of turbulence
Useful in understanding the effect turbulent environments might have on competitive actions
throughout the formulation process
Conventional cognitive frameworks employed to make sense of industrial competitive environments may
not work in turbulent industries. Bogner and Barr (2000) describe the cognitive frameworks employed in
hypercompetitive industries as “adaptive sense-making” and suggest that in hypercompetition those
Schneider and Shiffrin (1977) observed two qualitatively distinct processing modes in their study, being
‘Automatic’ and ’Controlled’. Automatic processing was described as unintentional, involuntary, effortless,
autonomous and occurring outside of awareness. In contrast, controlled processing was described as
flexible, within an individual’s intentional control, effortful, active, constrained by short-term attentional
resources and motivated or strategic. Uleman (1989) formulated an expanding continuum of multiple,
fuzzy and overlapping cognitive processing modes that form a progression from absolutely automatic to
unconditionally controlled.
Decision-making continuum
Figure 22: Controlled vs. automatic decision making in the context of competitive action formulation
Reger & Palmer (1996) found that as situational uniqueness increases, accurate interpretation becomes
more difficult and, in unfamiliar environments, automatic category assignments based on out-dated
maps are likely to result in erroneous action, as automatic judgments are made without reflection.
They concluded that managers’ cognitive maps, on a collective basis, became less consensual as the
environment became more turbulent. However, the mean number of constructs per individual increased
only slightly and not significantly.
Controlled
Elicited through construct naming and
multidimensional competitor ratings
Automatic
Page48
Elicited through similarity
Cognitive interpretations in stable and
judgements in triadic comparisons
changing environments
Reger and Palmer (1996) stated that many strategic decisions are made under stress and time pressure
and, despite sophisticated planning and decision support systems aimed at coercing executives
into controlled processing, automatic cognitive processing may be the dominant mode in strategic
issue diagnosis.
Changing environment
Controlled mode
Re-interpretation
of environmental
events
Controlled mode
Automatic mode
Inertia
Automatic mode
Consistent with Schumpeter’s (1942) and the Austrian school of economics theory of innovation and
abnormal profits, Wiggins & Ruefli (2005) assert that no one except the innovator makes a genuine ‘profit’
and that the innovator’s profit is always quite short-lived. Their research finds that:
• Periods of persistent superior economic performance have decreased in duration over time
• Hypercompetition is not limited to high-technology industries, but occurs throughout most industries,
but that superior economic performance decreases in duration over time in both ‘high-tech’ and ‘low-
tech’ industries but at a slower rate in ‘low-tech’ industries
Over time, companies increasingly have sought to sustain competitive advantage by concatenating a
series of short-term competitive advantages. Schumpeter and Wiggins & Ruefli contend that the only way
to sustain superior economic performance or abnormal profits is to constantly innovate.
My research found that the intensity of competition is also a function of cultural and national norms, as well
as regulation. For example, the anti-corruption laws introduced in Mainland China caused considerable
competitive upheaval in the fashion industry and the procurement regulations imposed on state-owned
entities in Kazakhstan guided the way in which other state-owned entities marketed and sold their
products and services. D’Aveni (1994) noted that the airline, banking, and telecom industries in the United
States had been hypercompetitive for some time but yet in Japan, and to a lesser extent continental
Europe, social and cultural norms imposed constraints on adapting such rapid and discontinuous
change frameworks.
Managers that find themselves operating in competitive environments that are turbulent, or are becoming
ever more turbulent, should be aware of the impact the situational uniqueness is likely to have on
their environmental interpretations and their mode of processing. Regarding how to effectively deal
with increasing turbulence, managers could consider one of two approaches, depending on the core
competencies of their companies. These include:
1. Innovate in order to sustain superior economic performance. This innovation could apply to products,
pricing policies, communication campaigns, sales and distribution structures and practices or
business models.
2. Look to apply your core competencies to other products or services or in other industries or territories
where ‘new value curves’, as advocated by Kim and Mauborgne in their article ‘Creating New Market
Space’ published in the Harvard Business Review in 1999.
In either instance, it would be worthwhile reading the article by Prahalad and Hamel (1990) titled ‘The
core competence of the corporation’ and the article by Collis and Montgomery (1995) ‘Competing on
Resources’, which provides a framework that companies can use to differentiate themselves from rivals that
is premised on the Resource Based View (RBV) concept described by Edith Penrose in her 1959 article ‘The
theory of the growth of the firm’.
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Environmental Structure, Internal Conscious Awareness and Knowledge, Journal of Management
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3. Bloodgood, Turnley and Bauerschmidt (2007), Intra-industry shared cognitions and organizational
competitiveness, Strategic Change, John Wiley & Sons, Sept-Oct 2007
9. D’Aveni, R. (2007), M
apping Your Competitive Position, Harvard Business Review, November 2007, p
110-120
10. Dearborn; de Witt, C. and Simon, H.A. (1958) S elective Perception: A Note on the Departmental
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Management Studies, Vol. 30 Issue 3, May 1993, pg 339-357
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Page 174
Page 175
Formulating competitive actions
The guide is not designed to be exhaustive, in terms of covering every possible or permutation in the
formulation of competitive action. Rather, as the diagram below indicates, it deals with a significant
number of competitive actions and seeks to help managers distil their options into a few that are the most
appropriate, giver the stimulus, the
A contingency approach was taken in developing the guide. Meaning, the ideas and recommendations
offered are based on variables, such as stimuli, the managers’ objectives, the environmental context and
the parameters in which the manager is operating. For example, a manager at a company that distributes
products developed and owned by a separate entity, have no control, and probably very limited influence,
over product development initiatives and, therefore, the ‘product’ lever would be unavailable to them. The
guide is split in two sections:
1. A short guide based on the SOLAR framework, which makes use of diagrams and tables as far as
possible
2. A ‘Resources’ guide that describes a list of resources that could be used by managers to support the
formulation of competitive actions.
• Changes in a competitor’s
• Expand geographically to
product mix, pricing or
improve profitability
marketing approach
• Use retained earnings or new
• Customer request for a
capital to start a new business
specific functionality or a
or develop a new product/
new product
service offering
• Introduction of
• Diversify business
new technology
geographically to reduce risk
• Changing or evolving or concentration
customer requirements
• Extend existing
• Inferior performance or tastes
product/service offering
compared with competitors
• Change in economic
• Review markets, product
• Waning or stagnant sales conditions (e.g. interest
portfolio and pricing to
rates, growth)
• Unsuitable product mix or optimise profits
pricing for a particular market • Threat from new
• Change customer perceptions
market entrant
• Declining profitability due to about product/ service
increased competition • Regulatory change attributes or price
EMERGENT
PLANNED
Declining or External or
Stimulus Shareholder or
compromised environmental
performance change management plans
Objective
Restore performance Maintain performance Increase market share
Action Action
profitability when benchmarked How have competitors’ products, service or brands evolved in relation to yours?
against competitors
Have competitors resource bases changed or have they developed new competencies?
PERFORMANCE
Waning or stagnant sales Are you aware of the possible reasons for waning or stagnant sales and has data, such as customer surveys, as well as data gathered through informal channels, been use to validate this?
Have you considered your competitors, their brands and their product or service offerings and how you and your brand and product or service offerings compare?
Declines in profitability due to Have you considered the recent evolution of your industry and are you able to identify the stage of its life cycle? Specifically, has it matured and stabilised, resulting in lower profit margins?
increased competition Instead of constantly fighting rivals through cost cutting and imitation, have you considered creating a new market space, as Kim and Mauborgne (1999) postulate in their article ‘Creating New Market Space’ and their book, ‘Blue Ocean strategy’?
Product mix, product attributes Do you have sufficient data to reposition or update your product mix, product attributes or pricing structures? This data can be collected from informal channels, such as managers speaking with shop floor staff and directly with customers, as well
or pricing have become, or as formal channels.
are becoming, unsuitable for a Have you assembled, or do you have access to, the right mix of marketing, commercial, financial and product specialists to find solutions to optimally repositioning or updating your product mix, product attributes or pricing structures?
specific market
Customer request for specific Does the new functionality, enhancement or new product or service offering have a broad enough market to justify its development?
functionality or a new product Will the functionality make the product competitive or more competitive than it already is and does the benefit outweigh the cost?
What will the consequences of not developing the new functionality, enhancement or new product or service offering be?
Regulatory change Have you considered the impact the regulatory change will have on your competitors and their products and services relative to your business and your products and services?
Have you looked to similar businesses to yours with similar products or services in other countries or markets that have regulations and regulatory environments similar to those that you will have once the change has been implemented?
Introduction of new technology Have you assembled, or do you have access to, the right mix of skills and experience to work out how your product or service offerings can be optimised using the new technology?
EXTERNAL OR ENVIRONMENTAL CHANGE
Have you considered your competitive environment, each of your competitors and the competitive advantage or advantages that the new technology could give you?
Have you looked at to other countries or markets where the technology has already been deployed to see how its deployment has resulted in success or failure?
Changes in economic Are you able to develop new products or services or update existing ones by pre-empting the change in economic conditions?
conditions (e.g. interest rates, Have you considered the impact the economic change will have on your competitors and their products and services relative to your business and your products and services?
growth)
Changes in a competitor’s Have you considered using tools such as the Customer Matrix (Bowman and Faulkner, 1994) and the Primary Benefit Map (D’Aveni, 2007) to understand how the competitor’s changes impact the positioning of your brand, product or service?
product mix, pricing or Have you used the Resource Based View (Penrose, 1959) and considered your core competencies (Prahalad and Hamel, 1990) to establish how best to compete with the relevant competitor following the implementation of their changes?
marketing approach
Have you collected sufficient data to understand how customers perceive the changes and your relative market position?
Have you assembled a team with, or do you have access to, the right mix of skills and experience to work out how your product or service offerings can be optimised using the new technology?
Threat from a new market Do you know in detail what the new market entrant is offering as a product or service and what their unique selling points are? This data can be collected through informal channels, such as speaking with customers that have been in contact with
entrant the new market entrant.
Are you aware of the dynamics of the industry and is the new market entrant able to either join or rival any of the existing strategic groups?
Have you assembled a team with, or do you have access to, the right mix of skills and experience to properly evaluate the threat that the new entrant poses and how you can best deal with it?
Changing or evolving customer Do you have adequate data to understand the changes or the evolution of your customer requirements or tastes?
requirements or tastes Are you using tools such as the Customer Matrix (Bowman and Faulkner, 1994) or the Primary Benefit Map (D’Aveni, 2007) to map the changing or evolving customer requirements or tastes and how they relate to yours and your competitor’s product
or service?
Have you assembled a team with, or do you have access to, the right mix of skills and experience to properly evaluate the changes or the evolution and to effectively respond to it or them?
Use retained earnings or new Have you thoroughly mapped your resources and competencies to those of your competitors and considered your relative advantages?
capital to start a new business Have you considered how you may be able to use your existing resources, processes and intellectual property to develop a new business or product or service offering in an efficient and cost-effective manner?
SHAREHOLDER OR MANAGEMENT PLANS
Segment the market and Cross subsidise finance Bundle after-sales support
provide a range of price points costs from purchase price to service or extended warranty
Price
for different product and compete more effectively with with used-products to compete
service offerings to capture compromising the value of the more effectively with competitors’
marginal revenue. perceived value of the product/ new products.
service offering.
Bundle sets of synergistic Develop a derivative of Develop new functionality to Research products and services Use a change in the economic
products in instances where an existing product that close product gaps, match in parallel industries in order environment to update an
competitors only have access satisfies the tastes, attitudes competitors’ functionality and to develop an improved existing product or develop a
to part of those product sets to and price elasticity of a new fend off rivals. market offering. new one.
raise competitive barriers. consumer segment.
Product
Expand into parallel industries’ Segment the market and Discontinue a particular product Customise products for specific Carry out regular and extensive
that target the same market provide variations of product or products to focus on another, market requirements in response consumer surveys and update
segments by altering existing or service offerings to capture remaining product or products. to local consumer behaviour, or replace products in response
products or introducing marginal revenue. tastes and perceptions of value. to evolving consumer tastes
Actions new ones. or attitudes.
Seek out another territory with Distribute existing products in Establish new distribution Establish subsidiaries in
similar market dynamics and new markets on the basis of channels and promotion new but similar territories to
Place
consumer tastes for geographic consumer behaviour, tastes, mechanisms, such as market existing products in
expansion when an existing elasticity of demand and product showrooms for order to reduce geographic
market for a particular product competitive environments to greater penetration of an concentration
is saturated. optimise sales. existing market.
Communication Business model
Bundle products together to Use a change in regulation Use existing technology to Acquire businesses with Use new technologies that allow
increase competitive barriers and to update or to abandon an develop a new product or complimentary products or faster and cheaper processing,
improve competitive position. existing business model or to service offering exploiting services in order to strengthen cheaper data storage and
develop a new business. partnership with, for example, customer relationships and open improved connectivity to
retailers and local government. up cross-selling opportunities. develop new business models,
such as SaaS.
Communicate the factors that Develop a marketing Use new technologies for Devise a communication
make a product or service campaign to communicate omni-channel distribution of campaign to reset product/
proposition compelling to product changes that result in information previously distributed service price perceptions
prospective customers that may competitive advantage that through print. without compromising the
not be aware of them. consumers may not be aware. perceived value of the product/
service offering.
1.
Stimulus triggers
competitive
action
Managers take 2.
5.
decisions about Resources are
Competitive
actions that need to assembled to
action is
be taken in order to equip the
executed
attain the ideal or manager
desired positioning of
their brands or
products relative to
competitors 4.
3.
Competitive
Objectives
action is
are set
formulated
A good example is a bank that used their anticipation of a downward shift in interest rates to develop
a new mortgage product. The product’s principal feature was a reduced rate on the mortgage loan for
the first two years - they initially thought of setting this at 5.5% (from 8%) by ended up setting it at 4.5%
deciding this would make the impact they needed based on interactions with the marketing department
and, ultimately, with customers.
In this example the communication channels between customer-facing staff, the marketing department,
the Strategy & planning department, the banks economists and the Asset & Liability committee (ALCO)
were open and fluid. The different inputs, including macro-economic analysis, customer surveys, market
analysis, ALCO committee discussions used to develop the new product were tight and, for example, the
marketing department and the economists knew of the ALCO’s objective of growing the mortgage book,
the Strategy & planning department and the ALCO were informed by the economists of the anticipated
decrease in interest rates and the marketing department worked with the Strategy & Planning department
and the customer–facing departments of the bank to ensure the successful roll-out of the new product.
The abovementioned inputs are described in greater detail later in the guide in ‘Competitive action
resources’ section.
STIMULUS
Unsuitable product Declining profitability
Declining or
mix or pricing for a due to increased
compromised
particular market competition
performance
Changes in a
competitor’s product
mix, pricing or
marketing approach
STIMULUS
Threat from new External or Regulatory change
market entrant environemtal
change
RESOURCES
This section describes some of the resources available to managers in formulating the competitive actions
covered in the previous sections of this guide. These resources are also referred to in the ‘Stimuli’ section
of the guide, where different resources have been associated with different stimuli. It is intended that,
based on the stimulus, managers will select a number of resources that can be used as a tool kit to support
their formulation of an action.
Data
Customer surveys
Useful in objective setting and formulating actions
Customer surveys are an effective way to gather large amounts of quantitative data as the starting point
to formulating a competitive action. However, the data is not rich, insofar as it is usually limited to a
relatively small set of questions and answers and fails to capture the emergent issues, or the opinions of
respondents that lie outside the scope of the questions. The data may also be biased by the profile of
the respondents.
The advantages of customer surveys and the data that is gathered is that, provided the sample set is large
enough, the data is generalisable and can be used for quantitative analysis. Customer surveys can also be
used to raise awareness of a product or brand amongst the respondents and, in the research for this guide,
one of the companies involved had surveyed one million respondents to both gather data to guide them
in the development of a new, replacement product and to promote the brand and its associated products.
Ethnographic studies
Useful in objective setting and in formulating actions related to ‘price’, ‘product’ and ‘place’
Ethnography is a research method based on observing consumer behaviour. As the name implies, it
has its roots in observing and understanding the behaviour of different ethnic groups. In the context of
formulating competitive actions, an ethnographic study would involve spending time, possible days or
even weeks, with consumers, observing, recording and analysing their behaviour.
For example, an airline wishing to improve its customer service may assign a manager to check-in, wait for,
board and take flights with paying customers right up to the point they collect their baggage on arrival
at their destinations and leave the terminal buildings. The manager would observe the comments, their
actions and, particularly, what they like and dislike, what they appreciate and what frustrates them. This
data could then be analysed to affirm what they airline is doing well and could be used as a competitive
advantage and what could be improved on and how this could be achieved in a ways that will best
respond to customers’ dislikes and frustrations.
A good example of ethnography is the success a vacuum cleaner manufacturer experienced when they
discovered the various attachments that came with their machines, including nozzles, would invariable
get lost. They discovered this by spending time with their consumers in their homes and learnt that the
loss of the attachments caused them great frustration. They responded by attaching clasps for the various
attachments to their vacuum cleaners. One of the retailers that participated in my research spent over a
month in the store observing customer interactions and customer comments while formulating his set of
competitive actions.
Managers interested in using ethnographic studies to collect data and understand the behaviour of their
consumers could read an article by Richard Elliott & Nick Jankel-Elliott published by the Quantitative
Market Research journal (2003: 6, 4, pg. 215) called Using ethnography in strategic consumer research.
Informal channels
Useful in formulating actions related to ‘price’, ‘product’, ‘business model’ and ‘place’
Informal channels were widely used amongst the managers interviewed and the quality and relevance of
the data was often underrated. These informal channels include, inter alia:
1. Discussions with customer facing employees, such as the sales staff and call centre operators, about
the feedback they receive from customers. This feedback ranged from how customers perceived the
prices of products and the relative perceived value to how well garments fitted them and what they
thought made products special and distinguished them from competitors’ products or services.
2. A discussion with employees that had previously worked for competitors and were able to share
information regarding competitors pricing strategies, product research and development plans and
processes, distribution networks etc.
3. Discussions with customers, either through telephone or email communication, or at the point of sale,
such as on the shop floor, about issues and opinions relevant to the competitive action.
4. Discussions with partner organisations that understand the external environment, particularly the
requirements, policies and actions of competitors and customers alike.
Examples include the re-pricing of credit default swaps by a financial trading house that underwrites
them. The manager that formulated and executed the action noted, “during this period we monitored
what our competitors were doing and we found they were re-pricing their products. We did this by
hiring from competitors, being friendly with competitors to the point we could talk with them about
their pricing strategies, as well as talking to the banks, which were our common clients, about how our
competitors were pricing their products”. One of the luxury car distributors that participated in my
research relied heavily on the feedback they received from customers and employees while formulating
their competitive actions.
Another good example is a software company based in London. After hearing about a new competitor
providing a system to automate a particular function, they spoke with a few of their existing clients about
the functionality and were told “we are currently performing these functions manually and would like
to automate them but it wouldn’t be worth the trouble of doing so on our own”. Given this feedback,
they started discussions with a law firm that advised clients regarding this function and, the manager
interviewed noted, “this led to us forming a partnership with them and we started specifying the
functionality for a product to compete with the new market entrants”. They then, “mocked up a few web
pages to show what the new functionality would look like and our clients were enthusiastic”, which led
them to develop the product and piloted it with two clients before launching it. This is a good example of
how data can be gathered through dialogues with partners and customers. This example also shows how
competitive intelligence can be integrated with the competitive action formulation and execution process.
Tools
Customer matrix
Useful in objective setting and in using the product and price levers to formulate competitive actions
The Customer Matrix was developed by Bowman and Faulkner and is described in their 1994 article titled
‘Measuring Product Advantage Using Competitive Benchmarking and Customer Perceptions’ published in
the Long Range Planning journal (Vol. 27, No. 1, p 110-132). The matrix was measures product advantage,
which is premised on the notion that “competition is acted out through the purchasing behaviour of
individual customers” and, therefore, the basic unit of analysis should be the individual customer and not
the firm, the market or the industry. The matrix comprises ‘Perceived Use Value’ along the one axis and
‘Perceived Price’ along the other.
B C
D A
Low
The most desirable quadrant is the one with the highest perceived use value and the lowest perceived
price, while the least desirable is the one with the highest perceived price and the lowest perceived
use value. The matrix was designed to help managers better understand a product or brand positions
in relation to their competitors through the lens of the individual customer. Constructing the matrix is
an iterative process that starts with the application of hard information that is then supplemented by
experience and perceptions and refined further as more data is gathered.
Innovation High
Low
Price
Actual 1997
Primo
Projected 1999
Samur-Ion
Tokyo Tech
Primary benefits can be defined as either the relative market position of a particular product or a specific
functional or technical attribute of the product. The Primary benefit map was published in D’Aveni’s article,
“Mapping Your Competitive Position”, in the Harvard Business Review in November 2007 (p 110-120)
Product
Existing products New products
Market
Increasing risk
Existing markets Market penetration Product development
The matrix provides a “joint statement of a product line and the corresponding set of missions which
products are designed to fulfil” and describes four different growth alternatives, including:
• Market penetration, in which the company aims to grow using existing product or service offerings in
existing markets. This entails increasing market share within existing market segments.
• Market development, in which the company aims to expand into new markets using existing product or
service offerings.
• Product development, in which the company aims to create new products or services targeting existing
markets to achieve growth.
• Diversification, in which the company aims to grow its market share by launching new product or
service offerings in new markets. This is the riskiest approach as both product and market development
is required.
Porter’s 5-forces
Useful in objective setting and determining which of the 5 levers to use in formulating competitive
actions
The Five forces model published by Michael Porter in his 1980 book ‘Competitive Strategy: Techniques
for Analysing Industries and Competitors’, provides a framework for analysing the level of competition
within industries. In the book, Michael Porter asserts that firms will have unique strengths and weaknesses
in dealing with industry structure and industry structure shifts over time and, therefore, understanding
industry structure must be the starting point for strategic analysis. The ‘Five Forces’ is a model for
assessing a number of important economic and technical characteristics of an industrial organisation and
Porter suggests that, once the industry structure has been analysed, offensive or defensive actions can be
taken to reposition the brand or product to compete optimally.
Threat of new
entrants
Threat of substitute
products or services
In addition to the Five forces model, a 2 x 2 model for predicting the rate and stability of returns in an
industry based on entry and exit barriers is also provided in the book, as is a 2 x 2 model for deciding on
the adoption of one of three generic strategies based on the uniqueness perceived by customers of the
product offering and the firms cost position.
Core competency
Useful in deciding which of the five levers to use and in formulating competitive actions once a lever or
a combination of levers have been selected
Prahalad and Hamel described competencies as the root of competitiveness in their 1990 article ‘The core
competence of the corporation’ published in the Harvard Business Review (v. 68, no. 3, p 79–91). They
postulate that a core competency results from a specific set of skills or production techniques that deliver
additional value to the customer. These lead to the development of core products that can be used to
build many products for end users, which enables the company to access a wide variety of markets.
End products
1 2 3 4 5 6 7 8 9 10 11 12
Core
product 2
Core
product 1
Kim and Mauborgne contend that firms can position their products or brands in new market spaces by
employing different patterns of strategic thinking. This approach to competitive positioning is premised
primarily on considering substitute industries to establish new value curves. The key to discovering a new
value curve lies in four basic questions:
1. What factors should be reduced well below the industry standard?
2. What factors should be eliminated that the industry has taken for granted?
3. What factors should be created that the industry has never been offered before?
4. What factors should be raised well beyond the industry standard?
New value curves attempt to transform enormous latent demand into real demand. Strategic groups can
generally be ranked in a rough hierarchical order built on two dimensions; price and performance. The
key to creating new market space across existing strategic groups is to understand what factors determine
buyers’ decisions to trade up or down from one group to another. This requires that companies challenge
the functional-emotional orientation of their industries.
Competitors
Competitors’ products and services
Useful in formulating actions related to the ‘Product’ lever
In conjunction with some of the use of tools described above, including the Customer matrix, the
Primary benefit map, Ansoff’s growth matrix and the Core competence model, information about
competitors products and services would be needed to formulate actions related to the ‘product’ lever.
This information would be used as inputs to the tools listed above and would typically include details of
competitive product’s functional and technical features, particularly those features that are unique to that
product or services. Information about how the product or service in question has evolved in the past and
how it is likely to evolve would also be useful, particularly for use in conjunction with the Primary benefit
map. This information can be obtained from a number of sources, including:
• Publicly available marketing material, such as advertisements, brochures and other sales collateral
• Employees that used to work for competitors and have good knowledge of their products or services
• Managers or employees of either customers or suppliers that are common to the company and its
competitors
• Marketing agencies, consultants and market research agencies, such as GfK, that either gather industry
data or work with competitors
Intensity of rivalry
Useful in objective setting
The intensity of rivalry within an industry and between competitors should serve to inform the objective
or objectives set for an action and, as a consequence, the actions themselves. For example, where rivalry
is intense, managers may consider innovating by developing a new product or a new business model in
order to avoid further competitive pressure, as proposed by Kim and Mauborgne suggest in their article
‘Creating new market space’. Where rivalry is less intense and the industry may still be growing and
enjoying abnormal profits, managers would probably feel less compelled to devote capital expenditure
to the research and development of a new product or service and would rather pursue an action such as
launching a communications campaign to make consumers more aware of existing products or service with
the objective of increasing market share.
This is affirmed by Giaglis and Fouska’s (2011) study published in their article ‘The impact of managerial
perceptions on competitive response variety’. The study explores the relationship between management
perceptions of their competitive environments and their responses to rivalry. It finds that management
perceptions of the intensity of competition; threats of substitution and increased buyer power are
correlated with broader and more innovative competitive reactions.
It should also be pointed out that managers’ often avoid deviating from the conventions set by strategic
groups for fear of rivalry from other firms in the grouping. This is particularly applicable to oligopolies. For
example, managers of an airline or a bank may be reluctant to decrease their pricing below that of their
competitors because of the rivalry it may trigger.
For example, if it is known that there is a much larger competitor, with the advantage of greater economies
of scale and, therefore, lower production costs, already fulfils a particular customer requirement it would
not make sense to try to satisfy that same requirement, even in an indirect manner, as this would probably
mean ending up in the ‘gap in the middle’, as described by Michael Porter (1980) and as illustrated in the
figure below.
Smaller companies operating within an industry or a strategic group would be better off considering niche
markets for expansion or profit preservation and developing products and services that meet specific
customer requirements, rather than broad ones.
It was observed that managers at large companies make a mental assumption that their companies should
be able to compete more effectively than their smaller competitors because of their more comprehensive
and more developed resource bases. For example, the manager at a large IT company stated that
by combining their resources, including both internal resources and those made available to them by
partners at preferential rates because of their size, they would have a competitive advantage over smaller
competitors in price and in the functional breadth of their solution offerings. A manager at another large IT
company was surprised that a small competitor could enter their competitive set because he thought they
would not be able to fulfil their customers rigorous procurement requirements.
It is also worth noting that, based on the research, larger companies tend to formulate and execute
competitive actions in order to fend off competitive threats from smaller competitors or as a reaction
to shrinking sales figures or market share, while smaller companies that tend to formulate and execute
competitive actions with the objective of growing their businesses.
Relative profitability
Useful in objective setting and in deciding on which of the 5 levers to use
Better profitability usually translates into more retained earning and, therefore, a larger war chest to use to
defend a market position, increase market share or innovate new products, services or business models.
This war chest could, however, also be funded through a rights issue or debt or, in the case of one of the
companies used in the research, the investment of a new shareholder. In this instance, the war chest was
used to acquire companies that own complimentary services that could be bundled with the acquirers
existing products and services to create new and unique solutions and to cross sell products and services
between the collective companies customer bases.
Although this practice it is now perceived as anti-competitive behaviour in most jurisdictions, more
profitable businesses have often used their financial positions to supress or drive rivals out of their
markets. A good example of this was British Airways and American Airlines ganging up on Laker Airways
and, more recently, on Virgin Atlantic to drive them out of the trans-Atlantic airline market. In the case of
Laker Airways, they forced the airline into bankruptcy by colluding to cut their prices to point where Laker
could only compete on a loss-making basis. They continued to do so until Laker Airways was forced out of
business and then raised their prices again. Partly due to the intervention of the regulator, British Airways
and American Airlines weren’t as successful with Virgin Atlantic.
Higher profits need not necessarily be used to defend market positions or increase market share as
blatantly as in the example above. They could, for instances, be used to innovate by either updating
existing or developing new products, services or business models, placing less profitable companies, that
are unable to do so, at a disadvantage. It’s important for managers to be aware of the ramifications of their
profit positions relative to their competitors when they set objectives and when they decide which of the
five levers to use, and how to use them, in the formulation of their competitive actions.
Scarcity
Value creation zone
Demand Appropriability
The framework combines the internal analysis of phenomena within the company and the external analysis
of the industry and the competitive environment. Specifically, the framework suggests companies should
focus on defining their valuable resources that enable them to perform activities better or more cheaply
than their rivals. The article lists five key characteristics that valuable resources should have, including:
• They’re difficult to copy
• They depreciate slowly
• The company, not its employees, suppliers, or customers, control its value
• They can’t be easily substituted
• They’re superior to similar resources that competitors own
Customer recognition
Brand with minimal advertising
reputation
No promotional sales
Intangible
Capabilities
Amongst a number of other companies, the article by Collis and Montgomery (1995) analysed the retailer
Marks & Spencer’s to illustrate the application of the RBV using practical examples. The figure above
summarises the RBV of Marks & Spencer’s.
Benchmarks
Competitive actions in parallel industries and other territories
Useful in deciding which of the 5 levers to use and how to use them in formulating competitive actions
Replicating or learning from competitive actions in other territories or parallel industries can be applied
to any of the five leavers. For example, ride-hailing service, Uber’s, business model has been used in of a
number of other business applications, including food delivery services, corporate jet rentals and home
appliance rentals. In the research we also came across competitors pricing policies and communication
campaigns being copied and competitors’ product features being adapted for application in another
market or to provide a competitive advantage.
The same or similar industries in different territories often follow the same evolutionary patterns but at a
staggered pace. It may be a good idea to identify territories that are evolutionary front-runners and study
them for ideas and input into in deciding which of the 5 levers to use and how to use them in formulating
competitive actions.
Team
Education & training
Useful in creating teams to formulate competitive actions at the point of the stimulus
Based on the research, the dichotomy between competitive actions carried out by managers with relevant
and formal graduate and post-graduate business or marketing qualifications and those without, primarily
entrepreneurs, is clear.
Sophistication of methods used
While the methods used by managers without relevant graduate and post-graduate business or marketing
qualifications are somewhat divergent, it is clear that there is a relationship between the level of training
of the manager and the sophistication of the methods they use in developing their competitive actions.
Particularly, it is clear that managers with more extensive relevant graduate and post-graduate training
used more sophisticated methods.
1 Telecommunications corporation
When selected team members to formulate and execute competitive actions, managers should be
aware that, if the tasks leading up to the action require a thorough and deliberate approach, they would
probably be better served using staff with formal educations in business or marketing disciplines. Should
the formulation of the action require a more entrepreneurial approach, for example combining products
in new and innovative ways where no data is available to predict how the market would respond or in
addressing to sagging sales due to evolving customer tastes, a more experienced manager should
probably be sought and less emphasis could be placed on his or her education and formal training.
Other skills and training backgrounds could also be considered, depending on the type of action. For
example, if the action involves trying to understand how consumer behaviour is changing or tastes are
evolving and responding to these changes, the skills of an anthropologist could prove to be useful.
Both approaches are valuable in the formulation of competitive actions and companies would often be
well served by creating teams that comprise both younger but well educated managers with older and
more experienced one, provided possible conflicts and clashes between the different approaches can
be managed.
Hofstede (1980) suggests that managers’ frames of reference influence their perceived control of the
environment and strategic behaviour. There are, of course, also factors within the organisation that
influence managers’ mental models. At the level of functional groups, for example, there are functionally
specific belief systems and perceptions of issues (Dearborn and Simon, 1958; Handy, 1985). Whitley
(1987) argued that managers’ views of the world are shaped, at least in part, by their career backgrounds.
There is a continual interplay between the individual, the context in which he or she operates, the frames
of reference related to these contexts, and the political and social processes at work (Hodgkinson and
Johnson, 1994).
When assembling teams to formulate and execute competitive actions, it may be a good idea to list
the skill sets and the experiences that are ideally required. Thereafter, you could shortlist the staff that
could possibly participate in formulating and executing the specific action and, lastly, map the skills
and experiences of the shortlisted staff to those required for the action. A mix of staff with different
functional backgrounds and biases could prove to be very valuable in covering all bases when formulating
competitive actions.
Managers draw on a series of frames of reference to make sense of their worlds. Hodgkinson and Johnson
(1994) found that managers’ frames of reference are influenced by their experiences and that national
culture is a strong influencer. As a result, their frames of reference are broader than organisational or
industry level frames. It also suggests that the diversity of frames of reference goes still wider than the
organisation or industry level and that there is increasing evidence that national culture affects managers’
interpretations and responses to strategic issues.
My research showed that a mix of different national and cultures backgrounds could be advantageous
in the formulation of competitive actions, particularly when the frames of reference of a manager that
has successfully responded to a particular stimulus in a foreign territory is combined with those of a local
manager, who understands local national and cultural nuances. It’s worth considering the national and
cultural backgrounds of staff that will be, or could be, employed in the formulation of competitive actions
in relation to the external environment at the point the team is assembled.
It may be useful to take stock of the experiences that staff that could be employed in the formulation
and execution of the requisite competitive action have had in other territories or industries to ascertain
possible relevance.
Industry
Industry maturity
Useful in objective setting and in deciding on which of the 5 levers to use
The structure of the industry in any specific market tends to be related to its maturity. In mature industries,
such as the automotive or the FMCG2 (soft drinks, fabric softener, confectioneries and under-arm
deodorants) industries, managers are very aware of whom their competitors are and their relative positions
in the market. As a result, they act very deliberately when gathering market intelligence and when
formulating and executing competitive actions. Managers operating in emerging or growing industries,
whose industrial structures are therefore still evolving, tend not to have their competitors defined that
clearly. They are also less deliberate in their approaches to gathering market intelligence and formulating
and executing competitive actions than managers operating in mature industries.
Industry maturity
A fruit juice manufacturer had very precise sales data for his brands and those of his competitors and
was able to estimate the income and expenses associated with producing and marketing his brands, as
well as those of his competitors’. The approach to formulating competitive actions was also very precise,
surveys were used to gauge market acceptance and a tool was used to estimate sales volumes related
to new products being considered and how much would need to be spent on marketing to achieve
these volumes.
One of the managers interviewed at a company that produces smart cards, was aware that if all they
did was produce and market them, their competition would be intense and their margins would be low.
The manager also took a resource based view of the business and, taking into account their size and the
relatively high skills sets and the corresponding cost of their personnel, decided to use the smart cards
they produced as a mechanism to deliver services that fulfilled very specific needs. In doing so, they
were able to achieve much higher margins than they could otherwise. The manager wasn’t aware of what
the alternatives to the solutions they provided were. Neither was she aware of their competitors. As the
business was highly innovative and the markets they entered or created were nascent, the industry was
unstructured and the players in the industry were highly fragmented. Therefore, there wasn’t really a need
to be all that aware of their rivals or to use sophisticated methods for gathering market intelligence and for
formulating competitive.
It is useful to be aware of high mature the industry you operate in is and how well developed it’s structures
are. This has an impact on the data that is available to you and your competitors and it’s sources, as well
as the rivalry you are likely to experience, which affects the objectives you can set for yourself and the type
of actions that are likely to be successful. It is also worth reading the section that follow, particularly those
about ‘Fragmentation’ and ‘Strategic groups & cognitive communities’.
In mature industries Competitors’ data (sales data etc.) should be available through formal channels, such
as marketing agencies to use in formulating competitive actions. You could try to augment this data with
data obtain through informal sources, such as employees that used to work for competitors and shared
customers that are prepared to talk about your competitors to gain a more well-rounded view of your
competitors’ plans and actions. In nascent industries competitors’ data (sales data etc.) won’t be readily
available so you will need to use informal sources, such as employees that used to work for competitors
and shared customers that are prepared to talk about your competitors.
Fragmentation
Useful for understanding industry structures, particularly in objective setting and in deciding on which of
the 5 levers to use
The fragmentation of competitors in an industrial structure is more likely to be evidenced in a nascent or
growing industry than a mature one, where industrial structures have been established over many years.
In my research, we analysed the way in which a smart card producer that uses the cards as mechanisms
to develop and launch products that fill specific market needs view and relate to competitors and
potential competitors. The company sought to avoid competing with other smart card producers’ head
Fragmented industries can present great opportunities and the smart card producer is a very good
example of how companies can avoid head-to-head competition by seeking out unsatisfied customer
requirements in parallel industries that are nascent and fragmented. This is the approach advocated by
Kim and Mauborgne in their 1999 article in their article ‘Creating New Market Space’ published in the
Harvard Business Review. They describe the approach as seeking ‘new value curves’.
If you are operating in a nascent or growing industry, it is worth asking yourself if you are aware of
possible new market entrants? In many organisations, the links between the market intelligence gathering
function and the sales, marketing and planning functions are weak. With these functions integrated, the
organisation will be in a better position to anticipate and deal with threats from new market entrants
as early on as possible, which is particularly pertinent to fragmented industries whose structures are
still evolving.
If you’ve identified a threat from a new market entrant, you should be able to clearly describe their
product or service offerings and identify the market segments or niches they’re targeting. As an integrated
organisation, it would be worth scanning the market periodically to identify threats from possible new
entrants as early on as possible. Once identified, you should gather intelligence on their product or service
offerings and identify the market segments or niches they are targeting.
The construction of cognitive groups allows managers to estimate the effects of environmental changes
on sets of organisations within an industry, instead of having to estimate the effects on all firms individually
(Porac, Thomas and Baden-Fuller, 1989). Firms that produce similar products or provide similar services are
often similarly affected by the conditions to which they are exposed (Tallman et al., 2004). Prevailing wage
rates, raw material availability and shifting customer demands are examples of environmental conditions
that similarly impact organisations within a cognitive group. These conditions can possess both limiting
and enabling characteristics that can affect the direction of change for the organisation (Bloodgood and
Though essentially an individual-level concept, cognitive frameworks are influenced by the interactions
individuals have with others (Bogner and Barr, 2000). As interactions occur among a number of different
individuals within a given social grouping, the commonly shared ideas begin to take on an existence of
their own, independent of the individuals that created them, and frameworks that exists at supra-individual
levels begin to emerge (Wiley, 1988). These “shared belief systems” make coordinated activity possible
by providing a common framework for observing and interpreting new stimuli and for coordinating
appropriate action (Kelly, 1955).
Individuals in an industry interact with each other. They go to the same conferences and exhibitions,
they read the same industry literature and they recruit staff from the same labour pool (Reger and Huff,
1993). They share the same suppliers in their value chain activities and observe what competitors do
through benchmarking (Porac et al., 1989). As a result, shared beliefs about competitive challenges and
opportunities are created through the cross-fertilisation of such interaction. Potentially, this may lead to the
adoption of similar ideas and practices and thus may hinder differentiation.
Over time, individuals within the firm share experiences and knowledge with one another, and a base of
common knowledge and ‘views of the world’ begin to form (Bogner and Barr, 2000). Interactions among
firms within an industry create a similarity in beliefs and actions that has led others to suggest the existence
of industry-level frameworks. It would also appear that individuals might hold somewhat different construct
systems yet share common category structures at the level of the industry. Furthermore, it appears
that there is divergence between the mental models of senior managers, which results from the task
environment and their objectives of differentiating their products and brands through competitive actions,
yet cognitive convergence exists at the functional management level, where managers are influenced by
the institutional environment and motivated by conformity with industry standards and processes.
It is also evident form my research that oligopolies act in a coordinated fashion in the context of
competitive actions. Kelly (1995) noted “Shared belief systems enable coordinated activity by providing
a common framework”. These structures are associated with industry maturity. In other words, as an
industry matures so the structures become more and more engrained. My research confirms this insofar
as managers in the mature industries, including the automotive, financial services, FMCG and fashion
industries, were far more aware of their competitors and, therefore, the structures of their industries,
than the managers operating in nascent (emerging and growth) industries, including the information
technology, smart cards and new media industries. Wiley (1988) asserts that supra-individual level
frameworks emerge as interactions take place among different individuals within a given social grouping
and the commonly shared ideas begin to take on an existence of their own, independent of the individuals
that created them.
Managers operating within defined strategic groups may consider deviating from industry norms, in the
context of product development, communication campaigns and the reconfiguration of product or service
offerings or the way in which they are packaged, in an attempt to increase their profit levels above their
industry norms. Managers may also prefer to take comfort in not to deviating from industry norms for fear
of possibly compromising their profits.
Degree of turbulence
Useful in understanding the effect turbulent environments might have on competitive actions
throughout the formulation process
Conventional cognitive frameworks employed to make sense of industrial competitive environments may
not work in turbulent industries. Bogner and Barr (2000) describe the cognitive frameworks employed in
hypercompetitive industries as “adaptive sense-making” and suggest that in hypercompetition those
Schneider and Shiffrin (1977) observed two qualitatively distinct processing modes in their study, being
‘Automatic’ and ’Controlled’. Automatic processing was described as unintentional, involuntary, effortless,
autonomous and occurring outside of awareness. In contrast, controlled processing was described as
flexible, within an individual’s intentional control, effortful, active, constrained by short-term attentional
resources and motivated or strategic. Uleman (1989) formulated an expanding continuum of multiple,
fuzzy and overlapping cognitive processing modes that form a progression from absolutely automatic to
unconditionally controlled.
Decision-making continuum
Figure 11: Controlled vs. automatic decision making in the context of competitive action formulation
Reger & Palmer (1996) found that as situational uniqueness increases, accurate interpretation becomes
more difficult and, in unfamiliar environments, automatic category assignments based on out-dated
maps are likely to result in erroneous action, as automatic judgments are made without reflection.
They concluded that managers’ cognitive maps, on a collective basis, became less consensual as the
environment became more turbulent. However, the mean number of constructs per individual increased
only slightly and not significantly.
Controlled
Elicited through construct naming and
multidimensional competitor ratings
Automatic
Elicited through similarity
judgements in triadic comparisons
Reger and Palmer (1996) stated that many strategic decisions are made under stress and time pressure
and, despite sophisticated planning and decision support systems aimed at coercing executives
into controlled processing, automatic cognitive processing may be the dominant mode in strategic
issue diagnosis.
Changing environment
Controlled mode
Re-interpretation
of environmental
events
Controlled mode
Automatic mode
Inertia
Automatic mode
Consistent with Schumpeter’s (1942) and the Austrian school of economics theory of innovation and
abnormal profits, Wiggins & Ruefli (2005) assert that no one except the innovator makes a genuine ‘profit’
and that the innovator’s profit is always quite short-lived. Their research finds that:
• Periods of persistent superior economic performance have decreased in duration over time
• Hypercompetition is not limited to high-technology industries, but occurs throughout most industries,
but that superior economic performance decreases in duration over time in both ‘high-tech’ and ‘low-
tech’ industries but at a slower rate in ‘low-tech’ industries
Over time, companies increasingly have sought to sustain competitive advantage by concatenating a
series of short-term competitive advantages. Schumpeter and Wiggins & Ruefli contend that the only way
to sustain superior economic performance or abnormal profits is to constantly innovate.
My research found that the intensity of competition is also a function of cultural and national norms, as well
as regulation. For example, the anti-corruption laws introduced in Mainland China caused considerable
competitive upheaval in the fashion industry and the procurement regulations imposed on state-owned
entities in Kazakhstan guided the way in which other state-owned entities marketed and sold their
products and services. D’Aveni (1994) noted that the airline, banking, and telecom industries in the United
States had been hypercompetitive for some time but yet in Japan, and to a lesser extent continental
Europe, social and cultural norms imposed constraints on adapting such rapid and discontinuous
change frameworks.
Managers that find themselves operating in competitive environments that are turbulent, or are becoming
ever more turbulent, should be aware of the impact the situational uniqueness is likely to have on
their environmental interpretations and their mode of processing. Regarding how to effectively deal
with increasing turbulence, managers could consider one of two approaches, depending on the core
competencies of their companies. These include:
1. Innovate in order to sustain superior economic performance. This innovation could apply to products,
pricing policies, communication campaigns, sales and distribution structures and practices or
business models.
2. Look to apply your core competencies to other products or services or in other industries or territories
where ‘new value curves’, as advocated by Kim and Mauborgne in their article ‘Creating New Market
Space’ published in the Harvard Business Review in 1999.
In either instance, it would be worthwhile reading the article by Prahalad and Hamel (1990) titled ‘The
core competence of the corporation’ and the article by Collis and Montgomery (1995) ‘Competing on
Resources’, which provides a framework that companies can use to differentiate themselves from rivals that
is premised on the Resource Based View (RBV) concept described by Edith Penrose in her 1959 article ‘The
theory of the growth of the firm’.
Page 176
Page 177
Formulating competitive actions
Richard Shaw
October 2016
Cover image
An image of the Bombardier CS-100 was selected for the cover of this guide as it is a highly innovative
product developed to compete in a dynamic and highly competitive segment of the aircraft industry. Its
competitive set includes the Embraer E-jet family and the Sukhoi SU-jet family. Collectively, they fill an
evolving and hotly-contest segment in the passenger jet market for aircraft smaller than the Airbus A320
family and the Boeing 737 family, with around 100 seats.
HOW TO USE THE GUIDE
The guide was developed to assist managers in the formulation of competitive actions and aims to be a
thought provoker that provides managers with a framework for formulating competitive actions. It can be
used by individuals but should ideally be used in group settings, as the research has found that individuals
rarely have all the skills and experience required to effectively formulate competitive actions, while groups,
comprised of managers with a range of experiences and different skills sets are in a much stronger position
to do so. The guide provides managers with ideas and recommendations that can be used to support the
formulation of competitive actions and follows a framework, abbreviated as SOLAR, which based on the
process managers followed in the research that succeeded the guide. The SOLAR framework is described
in the table below.
The guide is not designed to be exhaustive, in terms of covering every possible permutation in the
formulation of competitive action. Rather, as the diagram below indicates, it deals with a significant number of
competitive actions and seeks to help managers distill their options into a few that are the most appropriate,
giver the stimulus, their objectives, the environment in which they operate and the levers available to them.
A contingency approach was taken in developing the guide. Meaning, the ideas and recommendations
offered are based on variables, such as stimuli, the managers’ objectives, the environmental context and
the parameters in which the manager is operating. For example, a manager at a company that distributes
products developed and owned by a separate entity, have no control, and probably very limited influence,
over product development initiatives and, therefore, the ‘product’ lever would be unavailable to them. The
guide is split in two sections:
1. A short guide based on the SOLAR framework, which makes use of diagrams and tables as far as
possible
2. A ‘Resources’ guide that describes a list of resources that could be used by managers to support the
formulation of competitive actions.
• Expand geographically to
improve profitability
• Changes in a competitor’s
• Use retained earnings or new
product mix, pricing or
capital to start a new business
marketing approach
or develop a new product/
• Customer request for a service offering
specific functionality or a
• Diversify business
• Inferior performance new product
geographically to reduce risk
compared with competitors
• Introduction of or concentration
• Waning or stagnant sales new technology
• Extend existing
• Unsuitable product mix or • Changing or evolving product/service offering
pricing for a particular market customer requirements
• Review markets, product
or tastes
• Declining profitability due to portfolio and pricing to
increased competition • Change in economic optimise profits
conditions (e.g. interest
• Product or service offering not • Change customer perceptions
rates, growth)
cost or priced correctly about product/ service
• Threat from new attributes or price
• Brand, product or service not
market entrant
clearly defined in the product • Expand by moving into a new
or brand statement • Regulatory change competitive set
EMERGENT
PLANNED
Declining or External or
Stimulus Shareholder or
compromised environmental
performance change management plans
Action Action
Have competitors resource bases changed or have they developed new competencies?
Waning or stagnant sales Are you aware of the possible reasons for waning or stagnant sales and has data, such as customer surveys, as well as data gathered through informal channels, been use to validate this?
PERFORMANCE
Have you considered your competitors, their brands and their product or service offerings and how you and your brand and product or service offerings compare?
Declines in profitability due to increased Have you considered the recent evolution of your industry and are you able to identify the stage of its life cycle? Specifically, has it matured and stabilised, resulting in lower profit margins?
competition Instead of constantly fighting rivals through cost cutting and imitation, have you considered creating a new market space, as Kim and Mauborgne (1999) postulate in their article ‘Creating New Market Space’ and their
book, ‘Blue Ocean strategy’?
Product mix, product attributes or Do you have sufficient data to reposition or update your product mix, product attributes or pricing structures? This data can be collected from informal channels, such as managers speaking with shop floor staff and
pricing have become, or are becoming, directly with customers, as well as formal channels.
unsuitable for a specific market Have you assembled, or do you have access to, the right mix of marketing, commercial, financial and product specialists to find solutions to optimally repositioning or updating your product mix, product attributes or
pricing structures?
Customer request for specific Does the new functionality, enhancement or new product or service offering have a broad enough market to justify its development?
functionality or a new product Will the functionality make the product competitive or more competitive than it already is and does the benefit outweigh the cost?
What will the consequences of not developing the new functionality, enhancement or new product or service offering be?
Regulatory change Have you considered the impact the regulatory change will have on your competitors and their products and services relative to your business and your products and services?
Have you looked to similar businesses to yours with similar products or services in other countries or markets that have regulations and regulatory environments similar to those that you will have once the change has been
implemented?
Introduction of new technology Have you assembled, or do you have access to, the right mix of skills and experience to work out how your product or service offerings can be optimised using the new technology?
EXTERNAL OR ENVIRONMENTAL CHANGE
Have you considered your competitive environment, each of your competitors and the competitive advantage or advantages that the new technology could give you?
Have you looked at to other countries or markets where the technology has already been deployed to see how its deployment has resulted in success or failure?
Changes in economic conditions (e.g. Are you able to develop new products or services or update existing ones by pre-empting the change in economic conditions?
interest rates, growth) Have you considered the impact the economic change will have on your competitors and their products and services relative to your business and your products and services?
Changes in a competitor’s product mix, Have you considered using tools such as the Customer Matrix (Bowman and Faulkner, 1994) and the Primary Benefit Map (D’Aveni, 2007) to understand how the competitor’s changes impact the positioning of your brand,
pricing or marketing approach product or service?
Have you used the Resource Based View (Penrose, 1959) and considered your core competencies (Prahalad and Hamel, 1990) to establish how best to compete with the relevant competitor following the implementation
of their changes?
Have you collected sufficient data to understand how customers perceive the changes and your relative market position?
Have you assembled a team with, or do you have access to, the right mix of skills and experience to work out how your product or service offerings can be optimised using the new technology?
Threat from a new market entrant Do you know in detail what the new market entrant is offering as a product or service and what their unique selling points are? This data can be collected through informal channels, such as speaking with customers that
have been in contact with the new market entrant.
Are you aware of the dynamics of the industry and is the new market entrant able to either join or rival any of the existing strategic groups?
Have you assembled a team with, or do you have access to, the right mix of skills and experience to properly evaluate the threat that the new entrant poses and how you can best deal with it?
Changing or evolving customer Do you have adequate data to understand the changes or the evolution of your customer requirements or tastes?
requirements or tastes Are you using tools such as the Customer Matrix (Bowman and Faulkner, 1994) or the Primary Benefit Map (D’Aveni, 2007) to map the changing or evolving customer requirements or tastes and how they relate to yours and
your competitor’s product or service?
Have you assembled a team with, or do you have access to, the right mix of skills and experience to properly evaluate the changes or the evolution and to effectively respond to it or them?
Use retained earnings or new capital to Have you thoroughly mapped your resources and competencies to those of your competitors and considered your relative advantages?
start a new business or develop a new Have you considered how you may be able to use your existing resources, processes and intellectual property to develop a new business or product or service offering in an efficient and cost-effective manner?
SHAREHOLDER OR MANAGEMENT PLANS
Change customer perceptions about Do you have sufficient data to really know how customers perceive the respective product or service attributes of prices? Apart from data collected through formal channels, such as surveys, has data collected through
product or service attributes or prices informal channels, such as sales people speaking with customers and employees perceptions, been taken into account?
Have the desired customer perceptions been clearly articulated and documented?
Diversify geographically to reduce risk or Which market or markets offer the greatest diversification effect (i.e. which markets, in terms of performance and risk, are least correlated with your home market)?
concentration Are you certain that your products or services will be accepted in the target markets and what data has been collected to support this?
Have you thoroughly considered the competitors in the target markets and have you properly evaluated the effects of possible rivalry when you launch in the new markets?
Expand geographically to improve Are you certain that businesses in new markets will be more profitable than your business in your home market and, if so, have you considered multiple markets and compared them against each other?
profitability Has your product or service offering been developed to its fully potential in your home market to the point you have a ‘tried and tested’ solution to take to new markets?
Have you properly considered your competitors in the new markets and have you properly evaluated the effects of possible rivalry when you launch in the new markets?
Customer surveys are an effective way of gathering large amounts of quantitative data for objective setting
Restore performance
(RECOVER)
The Customer Matrix is a tool that could be considered for use in setting objectives
Michael Porter’s 5-Forces tool could be used to set objectives as well as to decide on which of the levers to use
SELECT RESOURCES BEFORE SETTING OBJECTIVES
Maintain performance
The relative company size should be properly considered before setting objectives
(MAINTAIN)
SET OBJECTIVES
The company’s relative profitability should be properly considered before setting objectives
Teamwork is useful where many different skill sets and collaboration between different departments within the organisation are needed
The teams education & training should be considered when creating teams to formulate competitive actions, preferably when the stimulus emerges
It is useful to assimilate the level of experience of managers, including their experiences in other territories and parallel industries, when creating teams to formulate competitive actions at the point of the stimulus
It is useful to assimilate the functional biases, as well as the national and cultural backgrounds, of managers when creating teams to formulate competitive actions at the point of the stimulus
(GROW)
Understanding the strategic group and the cognitive communities that the company is part of is useful in understanding the relevant industry structure for the purposes of setting objectives, as well as deciding on which of the 5 levers to use
Understanding the degree of turbulence in the industry is useful in anticipating the effect turbulent environments might have on competitive actions throughout the formulation process
Discontinuing a product is as much a competitive actions as changing its price points or product features.
Managers might want to ask themselves and their colleagues ‘what business do we want and what don’t we want’ as part of the objective setting process.
Michael Porter’s 5-Forces tool could be used to set objectives as well as to decide on which of the levers to use
The ‘Core Competency’ could be useful in deciding which of the five levers to use and in formulating competitive actions once a lever or a combination of levers have been selected
The relative company size should be properly considered before selecting levers to use
The company’s relative profitability should be properly considered before selecting levers to use
The ‘Resource Based View’ could be useful in deciding which of the five levers to use and in formulating competitive actions once a lever, or a combination of levers, have been selected
Considering competitive actions that have been applied in parallel industries and other territories could be useful in deciding which of the 5 levers to use and how to use them in formulating competitive actions
The evolution of industries in other territories could be useful in deciding which of the 5 levers to use and how to use them in formulating competitive actions
Industry maturity and the level of fragmentation in the industry is useful to consider in objective setting and in deciding on which of the 5 levers to use
Understanding the strategic group and the cognitive communities that the company is part of is useful in understanding the relevant industry structure for the purposes of setting objectives, as well as deciding on which of the 5 levers to use
Understanding the degree of turbulence in the industry is useful in anticipating the effect turbulent environments might have on competitive actions throughout the formulation process
The Customer Matrix will assist managers in developing actions using the price and product levers
Competitors’ pricing models should be properly considered when formulating actions using the Price lever
Agents, distributors as well as subsidiaries and divisions within businesses are often unable to alter or influence the functional and technical attributes of the products they market and, therefore, cannot use the product lever, except to bundle different product
together or pre-configure products for specific markets.
Product or service attributes can take time to change or update, due to R&D production and distribution routines and stock that may need to be depleted before new products can be introduced.
Competitive barriers can be raised by bundling a combination of products together than no other single competitors has.
Regulation and economic constraints may govern what is possible. Likewise, changes in regulation or economic conditions may provide opportunities for product innovation.
Changes in consumer behaviour and tastes, as well as social issues, such as environmental impact, may present opportunities for product development.
Product innovation can take the guise of adapting an existing product or service for another market with the same or similar consumer requirements.
By tracking evolving consumer tastes, requirements and behaviour, derivatives of existing products can be created to exploit the changes.
Maintaining a broad range of competing products may make a company’s market presence more pervasive but it is also expensive to do so and there is a trade-off with the benefits of focusing on fewer products
Product The segmentation of markets and understanding different segments’ requirements and tastes enables company’s to tailor product variants to different segments. Each segments’ offering can also be mapped to competitors’ offerings to differentiate them.
New technologies can often be used to create competitive advantage. Early adopters may also benefit from first mover advantages.
Products can be bundled in combinations exclusive to the company.
Focus groups, interviews and ethnographic studies, as well as collecting data through informal channels, will produce richer data than customer surveys, which should allow managers to better understand the issues relevant to their competitive actions
The Customer Matrix will assist managers in developing actions using the price and product levers
The Primary Benefit map could be used to decide on which product benefits to focus on in current and future scenarios
Competitors’ products and services should be properly considered when formulating actions using the Product lever
While we normally think of innovation in product terms and, to a lesser extend, in terms of business models, innovation can also apply to new territories. Specifically, new territories can be sought where the success of a product or service in a particular market can
be replicated. This may mean adapting the product or service for the new market or it may be maintaining its originality in order to increase the chance of success through replication. As examples, consider products such as motor vehicles, that are usually adapted
for new markets, versus a product such as Coca-Cola, where deviating from the original product will compromise the chance of success.
The company’s distribution channels often inhibit market share. Changing, updating or adding additional channels can be a cost effective and expeditious way of increasing market share.
Place Where the marginal cost and effort of increasing market share in a particular market is high, new markets where the cost and effort of expanding is likely to be relatively lower could be considered.
Concentration of a specific offering in a single, or few, markets can be risky, particularly when the company has a large share of the market. The risks relate to the performance of the market as well as the actions of competitors and, in such a scenario, expanding
into other markets would be worth considering.
Focus groups, interviews and ethnographic studies, as well as collecting data through informal channels, will produce richer data than customer surveys, which should allow managers to better understand the issues relevant to their competitive actions
Business models are often moulded to suit environmental factors, such as competition and regulation. For example, many investment banking business models have been developed in response to taxes. Changes in external factors can threaten business models
but can also present opportunities to adjust or rethink business models.
Applying existing products to meet new requirements, often in new markets, can develop new business models. For example, the low-cost carrier model can be applied to the private jet market to provide a cost and time effective solution to busy business
Business travellers.
model
New technologies can enable changes to business models. For example, Software as a Service (SAAS), has allowed many software and software service companies to radically change their business models.
Focus groups and interviews, as well as collecting data through informal channels, will produce richer data than customer surveys, which should allow managers to better understand the issues relevant to their competitive actions
Marketing messages may be supported, and constrained, by group level marketing campaigns or policies. This applies, especially to agents and distributors.
It may be worthwhile considering what has been done elsewhere by associated companies or business unit.
While we often think of communication purely in terms of advertising and public relations, there are a host of other means of creating marketing messages. For example, a showroom with a particular look and feel and in a specific location sends a message to
Communi- customers and prospects.
cation
Communication can be used to make a specific product or products more compelling by making consumers aware of their own peculiarities. For example, reminding certain consumers of their own health issues may give specific product or company an advantage
over its competitors.
Communications can be used to properly define a brand or a product or service offering to the prospective market through a product or brand statement
Segment the market and Cross subsidise finance costs Bundle after-sales support service
provide a range of price points from the purchase price to or extended warranty terms with
Price
for different product and compete more effectively used-products to compete more
service offerings to capture without compromising the effectively with competitors’
marginal revenue. value of the perceived product/ new products.
service offering.
Bundle sets of synergistic Develop a derivative of Develop new functionality to Research products and services Use a change in the economic
products in instances where an existing product that close product gaps, match in parallel industries in order environment to update an
competitors only have access satisfies the tastes, attitudes competitors’ functionality and to develop an improved existing product or develop a
to part of those product sets to and price elasticity of a new fend off rivals. market offering. new one.
raise competitive barriers. consumer segment.
Product
Expand into parallel industries Segment the market and Discontinue a particular product Customise products for specific Carry out regular and extensive
that target the same market provide variations of product or products to focus on another, market requirements in response consumer surveys and update
segments by altering existing or service offerings to capture remaining product or products. to local consumer behaviour, or replace products in response
products or introducing marginal revenue. tastes and perceptions of value. to evolving consumer tastes
Actions new ones. or attitudes.
Seek out another territory with Distribute existing products in Establish new distribution Establish subsidiaries in
similar market dynamics and new markets on the basis of channels and promotion new but similar territories to
Place
consumer tastes for geographic consumer behaviour, tastes, mechanisms, such as market existing products in
expansion when an existing elasticity of demand and product showrooms for order to reduce geographic
market for a particular product competitive environments to greater penetration in an concentration
is saturated. optimise sales. existing market.
Communication Business model
Bundle products together Use a change in regulation Use existing technology to Acquire businesses with Use new technologies that allow
to increase competitive to update or to abandon an develop a new product or complimentary products or faster and cheaper processing,
barriers and improve their existing business model or to service offering exploiting services in order to strengthen cheaper data storage and
competitive position. develop a new business. partnership with, for example, customer relationships and open improved connectivity to
retailers and local government. up cross-selling opportunities. develop new business models,
such as SaaS.
Communicate the factors that Develop a marketing Use new technologies for Devise a communication
make a product or service campaign to communicate omni-channel distribution of campaign to reset product/
proposition compelling to product changes that result in information previously distributed service price perceptions
prospective customers that may competitive advantage that through print. without compromising the
not be aware of them. consumers may not be aware. perceived value of the product/
service offering.
1.
Stimulus triggers
competitive
action
Managers take 2.
5.
decisions about Resources are
Competitive
actions that need to assembled to
action is
be taken in order to equip the
executed
attain the ideal or manager
desired positioning of
their brands or
products relative to
competitors 4.
3.
Competitive
Objectives
action is
are set
formulated
The managers interviewed in the research regard iterating and refining competitive actions as important
because it allows them to develop and test results quickly, particularly when working closely with suppliers
and customers to prototype them.
Page 178
Page 179
Resources manual for competitive actions
The abovementioned inputs are described in greater detail later in the guide in ‘Competitive action
resources’ section.
Some of the resources available to managers in formulating the competitive actions covered in the
Competitive actions guide are described in this Resources manual. These resources are also referred to in
the ‘Stimuli’ section of the guide, where different resources have been associated with different stimuli. It
is intended that, based on the stimulus, managers will select a number of resources that can be used as a
tool kit to support their formulation of an action.
Data
Customer surveys
Useful in objective setting and formulating actions
Customer surveys are an effective way to gather large amounts of quantitative data as the starting point
to formulating a competitive action. However, the data is not rich, insofar as it is usually limited to a
relatively small set of questions and answers and fails to capture the emergent issues, or the opinions of
respondents that lie outside the scope of the questions. The data may also be biased by the profile of
the respondents.
The disadvantage of focus groups and interviews is that the sample sets are normally too small for the
results to be generalisable and, therefore, they cannot be used for quantitative analysis. Based on the
research, focus groups and interviews are generally used further into the competitive action formulation
process than customer surveys and are more effective after some data has already been gathered, through
a method such as customer surveys, and the manager or interviewer, therefore, has a foundation from
which to ask questions and interrogate issues and opinions.
Ethnographic studies
Useful in objective setting and in formulating actions related to ‘price’, ‘product’ and ‘place’
Ethnography is a research method based on observing consumer behaviour. As the name implies, it
has its roots in observing and understanding the behaviour of different ethnic groups. In the context of
formulating competitive actions, an ethnographic study would involve spending time, possible days or
even weeks, with consumers, observing, recording and analysing their behaviour.
For example, an airline wishing to improve its customer service may assign a manager to check-in, wait for,
board and take flights with paying customers right up to the point they collect their baggage on arrival
at their destinations and leave the terminal buildings. The manager would observe the comments, their
actions and, particularly, what they like and dislike, what they appreciate and what frustrates them. This
data could then be analysed to affirm what they airline is doing well and could be used as a competitive
advantage and what could be improved on and how this could be achieved in a ways that will best
respond to customers’ dislikes and frustrations.
A good example of ethnography is the success a vacuum cleaner manufacturer experienced when they
discovered the various attachments that came with their machines, including nozzles, would invariable
get lost. They discovered this by spending time with their consumers in their homes and learnt that the
loss of the attachments caused them great frustration. They responded by attaching clasps for the various
attachments to their vacuum cleaners. One of the retailers that participated in my research spent over a
month in the store observing customer interactions and customer comments while formulating his set of
competitive actions.
Managers interested in using ethnographic studies to collect data and understand the behaviour of their
consumers could read an article by Richard Elliott & Nick Jankel-Elliott published by the Quantitative
Market Research journal (2003: 6, 4, pg. 215) called Using ethnography in strategic consumer research.
In every instance, the data gathered through informal channels was valuable, as it was rich and pertinent
to the issues customers were confronted with and that were important to them. In cases were data was
gathered from staff, it was often the same staff that executed the actions and being part of their research
and formulation made them feel they were part of the end-to-end process and served to motivate them to
ensure its success.
Examples include the re-pricing of credit default swaps by a financial trading house that underwrites
them. The manager that formulated and executed the action noted, “during this period we monitored
what our competitors were doing and we found they were re-pricing their products. We did this by
hiring from competitors, being friendly with competitors to the point we could talk with them about
their pricing strategies, as well as talking to the banks, which were our common clients, about how our
competitors were pricing their products”. One of the luxury car distributors that participated in my
research relied heavily on the feedback they received from customers and employees while formulating
their competitive actions.
Another good example is a software company based in London. After hearing about a new competitor
providing a system to automate a particular function, they spoke with a few of their existing clients about
the functionality and were told “we are currently performing these functions manually and would like
to automate them but it wouldn’t be worth the trouble of doing so on our own”. Given this feedback,
they started discussions with a law firm that advised clients regarding this function and, the manager
interviewed noted, “this led to us forming a partnership with them and we started specifying the
functionality for a product to compete with the new market entrants”. They then, “mocked up a few web
pages to show what the new functionality would look like and our clients were enthusiastic”, which led
them to develop the product and piloted it with two clients before launching it. This is a good example of
how data can be gathered through dialogues with partners and customers. This example also shows how
competitive intelligence can be integrated with the competitive action formulation and execution process.
Tools
Customer matrix
Useful in objective setting and in using the product and price levers to formulate competitive actions
The Customer Matrix was developed by Bowman and Faulkner and is described in their 1994 article titled
‘Measuring Product Advantage Using Competitive Benchmarking and Customer Perceptions’ published
in the Long Range Planning journal (Vol. 27, No. 1, p 110-132). The matrix measures product advantage,
The matrix comprises ‘Perceived Use Value’ along the one axis and ‘Perceived Price’ along the other. The
most desirable quadrant is the one with the highest perceived use value and the lowest perceived price,
while the least desirable is the one with the highest perceived price and the lowest perceived use value.
The matrix was designed to help managers better understand a product or brand positions in relation
to their competitors through the lens of the individual customer. Constructing the matrix is an iterative
process that starts with the application of hard information that is then supplemented by experience and
perceptions and refined further as more data is gathered.
The authors have also applied their matrix to the producer view and the relationship between ‘innovation’
and ‘cost’, which allows producers to marry their internal dynamics with their customers’ perceptions
regarding price and use value.
Primary benefits can be defined as either the relative market position of a particular product or a specific
functional or technical attribute of the product. The Primary benefit map was published in D’Aveni’s article,
“Mapping Your Competitive Position”, in the Harvard Business Review in November 2007 (p 110-120)
The matrix provides a “joint statement of a product line and the corresponding set of missions which
products are designed to fulfil” and describes four different growth alternatives, including:
• Market penetration, in which the company aims to grow using existing product or service offerings in
existing markets. This entails increasing market share within existing market segments.
• Market development, in which the company aims to expand into new markets using existing product or
service offerings.
• Product development, in which the company aims to create new products or services targeting existing
markets to achieve growth.
• Diversification, in which the company aims to grow its market share by launching new product or
service offerings in new markets. This is the riskiest approach as both product and market development
is required.
Porter’s 5-forces
Useful in objective setting and determining which of the 5 levers to use in formulating competitive
actions
The Five forces model published by Michael Porter in his 1980 book ‘Competitive Strategy: Techniques
for Analysing Industries and Competitors’, provides a framework for analysing the level of competition
within industries. In the book, Michael Porter asserts that firms will have unique strengths and weaknesses
Because the model is aimed at understanding the dynamics of the industrial organisation, and precludes
factors pertinent to the formulation of competitive actions, such as relative product or service attributes,
consumer trends and attitudes and the experiences and skill sets of the managers formulating the actions,
it has limited applicability in this context. It’s real value, in this context, lies in analysing competitive
forces as inputs to the formulation of the action and, therefore, in setting objectives for the action and in
deciding which of the five levers referred to in this guide to use, possibly in combination with each other.
In addition to the Five forces model, a 2 x 2 model for predicting the rate and stability of returns in an
industry based on entry and exit barriers is also provided in the book, as is a 2 x 2 model for deciding on
the adoption of one of three generic strategies based on the uniqueness perceived by customers of the
product offering and the firms cost position.
Core competency
Useful in deciding which of the five levers to use and in formulating competitive actions once a lever or
a combination of levers have been selected
Prahalad and Hamel described competencies as the root of competitiveness in their 1990 article ‘The core
competence of the corporation’ published in the Harvard Business Review (v. 68, no. 3, p 79–91). They
postulate that a core competency results from a specific set of skills or production techniques that deliver
additional value to the customer. These lead to the development of core products that can be used to
build many products for end users, which enables the company to access a wide variety of markets.
1 2 3 4 5 6 7 8 9 10 11 12
Core
product 2
Core
product 1
Core competencies are developed through the process of continuous improvements over the period
of time rather than a single large change. The article is particularly useful in helping managers analyse
their companies competencies when deciding on which new markets to enter, how to update or enhance
existing products or business models or which new products to develop to ensure optimal success.
New value curves attempt to transform enormous latent demand into real demand. Strategic groups can
generally be ranked in a rough hierarchical order built on two dimensions; price and performance. The
key to creating new market space across existing strategic groups is to understand what factors determine
buyers’ decisions to trade up or down from one group to another. This requires that companies challenge
the functional-emotional orientation of their industries.
Competitors
Competitors’ products and services
Useful in formulating actions related to the ‘Product’ lever
In conjunction with some of the use of tools described above, including the Customer matrix, the
Primary benefit map, Ansoff’s growth matrix and the Core competence model, information about
competitors products and services would be needed to formulate actions related to the ‘product’ lever.
This information would be used as inputs to the tools listed above and would typically include details of
competitive product’s functional and technical features, particularly those features that are unique to that
product or services. Information about how the product or service in question has evolved in the past and
how it is likely to evolve would also be useful, particularly for use in conjunction with the Primary benefit
map. This information can be obtained from a number of sources, including:
• Publicly available marketing material, such as advertisements, brochures and other sales collateral
• Employees that used to work for competitors and have good knowledge of their products or services
• Managers or employees of either customers or suppliers that are common to the company and its
competitors
• Marketing agencies, consultants and market research agencies, such as GfK, that either gather industry
data or work with competitors
This is affirmed by Giaglis and Fouska’s (2011) study published in their article ‘The impact of managerial
perceptions on competitive response variety’. The study explores the relationship between management
perceptions of their competitive environments and their responses to rivalry. It finds that management
perceptions of the intensity of competition; threats of substitution and increased buyer power are
correlated with broader and more innovative competitive reactions.
It should also be pointed out that managers’ often avoid deviating from the conventions set by strategic
groups for fear of rivalry from other firms in the grouping. This is particularly applicable to oligopolies. For
example, managers of an airline or a bank may be reluctant to decrease their pricing below that of their
competitors because of the rivalry it may trigger.
For example, if it is known that there is a much larger competitor, with the advantage of greater economies
of scale and, therefore, lower production costs, already fulfils a particular customer requirement it would
not make sense to try to satisfy that same requirement, even in an indirect manner, as this would probably
mean ending up in the ‘gap in the middle’, as described by Michael Porter (1980) and as illustrated in the
figure below.
Smaller companies operating within an industry or a strategic group would be better off considering niche
markets for expansion or profit preservation and developing products and services that meet specific
customer requirements, rather than broad ones.
It was observed in the research leading to the development of this guide that managers at large
companies make a mental assumption that their companies should be able to compete more effectively
than their smaller competitors because of their more comprehensive and more developed resource bases.
For example, the manager at a large IT company stated that by combining their resources, including both
internal resources and those made available to them by partners at preferential rates because of their size,
they would have a competitive advantage over smaller competitors in price and in the functional breadth
It is also worth noting that, based on the research, larger companies tend to formulate and execute
competitive actions in order to fend off competitive threats from smaller competitors or as a reaction
to shrinking sales figures or market share, while smaller companies that tend to formulate and execute
competitive actions with the objective of growing their businesses.
Relative profitability
Useful in objective setting and in deciding on which of the 5 levers to use
Better profitability usually translates into more retained earning and, therefore, a larger war chest to use to
defend a market position, increase market share or innovate new products, services or business models.
This war chest could, however, also be funded through a rights issue or debt or, in the case of one of the
companies used in the research, the investment of a new shareholder. In this instance, the war chest was
used to acquire companies that own complimentary services that could be bundled with the acquirers
existing products and services to create new and unique solutions and to cross sell products and services
between the collective companies customer bases.
Although this practice it is now perceived as anti-competitive behaviour in most jurisdictions, more
profitable businesses have often used their financial positions to supress or drive rivals out of their
markets. A good example of this was British Airways and American Airlines ganging up on Laker Airways
and, more recently, on Virgin Atlantic to drive them out of the trans-Atlantic airline market. In the case of
Laker Airways, they forced the airline into bankruptcy by colluding to cut their prices to point where Laker
could only compete on a loss-making basis. They continued to do so until Laker Airways was forced out of
business and then raised their prices again. Partly due to the intervention of the regulator, British Airways
and American Airlines weren’t as successful with Virgin Atlantic.
Higher profits need not necessarily be used to defend market positions or increase market share as
blatantly as in the example above. They could, for instances, be used to innovate by either updating
existing or developing new products, services or business models, placing less profitable companies, that
are unable to do so, at a disadvantage. It’s important for managers to be aware of the ramifications of their
profit positions relative to their competitors when they set objectives and when they decide which of the
five levers to use, and how to use them, in the formulation of their competitive actions.
Demand Appropriability
The framework combines the internal analysis of phenomena within the company and the external analysis
of the industry and the competitive environment. Specifically, the framework suggests companies should
focus on defining their valuable resources that enable them to perform activities better or more cheaply
than their rivals.
Benchmarks
Competitive actions in parallel industries and other territories
Useful in deciding which of the 5 levers to use and how to use them in formulating competitive actions
Replicating or learning from competitive actions in other territories or parallel industries can be applied
to any of the five leavers. For example, ride-hailing service, Uber’s, business model has been used in of a
number of other business applications, including food delivery services, corporate jet rentals and home
appliance rentals. In the research we also came across competitors pricing policies and communication
campaigns being copied and competitors’ product features being adapted for application in another
market or to provide a competitive advantage.
Using the competitive actions from other territories or parallel industries can be used in conjunction with
a tool such as the Customer matrix or the Primary benefit map, both of which are covered in the ‘Tools’
section of this guide. The ‘new’ perceived product value, product features or the price of the product
following can be mapped against competitive offerings to try to ascertain the efficacy of the action before
implementing it.
1 Telecommunications corporation
Team
Teamwork
Useful where many different skill sets and collaboration between different departments within the
organisation are needed
A good example is a bank that used their anticipation of a downward shift in interest rates to develop
a new mortgage product. The product’s principal feature was a reduced rate on the mortgage loan for
the first two years - they initially thought of setting this at 5.5% (from 8%) by ended up setting it at 4.5%
deciding this would make the impact they needed based on interactions with the marketing department
and, ultimately, with customers.
In this example the communication channels between customer-facing staff, the marketing department,
the Strategy & planning department, the banks economists and the Asset & Liability committee (ALCO)
were open and fluid. The different inputs, including macro-economic analysis, customer surveys, market
analysis, ALCO committee discussions used to develop the new product were tight and, for example, the
marketing department and the economists knew of the ALCO’s objective of growing the mortgage book,
the Strategy & planning department and the ALCO were informed by the economists of the anticipated
decrease in interest rates and the marketing department worked with the Strategy & Planning department
and the customer–facing departments of the bank to ensure the successful roll-out of the new product.
Regarding causality, it could be argued that larger companies tend use more sophisticated methods
and also place greater emphasis on formal qualifications when employing managers and, therefore, the
sophistication of methods employed is a function of the size of the company and their recruitment policies,
rather than being a direct a result of the level of training of the manager.
When selected team members to formulate and execute competitive actions, managers should be
aware that, if the tasks leading up to the action require a thorough and deliberate approach, they would
probably be better served using staff with formal educations in business or marketing disciplines. Should
the formulation of the action require a more entrepreneurial approach, for example combining products
in new and innovative ways where no data is available to predict how the market would respond or in
addressing to sagging sales due to evolving customer tastes, a more experienced manager should
probably be sought and less emphasis could be placed on his or her education and formal training.
Other skills and training backgrounds could also be considered, depending on the type of action. For
example, if the action involves trying to understand how consumer behaviour is changing or tastes are
evolving and responding to these changes, the skills of an anthropologist could prove to be useful.
Functional biases
Useful in creating teams to formulate competitive actions at the point of the stimulus
Bowman’s and Daniels (1995) study on the influence of functional experience on perceptions of strategic
priorities concludes that when managers are asked to reflect on their own company’s situations there is
evidence of functional bias in the perceptions of priorities derived from generic competitive strategies.
Career backgrounds influence managers’ frames of reference (Whitley, 1987). Hodgkinson and Johnson
(1994) argue that the diversity of managers’ frames of reference influences their perceptions of competition
and how their brands or products are positioned in the market.
Hofstede (1980) suggests that managers’ frames of reference influence their perceived control of the
environment and strategic behaviour. There are, of course, also factors within the organisation that
influence managers’ mental models. At the level of functional groups, for example, there are functionally
specific belief systems and perceptions of issues (Dearborn and Simon, 1958; Handy, 1985). Whitley
(1987) argued that managers’ views of the world are shaped, at least in part, by their career backgrounds.
There is a continual interplay between the individual, the context in which he or she operates, the frames
of reference related to these contexts, and the political and social processes at work (Hodgkinson and
Johnson, 1994).
When assembling teams to formulate and execute competitive actions, it may be a good idea to list
the skill sets and the experiences that are ideally required. Thereafter, you could shortlist the staff that
could possibly participate in formulating and executing the specific action and, lastly, map the skills
and experiences of the shortlisted staff to those required for the action. A mix of staff with different
functional backgrounds and biases could prove to be very valuable in covering all bases when formulating
competitive actions.
Managers draw on a series of frames of reference to make sense of their worlds. Hodgkinson and Johnson
(1994) found that managers’ frames of reference are influenced by their experiences and that national
culture is a strong influencer. As a result, their frames of reference are broader than organisational or
industry level frames. It also suggests that the diversity of frames of reference goes still wider than the
organisation or industry level and that there is increasing evidence that national culture affects managers’
interpretations and responses to strategic issues.
My research showed that a mix of different national and cultures backgrounds could be advantageous
in the formulation of competitive actions, particularly when the frames of reference of a manager that
has successfully responded to a particular stimulus in a foreign territory is combined with those of a local
A good example of the combination of local and foreign managers for the purpose of formulating
competitive actions is a car distributor in an emerging market. Foreign managers, who had experience in
building the brand and marketing their products in other parts of the world, worked with the local General
Manager, who had been working in his market for over 20 years, had lived in the country his entire life and
who’s frames of reference had been developed through his life and work experiences. A set of actions
where formulated to pre-launch the automobile brand in this market and tasks, such as designing and
developing marketing material and then deciding on which advertising channels to use, where successfully
completed with the input of both sets of managers.
It may be useful to take stock of the experiences that staff that could be employed in the formulation
and execution of the requisite competitive action have had in other territories or industries to ascertain
possible relevance.
Industry
Industry maturity
Useful in objective setting and in deciding on which of the 5 levers to use
The structure of the industry in any specific market tends to be related to its maturity. In mature industries,
such as the automotive or the FMCG2 (soft drinks, fabric softener, confectioneries and under-arm
deodorants) industries, managers are very aware of whom their competitors are and their relative positions
in the market. As a result, they act very deliberately when gathering market intelligence and when
formulating and executing competitive actions. Managers operating in emerging or growing industries,
whose industrial structures are therefore still evolving, tend not to have their competitors defined that
clearly. They are also less deliberate in their approaches to gathering market intelligence and formulating
and executing competitive actions than managers operating in mature industries.
Industry maturity
Based on my research, the competitive set tended to be fragmented and opaque to managers operating
in nascent industries, while in mature industries the competitive set tended to be well established and
managers’ frames of reference and they tended to be more aware of who their competitors were and what
their competitors were doing in the context of competitive actions. The managers that were interviewed at
IT companies, whose industrial structures were still evolving and, therefore, their competitive sets were not
as clearly defined as those of the automotive or FMCG industries, were less deliberate in their approaches
to gathering market intelligence and formulating and executing competitive actions. They viewed their
competitive environments less clearly than those in the automotive and FMCG industries and were less
aware of how competitors might react to their competitive actions. They were also less formulaic in how
they gathered data and made decisions related to competitive actions.
A fruit juice manufacturer had very precise sales data for his brands and those of his competitors and
was able to estimate the income and expenses associated with producing and marketing his brands, as
well as those of his competitors’. The approach to formulating competitive actions was also very precise,
surveys were used to gauge market acceptance and a tool was used to estimate sales volumes related
to new products being considered and how much would need to be spent on marketing to achieve
these volumes.
One of the managers interviewed at a company that produces smart cards, was aware that if all they
did was produce and market them, their competition would be intense and their margins would be low.
The manager also took a resource based view of the business and, taking into account their size and the
relatively high skills sets and the corresponding cost of their personnel, decided to use the smart cards
they produced as a mechanism to deliver services that fulfilled very specific needs. In doing so, they
were able to achieve much higher margins than they could otherwise. The manager wasn’t aware of what
the alternatives to the solutions they provided were. Neither was she aware of their competitors. As the
business was highly innovative and the markets they entered or created were nascent, the industry was
unstructured and the players in the industry were highly fragmented. Therefore, there wasn’t really a need
to be all that aware of their rivals or to use sophisticated methods for gathering market intelligence and for
formulating competitive.
It is useful to be aware of high mature the industry you operate in is and how well developed it’s structures
are. This has an impact on the data that is available to you and your competitors and it’s sources, as well
as the rivalry you are likely to experience, which affects the objectives you can set for yourself and the type
of actions that are likely to be successful. It is also worth reading the section that follow, particularly those
about ‘Fragmentation’ and ‘Strategic groups & cognitive communities’.
Fragmentation
Useful for understanding industry structures, particularly in objective setting and in deciding on which of
the 5 levers to use
The fragmentation of competitors in an industrial structure is more likely to be evidenced in a nascent or
growing industry than a mature one, where industrial structures have been established over many years.
In my research, we analysed the way in which a smart card producer that uses the cards as mechanisms
to develop and launch products that fill specific market needs view and relate to competitors and
potential competitors. The company sought to avoid competing with other smart card producers’ head
on by finding unsatisfied customer needs that they could respond to with solutions that used the smart
card as a delivery mechanism. These customer needs where synonymous with nascent and fragmented
markets and their focus was on satisfying customer needs with little or no consideration for the
competitive environment. This is a function of the maturity of the industry they operate in and its relatively
unorganised structure.
Fragmented industries can present great opportunities and the smart card producer is a very good
example of how companies can avoid head-to-head competition by seeking out unsatisfied customer
requirements in parallel industries that are nascent and fragmented. This is the approach advocated by
Kim and Mauborgne in their 1999 article in their article ‘Creating New Market Space’ published in the
Harvard Business Review. They describe the approach as seeking ‘new value curves’.
If you are operating in a nascent or growing industry, it is worth asking yourself if you are aware of
possible new market entrants? In many organisations, the links between the market intelligence gathering
function and the sales, marketing and planning functions are weak. With these functions integrated, the
organisation will be in a better position to anticipate and deal with threats from new market entrants
as early on as possible, which is particularly pertinent to fragmented industries whose structures are
still evolving.
If you’ve identified a threat from a new market entrant, you should be able to clearly describe their
product or service offerings and identify the market segments or niches they’re targeting. As an integrated
organisation, it would be worth scanning the market periodically to identify threats from possible new
entrants as early on as possible. Once identified, you should gather intelligence on their product or service
offerings and identify the market segments or niches they are targeting.
The construction of cognitive groups allows managers to estimate the effects of environmental changes
on sets of organisations within an industry, instead of having to estimate the effects on all firms individually
(Porac, Thomas and Baden-Fuller, 1989). Firms that produce similar products or provide similar services are
often similarly affected by the conditions to which they are exposed (Tallman et al., 2004). Prevailing wage
rates, raw material availability and shifting customer demands are examples of environmental conditions
that similarly impact organisations within a cognitive group. These conditions can possess both limiting
and enabling characteristics that can affect the direction of change for the organisation (Bloodgood and
Morrow, 2003). Managers are attuned to how firms within their cognitive group compete with one another
and are likely to use competitive analysis to help them better understand and predict these organisations’
actions (Porter, 1980).
Though essentially an individual-level concept, cognitive frameworks are influenced by the interactions
individuals have with others (Bogner and Barr, 2000). As interactions occur among a number of different
individuals within a given social grouping, the commonly shared ideas begin to take on an existence of
their own, independent of the individuals that created them, and frameworks that exists at supra-individual
levels begin to emerge (Wiley, 1988). These “shared belief systems” make coordinated activity possible
by providing a common framework for observing and interpreting new stimuli and for coordinating
appropriate action (Kelly, 1955).
Individuals in an industry interact with each other. They go to the same conferences and exhibitions,
they read the same industry literature and they recruit staff from the same labour pool (Reger and Huff,
1993). They share the same suppliers in their value chain activities and observe what competitors do
through benchmarking (Porac et al., 1989). As a result, shared beliefs about competitive challenges and
opportunities are created through the cross-fertilisation of such interaction. Potentially, this may lead to the
adoption of similar ideas and practices and thus may hinder differentiation.
Over time, individuals within the firm share experiences and knowledge with one another, and a base of
common knowledge and ‘views of the world’ begin to form (Bogner and Barr, 2000). Interactions among
firms within an industry create a similarity in beliefs and actions that has led others to suggest the existence
of industry-level frameworks. It would also appear that individuals might hold somewhat different construct
systems yet share common category structures at the level of the industry. Furthermore, it appears
that there is divergence between the mental models of senior managers, which results from the task
environment and their objectives of differentiating their products and brands through competitive actions,
yet cognitive convergence exists at the functional management level, where managers are influenced by
the institutional environment and motivated by conformity with industry standards and processes.
It is also evident form my research that oligopolies act in a coordinated fashion in the context of
competitive actions. Kelly (1995) noted “Shared belief systems enable coordinated activity by providing a
common framework”. These structures are associated with industry maturity. In other words, as an industry
matures so the structures become more and more engrained. The research leading to the development
of this guide confirms this insofar as managers in the mature industries, including the automotive, financial
services, FMCG and fashion industries, were far more aware of their competitors and, therefore, the
structures of their industries, than the managers operating in nascent (emerging and growth) industries,
Managers operating within defined strategic groups may consider deviating from industry norms, in the
context of product development, communication campaigns and the reconfiguration of product or service
offerings or the way in which they are packaged, in an attempt to increase their profit levels above their
industry norms. Managers may also prefer to take comfort in not to deviating from industry norms for fear
of possibly compromising their profits.
Degree of turbulence
Useful in understanding the effect turbulent environments might have on competitive actions
throughout the formulation process
Conventional cognitive frameworks employed to make sense of industrial competitive environments may
not work in turbulent industries. Bogner and Barr (2000) describe the cognitive frameworks employed in
hypercompetitive industries as “adaptive sense-making” and suggest that in hypercompetition those
processes continue indefinitely as members of the industry continually seek to disrupt it. Further, they
argue that these processes can become institutionalised as standard operating procedures within firms
and as shared recipes within industries, which in tum perpetuates hyper-turbulent conditions. Thus,
hypercompetition becomes a relatively permanent situation, though it may be punctuated by brief periods
of stability.
Schneider and Shiffrin (1977) observed two qualitatively distinct processing modes in their study, being
‘Automatic’ and ’Controlled’. Automatic processing was described as unintentional, involuntary, effortless,
autonomous and occurring outside of awareness. In contrast, controlled processing was described as
flexible, within an individual’s intentional control, effortful, active, constrained by short-term attentional
resources and motivated or strategic. Uleman (1989) formulated an expanding continuum of multiple,
fuzzy and overlapping cognitive processing modes that form a progression from absolutely automatic to
unconditionally controlled.
Decision-making continuum
Figure 8: Controlled vs. automatic decision making in the context of competitive action formulation
Reger & Palmer (1996) found that as situational uniqueness increases, accurate interpretation becomes
more difficult and, in unfamiliar environments, automatic category assignments based on out-dated
maps are likely to result in erroneous action, as automatic judgments are made without reflection.
Reger and Palmer (1996) stated that many strategic decisions are made under stress and time pressure
and, despite sophisticated planning and decision support systems aimed at coercing executives
into controlled processing, automatic cognitive processing may be the dominant mode in strategic
issue diagnosis.
When environments are relatively stable for long periods of time, reinforcement of well-learned, ready-
made categories occurs (Reger and Palmer 1996, Dutton 1993). This results in a strong convergence
between automatic and controlled schemas. Automatic and controlled mental models are expected to
remain similar until the environment changes substantially enough to render them obsolete (Reger and
Palmer 1996).
Consistent with Schumpeter’s (1942) and the Austrian school of economics theory of innovation and
abnormal profits, Wiggins & Ruefli (2005) assert that no one except the innovator makes a genuine ‘profit’
and that the innovator’s profit is always quite short-lived. Their research finds that:
• Periods of persistent superior economic performance have decreased in duration over time
• Hypercompetition is not limited to high-technology industries, but occurs throughout most industries,
but that superior economic performance decreases in duration over time in both ‘high-tech’ and ‘low-
tech’ industries but at a slower rate in ‘low-tech’ industries
Over time, companies increasingly have sought to sustain competitive advantage by concatenating a
series of short-term competitive advantages. Schumpeter and Wiggins & Ruefli contend that the only way
to sustain superior economic performance or abnormal profits is to constantly innovate.
The research leading to the development of this guide found that the intensity of competition is also
a function of cultural and national norms, as well as regulation. For example, the anti-corruption laws
introduced in Mainland China caused considerable competitive upheaval in the fashion industry and the
procurement regulations imposed on state-owned entities in Kazakhstan guided the way in which other
state-owned entities marketed and sold their products and services. D’Aveni (1994) noted that the airline,
banking, and telecom industries in the United States had been hypercompetitive for some time but yet
in Japan, and to a lesser extent continental Europe, social and cultural norms imposed constraints on
adapting such rapid and discontinuous change frameworks.
Managers that find themselves operating in competitive environments that are turbulent, or are becoming
ever more turbulent, should be aware of the impact the situational uniqueness is likely to have on
their environmental interpretations and their mode of processing. Regarding how to effectively deal
with increasing turbulence, managers could consider one of two approaches, depending on the core
competencies of their companies. These include:
1. Innovate in order to sustain superior economic performance. This innovation could apply to products,
pricing policies, communication campaigns, sales and distribution structures and practices or
business models.
2. Look to apply your core competencies to other products or services or in other industries or territories
where ‘new value curves’, as advocated by Kim and Mauborgne in their article ‘Creating New Market
Space’ published in the Harvard Business Review in 1999.
In either instance, it would be worthwhile reading the article by Prahalad and Hamel (1990) titled ‘The
core competence of the corporation’ and the article by Collis and Montgomery (1995) ‘Competing on
Resources’, which provides a framework that companies can use to differentiate themselves from rivals that
is premised on the Resource Based View (RBV) concept described by Edith Penrose in her 1959 article ‘The
theory of the growth of the firm’.
2. Bloodgood, J.M. and Morrow, J.L. (2003), S trategic Organisational Change: Exploring the Roles of
Environmental Structure, Internal Conscious Awareness and Knowledge, Journal of Management
Studies, Vol. 40 Issue 7, November 2003, p1761-1782
3. Bloodgood, Turnley and Bauerschmidt (2007), Intra-industry shared cognitions and organizational
competitiveness, Strategic Change, John Wiley & Sons, Sept-Oct 2007
9. D’Aveni, R. (2007), M
apping Your Competitive Position, Harvard Business Review, November 2007, p
110-120
10. Dearborn; de Witt, C. and Simon, H.A. (1958) S elective Perception: A Note on the Departmental
Identification of Executives, Sociometry, Vol. 21, p140-144
11. Dutton, J.E. (1993), Interpretations on automatic: a different view of strategic diagnosis, Journal of
Management Studies, Vol. 30 Issue 3, May 1993, pg 339-357
15. Gripsrud, G. and Grønhaug, K. (1985) S tructure and Strategy in grocery retailing: a sociometric
approach, Journal of Industrial Economics, March 1985, Vol. 33 Issue 3, p339-348
16. Hodgkinson, G.P. and Johnson, G. (1994), E xploiting the mental models of competitive strategists: the
case for a processual approach, Journal of Management Studies, July 1994, Vol. 31 Issue 4, p525-551
Page 180
Page 181
Formulating competitive actions
Richard Shaw
October 2016
Cover image
An image of the Bombardier CS-100 was selected for the cover of this guide as it is a highly innovative
product developed to compete in a dynamic and fiercly competitive segment of the aircraft industry.
Its competitive rivals include the Embraer E-jet and the Sukhoi SU-jet families. Collectively, they fill an
evolving and hotly-contest segment in the passenger jet market for aircraft smaller than the Airbus A320
and the Boeing 737 families, with around 100 seats.
HOW TO USE THE GUIDE
This guide was developed to assist managers in the formulation of competitive actions, and aims to
provide them with a framework to do so. It can be used by individuals but should ideally be used in group
settings, as the research has found that individuals rarely have all the skills and experience required to
effectively formulate competitive actions, while groups, comprising managers with a range of experiences
and different skills sets are in a much stronger position. The guide provides managers with ideas and
recommendations that can be used to support the formulation of competitive actions and follows a
process, described in the table below and abbreviated as SOLAR, which is based on the research that
preceded the guide. The SOLAR process is summarised in the figure below.
S
A stimulus
triggers the
competitive
R
action O
Desired
The actions
outcomes are
are refined in
envisaged and
an iterative
objectives
process
are set
A L
Actions are
Levers for
developed
executing the
using the
action are
selected
selected
levers
The managers interviewed in the research regard iterating and refining competitive actions as important
because it allows them to develop and test results forthwith, particularly when working closely with
suppliers and customers to prototype them.
The guide is not designed to be exhaustive, in terms of covering every possible permutation in the
formulation of competitive action. Rather, as the diagram below indicates, it deals with a significant number of
competitive actions and seeks to help managers distill their options into a few that are the most appropriate,
given the stimulus, their objectives, the environment in which they operate and the levers available to them.
The ideas and recommendations offered in the guide are based on variables, such as stimuli, the
managers’ objectives, the environmental context and the parameters in which the manager is operating.
For example, a manager at a company that distributes products developed and owned by a separate
entity, probably has no control, and very limited influence, over product development initiatives and,
therefore, the ‘product’ lever would be unavailable to them. The guide is split in two sections:
1. A short guide based on the SOLAR framework, which makes use of diagrams and tables as far as possible
2. A ‘Resources’ guide that describes a list of resources that could be used by managers to support the
SOLAR process.
Resources key
The elements listed below represent suggested inputs to the formulation of competitive actions. There are
six sets of inputs and their application is dependant upon the stimulus, objectives and levers of the action.
References are provided to the use of the various resources in the guide through the application of the
appropriate icons.
It is intended that, based on the stimulus, managers will select a number of resources that can be used as a
tool kit to support their formulation of an action.
• Expand geographically to
improve profitability
• Use retained earnings or new
• Changes in a competitor’s
capital to start a new business
product mix, pricing or
or develop a new product/
marketing approach
service offering
• Customer request for specific
• Diversify business
• Inferior performance functionality or a new product
geographically to reduce risk
compared with competitors
• Introduction of or concentration
• Waning or stagnant sales new technology
• Extend existing
• Unsuitable product mix or • Changing or evolving product/service offering
pricing for a particular market customer requirements
• Review markets, product
or tastes
• Declining profitability due to portfolio and pricing to
STIMULUS
PROACTIVE
REACTIVE
Declining or External or
compromised environmental Shareholder or
performance change management plans
OBJECTIVE
Action
REFINE
Have competitors resource bases changed or have they developed new competencies?
Waning or stagnant sales Are you aware of the possible reasons for waning or stagnant sales and has data, from sources such as customer surveys, as well as data gathered through informal channels, been use to validate this?
PERFORMANCE
Have you considered your competitors, their brands and their product or service offerings and how you and your brand and product or service offerings compare?
Declines in profitability due to increased Have you considered the recent evolution of your industry and are you able to identify the stage of its life cycle? Specifically, has it matured and stabilised, resulting in lower profit margins?
competition Instead of constantly fighting rivals through cost cutting and imitation, have you considered creating a new market space, as Kim and Mauborgne (1999) postulate in their article ‘Creating New Market Space’ and their
book, ‘Blue Ocean strategy’?
Product mix, product attributes or Do you have sufficient data to reposition or update your product mix, product attributes or pricing structures? This data can be collected through informal channels, such as managers speaking with shop floor staff and
pricing have become, or are becoming, directly with customers, as well as through formal channels.
unsuitable for a specific market Have you assembled, or do you have access to, the right mix of marketing, commercial, financial and product specialists to find solutions to optimally reposition or update your product mix, product attributes or pricing
structures?
Customer request for specific Does the new functionality, enhancement or new product or service offering have a broad enough market to justify its development?
functionality or a new product Will the functionality make the product competitive or more competitive than it already is and does the benefit outweigh the cost?
What will the consequences of not developing the new functionality, enhancement or new product or service offering be?
Regulatory change Have you considered the impact the regulatory change will have on your competitors and their products and services relative to your business and your products and services?
Have you looked at similar businesses to yours with similar products or services in other countries or markets that have regulations and regulatory environments similar to those that you will have once the change has been
implemented?
Introduction of new technology Have you assembled, or do you have access to, the right mix of skills and experience to work out how your product or service offerings can be optimised using the new technology?
EXTERNAL OR ENVIRONMENTAL CHANGE
Have you considered your competitive environment, each of your competitors and the competitive advantage or advantages that the new technology could give you?
Have you looked at other countries or markets where the technology has already been deployed to gauge the results of its deployment?
Changes in economic conditions (e.g. Are you able to develop new products or services or update existing ones by pre-empting the change in economic conditions?
interest rates, growth) Have you considered the impact the economic change will have on your competitors and their products and services relative to your business and your products and services?
Changes in a competitor’s product mix, Have you considered using tools such as the Customer Matrix (Bowman and Faulkner, 1994) and the Primary Benefit Map (D’Aveni, 2007) to understand how your competitor’s changes could impact the positioning of your
pricing or marketing approach brand, product or service?
Have you used the Resource Based View (Penrose, 1959) and considered your core competencies (Prahalad and Hamel, 1990) to establish how best to compete with the relevant competitor following the implementation
of their changes?
Have you collected sufficient data to understand how customers perceive the changes and your relative market position?
Have you assembled a team with, or do you have access to, the right mix of skills and experience to work out how your product or service offerings can be optimised using the new technology?
Threat from a new market entrant Do you know in detail what the new market entrant is offering as a product or service and what their unique selling points are? This data can be collected through informal channels, such as speaking with customers that
have been in contact with the new market entrant.
Are you aware of the dynamics of the industry and is the new market entrant able to either join or rival any of the existing strategic groups?
Have you assembled a team with, or do you have access to, the right mix of skills and experience to properly evaluate the threat that the new entrant poses and how you can best deal with it?
Changing or evolving customer Do you have adequate data to understand the changes or the evolution of your customer requirements or tastes?
requirements or tastes Are you using tools such as the Customer Matrix (Bowman and Faulkner, 1994) or the Primary Benefit Map (D’Aveni, 2007) to map the changing or evolving customer requirements or tastes and how they relate to yours and
your competitor’s product or service?
Have you assembled a team with, or do you have access to, the right mix of skills and experience to properly evaluate the changes or the evolution and to effectively respond to it or them?
Use retained earnings or new capital to Have you thoroughly mapped your resources and competencies to those of your competitors and considered your relative advantages?
start a new business or develop a new Have you considered how you may be able to use your existing resources, processes and intellectual property to develop a new business, product or service offering in an efficient and cost-effective manner?
SHAREHOLDER OR MANAGEMENT PLANS
Change customer perceptions about Do you have sufficient data to really know how customers perceive the respective product or service attributes or prices? Apart from data collected through formal channels, such as surveys, has data collected through
product or service attributes or prices informal channels, such as sales people speaking with customers and employees perceptions, been taken into account?
Have the desired customer perceptions been clearly articulated and documented?
Diversify geographically to reduce risk or Which market or markets offer the greatest diversification effect (i.e. which markets, in terms of performance and risk, are least correlated with your home market)?
concentration Are you certain that your products or services will be accepted in the target markets and what data has been collected to support this?
Have you thoroughly considered the competitors in the target markets and have you properly evaluated the effects of possible rivalry when you launch them there?
Expand geographically to improve Are you certain that businesses in new markets will be more profitable than your business in your home market and, if so, have you considered multiple markets and compared them against each other?
profitability Has your product or service offering been developed to its full potential in your home market to the point you have a ‘tried and tested’ solution to take to new markets?
Have you properly considered your competitors in the new markets and have you properly evaluated the effects of possible rivalry when you launch there?
Customer surveys are an effective way of gathering large amounts of quantitative data for objective setting
Restore performance
(RECOVER)
The Customer Matrix is a tool that could be considered for use in setting objectives
Michael Porter’s 5-Forces tool could be used to set objectives as well as to decide on which of the levers to use
SELECT RESOURCES BEFORE SETTING OBJECTIVES
Maintain performance
The relative company size should be properly considered before setting objectives
(MAINTAIN)
SET OBJECTIVES
The company’s relative profitability should be properly considered before setting objectives
Teamwork is useful where many different skill sets and collaboration between different departments within the organisation are needed
The teams education & training should be considered when creating teams to formulate competitive actions, preferably when the stimulus emerges
It is useful to assimilate the level of experience of managers, including their experiences in other territories and parallel industries, when creating teams to formulate competitive actions at the point of the stimulus
It is useful to assimilate the functional biases, as well as the national and cultural backgrounds, of managers when creating teams to formulate competitive actions at the point of the stimulus
(GROW)
Understanding the strategic group and the cognitive communities that the company is part of is useful in understanding the relevant industry structure for the purposes of setting objectives, as well as deciding on which of the 5 levers to use
Understanding the degree of turbulence in the industry is useful in anticipating the effect turbulent environments might have on competitive actions throughout the formulation process
Discontinuing a product is as much a competitive action as changing its price points or product features.
Managers might want to ask themselves and their colleagues ‘what business do we want and what don’t we want’ as part of the objective setting process.
Michael Porter’s 5-Forces tool could be used to set objectives as well as to decide on which of the levers to use
The ‘Core Competency’ could be useful in deciding which of the five levers to use and in formulating competitive actions once a lever or a combination of levers have been selected
The relative company size should be properly considered before selecting the appropriate levers to use
The company’s relative profitability should be properly considered before selecting the appropriate levers to use
The ‘Resource Based View’ could be useful in deciding which of the five levers to use and in formulating competitive actions once a lever, or a combination of levers, have been selected
Considering competitive actions that have been applied in parallel industries and other territories could be useful in deciding which of the 5 levers to use and how to use them in formulating competitive actions
The evolution of industries in other territories could be useful in deciding which of the 5 levers to use and how to use them in formulating competitive actions
Industry maturity and the level of fragmentation in the industry is useful to consider in objective setting and in deciding on which of the 5 levers to use
Understanding the strategic group and the cognitive communities that the company is part of is useful in understanding the relevant industry structure for the purposes of setting objectives, as well as deciding on which of the 5 levers to use
Understanding the degree of turbulence in the industry is useful in anticipating the effect turbulent environments might have on competitive actions throughout the formulation process
The Customer Matrix will assist managers in developing actions using the price and product levers
Competitors’ pricing models should be properly considered when formulating actions using the Price lever
Agents, distributors as well as subsidiaries and divisions within businesses are often unable to alter or influence the functional and technical attributes of the products they market and, therefore, cannot use the product lever, except to bundle different products
together or pre-configure products for specific markets.
Product or service attributes can take time to change or update, due to R&D, production and distribution routines and stock that may need to be depleted before new products can be introduced.
Competitive barriers can be raised by bundling a combination of products together that no other competitors have.
Regulation and economic constraints may govern what is possible. Likewise, changes in regulation or economic conditions may provide opportunities for product innovation.
Changes in consumer behaviour and tastes, as well as social issues, such as environmental impact, may present opportunities for product development or enhancement.
Product innovation can take the guise of adapting an existing product or service for another market with the same or similar consumer requirements.
By tracking evolving consumer tastes, requirements and behaviour, derivatives of existing products can be created to exploit the changes.
Product Maintaining a broad range of competing products may make a company’s market presence more pervasive but it is also expensive to do so and there is a trade-off with the benefits of focusing on fewer products
The segmentation of markets and understanding different segments’ requirements and tastes enables company’s to tailor product variants to different segments. Each segments’ offering can also be mapped to competitors’ offerings to differentiate them.
New technologies can often be used to create competitive advantage. Early adopters may also benefit from first mover advantages.
Focus groups, interviews and ethnographic studies, as well as collecting data through informal channels, will produce richer data than customer surveys, which should allow managers to better understand the issues relevant to their competitive actions
The Customer Matrix will assist managers in developing actions using the price and product levers
The Primary Benefit map could be used to decide on which product benefits to focus on in current and future scenarios
Competitors’ products and services should be properly considered when formulating actions using the Product lever
While we normally think of innovation in product terms and, to a lesser extend, in terms of business models, innovation can also apply to new territories. Specifically, new territories can be sought where the success of a product or service in a particular market
can be replicated. This may mean adapting the product or service for the new market or it may mean maintaining its originality in order to increase the chance of success through replication. As examples, consider products such as motor vehicles, that are usually
adapted for new markets, versus a product such as Coca-Cola, where deviating from the original product will compromise its chance of success.
The company’s distribution channels often inhibit market share. Changing, updating or adding additional channels can be a cost effective and expeditious way of increasing market share.
Place Where the marginal cost and effort of increasing market share in a particular market is high, new markets, where the cost and effort of expanding is likely to be relatively lower, could be considered.
Concentration of a specific offering in a single, or few, markets can be risky, particularly when the company has a large share of the market. The risks relate to the performance of the market as well as the actions of competitors and, in such a scenario, expanding
into other markets would be worth considering.
Focus groups, interviews and ethnographic studies, as well as collecting data through informal channels, will produce richer data than customer surveys, which should allow managers to better understand the issues relevant to their competitive actions
Business models are often moulded to suit environmental factors, such as competition and regulation. For example, many investment banking business models have been developed in response to taxes. Changes in external factors can threaten business models
but can also present opportunities to adjust or rethink business models.
Applying existing products to meet new requirements, often in new markets, can develop new business models. For example, the low-cost carrier model can be applied to the private jet market to provide a cost and time effective solution to busy business
Business travellers.
model
New technologies can enable changes to business models. For example, Software as a Service (SAAS), has allowed many software and software service companies to radically change their business models.
Focus groups and interviews, as well as collecting data through informal channels, will produce richer data than customer surveys, which should allow managers to better understand the issues relevant to their competitive actions
Marketing messages may be supported, and constrained, by group level marketing campaigns or policies. This applies, especially to agents and distributors.
It may be worthwhile considering what has been done elsewhere by associated companies or business units.
While we often think of communication purely in terms of advertising and public relations, there are a host of other means of creating marketing messages. For example, a showroom with a particular look and feel, and in a specific location, sends a message to
Communi- customers and prospects about its position in the market relative to its competitors.
cation
Communication can be used to make a specific product or products more compelling by making consumers aware of their own peculiarities. For example, reminding certain consumers of their own health issues may give a specific product or company an
advantage over its competitors.
Communications can be used to properly define a brand or a product or service offering to the prospective market through a product or brand statement
Segment the market and Cross subsidise finance costs Bundle after-sales support
provide a range of price points from the purchase price to services or extended warranty
Price
for different product and compete more effectively terms with used-products to
service offerings to capture without compromising the compete more effectively with
marginal revenue. value of the perceived product/ competitors’ new products.
service offering.
Bundle sets of synergistic Develop a derivative of an Develop new functionality to Research products and services Use a change in the economic
products in instances where existing product that satisfies close product gaps, match in parallel industries in order environment to update an
competitors only have access the tastes, attitudes and price competitors’ functionality and to develop an improved existing product or develop a
to part of those product sets to elasticity of demand of a new fend off rivals. market offering. new one.
raise competitive barriers. consumer segment.
Product
Expand into parallel industries Segment the market and Discontinue a particular product Customise products for specific Carry out regular and extensive
that target the same market provide variations of product or products to focus on another, market requirements in response consumer surveys and update
segments by altering existing or service offerings to capture remaining product or products. to local consumer behaviour, or replace products in response
products or introducing marginal revenue. tastes and perceptions of value. to evolving consumer tastes
Actions new ones. or attitudes.
Seek out another territory with Distribute existing products in Establish new distribution Establish subsidiaries in
similar market dynamics and new markets on the basis of channels and promotion new but similar territories to
Place
consumer tastes for geographic consumer behaviour, tastes, mechanisms, such as market existing products in
expansion when an existing elasticity of demand and product showrooms for order to reduce geographic
market for a particular product competitive environments to greater penetration in an concentration
is saturated. optimise sales. existing market.
Communication Business model
Bundle products together Use a change in regulation Use existing technology to Acquire businesses with Use new technologies that allow
to increase competitive to update or to abandon an develop a new product or complimentary products or faster and cheaper processing,
barriers and improve their existing business model or to service offering exploiting services in order to strengthen cheaper data storage and
competitive position. develop a new business. partnership with, for example, customer relationships and open improved connectivity to
retailers and local government. up cross-selling opportunities. develop new business models,
such as SaaS.
Communicate the factors that Develop a marketing campaign Use new technologies for Devise a communication
make a product or service to communicate product omni-channel distribution of campaign to reset product/
proposition compelling to changes that result in a information previously distributed service price perceptions
prospective customers that may competitive advantage that through print. without compromising the
not be aware of them. consumers may not be aware of. perceived value of the product/
service offering.
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Resources manual for competitive actions
The advantages of customer surveys, and the data that is gathered is that, provided the sample set is large
enough, the data is generalisable and can be used for quantitative analysis. Customer surveys can also be
used to raise awareness of a product or brand amongst the respondents and, in the research for this guide,
one of the companies involved had surveyed one million respondents to both gather data to guide them
in the development of a new, replacement product and to promote the brand and its associated products.
The disadvantage of focus groups and interviews is that the sample sets are normally too small for the
results to be generalisable and, therefore, they cannot be used for quantitative analysis. Based on the
research, focus groups and interviews are generally used further into the competitive action formulation
process than customer surveys and are more effective after some data has already been gathered through
a method such as customer surveys, and the manager or interviewer, therefore, has a foundation from
which to ask questions and interrogate issues and opinions.
Ethnographic studies
Useful in objective setting and in formulating actions related to ‘price’, ‘product’ and ‘place’
Ethnography is a research method based on observing consumer behaviour. As the name implies, it
has its roots in observing and understanding the behaviour of different ethnic groups. In the context of
formulating competitive actions, an ethnographic study would involve spending time, possible days or
even weeks, with consumers, observing, recording and analysing their behaviour.
For example, an airline wishing to improve its customer service may assign a manager to check-in, wait for,
board and take flights with paying customers right up to the point they collect their baggage on arrival
at their destinations and leave the terminal buildings. The manager would observe the comments, their
actions and, particularly, what they like and dislike, what they appreciate and what frustrates them. This
data could then be analysed to affirm what the airline is doing well and could be used as a competitive
advantage and what could be improved on and how this could be achieved in a ways that will best
respond to customers’ dislikes and frustrations.
A good example of ethnography is the success a vacuum cleaner manufacturer experienced when they
discovered the various attachments that came with their machines, including nozzles, would invariable
get lost. They discovered this by spending time with their consumers in their homes and learnt that the
loss of the attachments caused them great frustration. They responded by attaching clasps for the various
attachments to their vacuum cleaners. One of the retailers that participated in my research spent over a
month in the store observing customer interactions and customer comments while formulating his set of
competitive actions.
Informal channels
Useful in formulating actions related to ‘price’, ‘product’, ‘business model’ and ‘place’
Informal channels were widely used amongst the managers interviewed and the quality and relevance of
the data was often underrated. These informal channels include, inter alia:
1. Discussions with customer-facing employees, such as the sales staff and call centre operators, about
the feedback they receive from customers. This feedback ranged from how customers perceived the
prices of products and the relative perceived value to how well garments fitted them and what they
thought made products special and distinguished them from competitors’ products or services.
2. A discussion with employees that had previously worked for competitors and were able to share
information regarding competitors pricing strategies, product research and development plans and
processes, distribution networks etc.
3. Discussions with customers, either through telephone or email communication, or at the point of sale,
such as on the shop floor, about issues and opinions relevant to the competitive action.
4. Discussions with partner organisations that understand the external environment, particularly the
requirements, policies and actions of competitors and customers alike.
In every instance, the data gathered through informal channels was valuable, as it was rich and pertinent
to the issues customers were confronted with and that were important to them. In cases where data was
gathered from staff, it was often the same staff that executed the actions and being part of their research
and formulation made them feel they were part of the end-to-end process and served to motivate them to
ensure its success.
Examples include the re-pricing of credit default swaps by a financial trading house that underwrites
them. The manager that formulated and executed the action noted, “during this period we monitored
what our competitors were doing and we found they were re-pricing their products. We did this by
hiring from competitors, being friendly with competitors to the point we could talk with them about
their pricing strategies, as well as talking to the banks, which were our common clients, about how our
competitors were pricing their products”. One of the luxury car distributors that participated in my
research relied heavily on the feedback they received from customers and employees while formulating
their competitive actions.
Another good example is a software company based in London. After hearing about a new competitor
providing a system to automate a particular function, they spoke with a few of their existing clients about
the functionality and were told “we are currently performing these functions manually and would like
to automate them but it wouldn’t be worth the trouble of doing so on our own”. Given this feedback,
they started discussions with a law firm that advised clients regarding this function and, the manager
interviewed noted, “this led to us forming a partnership with them and we started specifying the
functionality for a product to compete with the new market entrants”. They then, “mocked up a few web
pages to show what the new functionality would look like and our clients were enthusiastic”, which led
them to develop the product and piloted it with two clients before launching it. This is a good example of
how data can be gathered through dialogues with partners and customers. This example also shows how
competitive intelligence can be integrated with the competitive action formulation and execution process.
The matrix comprises ‘Perceived Use Value’ along the one axis and ‘Perceived Price’ along the other. The
most desirable quadrant is the one with the highest perceived use value and the lowest perceived price,
while the least desirable is the one with the highest perceived price and the lowest perceived use value.
The matrix was designed to help managers better understand a product or brand positions in relation
to their competitors through the lens of the individual customer. Constructing the matrix is an iterative
process that starts with the application of hard information that is then supplemented by experience and
perceptions and refined further as more data is gathered.
The authors have also applied their matrix to the producer view and the relationship between ‘innovation’
and ‘cost’, which allows producers to marry their internal dynamics with their customers’ perceptions
regarding price and use value.
Primary benefits can be defined as either the relative market position of a particular product or a specific
functional or technical attribute of the product. The Primary benefit map was published in D’Aveni’s article,
“Mapping Your Competitive Position”, in the Harvard Business Review in November 2007 (p 110-120)
The matrix provides a “joint statement of a product line and the corresponding set of missions which
products are designed to fulfil” and describes four different growth alternatives, including:
• Market penetration, in which the company aims to grow using existing product or service offerings in
existing markets. This entails increasing market share within existing market segments.
• Market development, in which the company aims to expand into new markets using existing product or
service offerings.
• Product development, in which the company aims to create new products or services targeting existing
markets to achieve growth.
Porter’s 5-forces
Useful in objective setting and determining which of the 5 levers to use in formulating competitive actions
The Five forces model published by Michael Porter in his 1980 book ‘Competitive Strategy: Techniques
for Analysing Industries and Competitors’, provides a framework for analysing the level of competition
within industries. In the book, Michael Porter asserts that firms will have unique strengths and weaknesses
in dealing with industry structure and industry structure shifts over time and, therefore, understanding
industry structure must be the starting point for strategic analysis. The ‘Five Forces’ is a model for
assessing a number of important economic and technical characteristics of an industrial organisation and
Porter suggests that, once the industry structure has been analysed, offensive or defensive actions can be
taken to reposition the brand or product to compete optimally.
Because the model is aimed at understanding the dynamics of the industrial organisation, and precludes
factors pertinent to the formulation of competitive actions, such as relative product or service attributes,
consumer trends and attitudes and the experiences and skill sets of the managers formulating the actions,
it has limited applicability in this context. It’s real value, in this context, lies in analysing competitive
forces as inputs to the formulation of the action and, therefore, in setting objectives for the action and in
deciding which of the five levers referred to in this guide to use, possibly in combination with each other.
In addition to the Five forces model, a 2 x 2 model for predicting the rate and stability of returns in an
industry based on entry and exit barriers is also provided in the book, as is a 2 x 2 model for deciding on
the adoption of one of three generic strategies based on the uniqueness perceived by customers of the
product offering and the firms cost position.
Core competency
Useful in deciding which of the five levers to use and in formulating competitive actions once a lever or
a combination of levers have been selected
Prahalad and Hamel described competencies as the root of competitiveness in their 1990 article ‘The core
competence of the corporation’ published in the Harvard Business Review (v. 68, no. 3, p 79–91). They
postulate that a core competency results from a specific set of skills or production techniques that deliver
additional value to the customer. These lead to the development of core products that can be used to
build many products for end users, which enables the company to access a wide variety of markets.
Core competencies are developed through the process of continuous improvements over the period
of time rather than a single large change. The article is particularly useful in helping managers analyse
their companies competencies when deciding on which new markets to enter, how to update or enhance
existing products or business models or which new products to develop to ensure optimal success.
New value curves attempt to transform enormous latent demand into real demand. Strategic groups can
generally be ranked in a rough hierarchical order built on two dimensions; price and performance. The
key to creating new market space across existing strategic groups is to understand what factors determine
buyers’ decisions to trade up or down from one group to another. This requires that companies challenge
the functional-emotional orientation of their industries.
Intensity of rivalry
Useful in objective setting
The intensity of rivalry within an industry and between competitors should serve to inform the objective
or objectives set for an action and, as a consequence, the actions themselves. For example, where
rivalry is intense, managers may consider innovating by developing a new product or a new business
model in order to avoid further competitive pressure, as proposed by Kim and Mauborgne in their article
‘Creating new market space’. Where rivalry is less intense and the industry may still be growing and
enjoying abnormal profits, managers would probably feel less compelled to devote capital expenditure
to the research and development of a new product or service and would rather pursue an action such as
launching a communications campaign to make consumers more aware of existing products or service with
the objective of increasing market share.
It should also be pointed out that managers’ often avoid deviating from the conventions set by strategic
groups for fear of rivalry from other firms in the grouping. This is particularly applicable to oligopolies. For
example, managers of an airline or a bank may be reluctant to decrease their pricing below that of their
competitors because of the rivalry it may trigger.
For example, if it is known that there is a much larger competitor, with the advantage of greater economies
of scale and, therefore, lower production costs, already fulfils a particular customer requirement it would
not make sense to try to satisfy that same requirement, even in an indirect manner, as this would probably
mean ending up in the ‘gap in the middle’, as described by Michael Porter (1980).
Smaller companies operating within an industry or a strategic group would be better off considering niche
markets for expansion or profit preservation and developing products and services that meet specific
customer requirements, rather than broad ones.
It was observed in the research leading to the development of this guide that managers at large
companies make a mental assumption that their companies should be able to compete more effectively
than their smaller competitors because of their more comprehensive and more developed resource bases.
For example, the manager at a large IT company stated that by combining their resources, including both
internal resources and those made available to them by partners at preferential rates because of their size,
they would have a competitive advantage over smaller competitors in price and in the functional breadth
of their solution offerings. A manager at another large IT company was surprised that a small competitor
could enter their competitive set because he thought they would not be able to fulfil their customers
rigorous procurement requirements.
It is also worth noting that, based on the research, larger companies tend to formulate and execute
competitive actions in order to fend off competitive threats from smaller competitors or as a reaction
to shrinking sales figures or market share, while smaller companies that tend to formulate and execute
competitive actions with the objective of growing their businesses.
Relative profitability
Useful in objective setting and in deciding on which of the 5 levers to use
Better profitability usually translates into more retained earning and, therefore, a larger war chest to use to
defend a market position, increase market share or innovate new products, services or business models.
This war chest could, however, also be funded through a rights issue or debt or, in the case of one of the
companies used in the research, the investment of a new shareholder. In this instance, the war chest was
used to acquire companies that own complimentary services that could be bundled with the acquirer’s
existing products and services to create new and unique solutions and to cross sell products and services
between the collective companies customer bases.
Higher profits need not necessarily be used to defend market positions or increase market share as
blatantly as in the example above. They could, for instances, be used to innovate by either updating
existing or developing new products, services or business models, placing less profitable companies, that
are unable to do so, at a disadvantage. It’s important for managers to be aware of the ramifications of their
profit positions relative to their competitors when they set objectives and when they decide which of the
five levers to use, and how to use them, in the formulation of their competitive actions.
The framework combines the internal analysis of phenomena within the company and the external analysis
of the industry and the competitive environment. Specifically, the framework suggests companies should
focus on defining their valuable resources that enable them to perform activities better or more cheaply
than their rivals.
Using the competitive actions from other territories or parallel industries can be used in conjunction with
a tool such as the Customer matrix or the Primary benefit map, both of which are covered in the ‘Tools’
section of this guide. The ‘new’ perceived product value, product features or the price of the product
following can be mapped against competitive offerings to try to ascertain the efficacy of the action before
implementing it.
The same or similar industries in different territories often follow the same evolutionary patterns but at a
staggered pace. It may be a good idea to identify territories that are evolutionary front-runners and study
them for ideas and input in deciding which of the 5 levers to use and how to use them in formulating
competitive actions.
1 Telecommunications corporation
A good example is a bank that used their anticipation of a downward shift in interest rates to develop
a new mortgage product. The product’s principal feature was a reduced rate on the mortgage loan for
the first two years - they initially thought of setting this at 5.5% (from 8%) by ended up setting it at 4.5%
deciding this would make the impact they needed, based on interactions with the marketing department
and, ultimately, with customers.
In this example the communication channels between customer-facing staff, the marketing department,
the Strategy & planning department, the banks’ economists and the Asset & Liability committee (ALCO)
were open and fluid. The different inputs, including macro-economic analysis, customer surveys, market
analysis, ALCO committee discussions used to develop the new product were tight and, for example, the
marketing department and the economists knew of the ALCO’s objective of growing the mortgage book,
the Strategy & planning department and the ALCO were informed by the economists of the anticipated
decrease in interest rates and the marketing department worked with the Strategy & Planning department
and the customer–facing departments of the bank to ensure the successful roll-out of the new product.
Regarding causality, it could be argued that larger companies tend use more sophisticated methods
and also place greater emphasis on formal qualifications when employing managers and, therefore, the
sophistication of methods employed is a function of the size of the company and their recruitment policies,
rather than being a direct a result of the level of training of the manager.
When team members are selected to formulate and execute competitive actions, managers should be
aware that, if the tasks leading up to the action require a thorough and deliberate approach, they would
probably be better served using staff with formal educational qualifications in business or marketing
disciplines. Should the formulation of the action require a more entrepreneurial approach, for example
combining products in new and innovative ways where no data is available to predict how the market
would respond or in addressing to sagging sales due to evolving customer tastes, a more experienced
manager should probably be sought and less emphasis could be placed on his or her education and
formal training.
Other skills and training backgrounds could also be considered, depending on the type of action. For
example, if the action involves trying to understand how consumer behaviour is changing or tastes are
evolving and responding to these changes, the skills of an anthropologist or industrial psychologist could
prove to be useful.
Functional biases
Useful in creating teams to formulate competitive actions at the point of the stimulus
Bowman’s and Daniels (1995) study on the influence of functional experience on perceptions of strategic
priorities concludes that when managers are asked to reflect on their own company’s situations there is
evidence of functional bias in the perceptions of priorities derived from generic competitive strategies.
Career backgrounds influence managers’ frames of reference (Whitley, 1987). Hodgkinson and Johnson
(1994) argue that the diversity of managers’ frames of reference influences their perceptions of competition
and how their brands or products are positioned in the market.
Hofstede (1980) suggests that managers’ frames of reference influence their perceived control of the
environment and strategic behaviour. There are, of course, also factors within the organisation that
influence managers’ mental models. At the level of functional groups, for example, there are functionally
specific belief systems and perceptions of issues (Dearborn and Simon, 1958; Handy, 1985). Whitley
(1987) argued that managers’ views of the world are shaped, at least in part, by their career backgrounds.
There is a continual interplay between the individual, the context in which he or she operates, the frames
of reference related to these contexts, and the political and social processes at work (Hodgkinson and
Johnson, 1994).
When assembling teams to formulate and execute competitive actions, it may be a good idea to list
the skill sets and the experiences that are ideally required. Thereafter, you could shortlist the staff that
could possibly participate in formulating and executing the specific action and, lastly, map the skills
and experiences of the shortlisted staff to those required for the action. A mix of staff with different
functional backgrounds and biases could prove to be very valuable in covering all bases when formulating
competitive actions.
Managers draw on a series of frames of reference to make sense of their worlds. Hodgkinson and Johnson
(1994) found that managers’ frames of reference are influenced by their experiences and that national
culture is a strong influencer. As a result, their frames of reference are broader than organisational or
industry level frames. It also suggests that the diversity of frames of reference goes still wider than the
organisation or industry level and that there is increasing evidence that national culture affects managers’
interpretations and responses to strategic issues.
My research showed that a mix of different national and cultural backgrounds could be advantageous in
the formulation of competitive actions, particularly when the frames of reference of a manager that has
successfully responded to a particular stimulus in a foreign territory is combined with those of a local
A good example of the combination of local and foreign managers for the purpose of formulating
competitive actions is a car distributor in an emerging market. Foreign managers, who had experience in
building the brand and marketing their products in other parts of the world, worked with the local General
Manager, who had been working in his market for over 20 years, had lived in the country his entire life and
who’s frames of reference had been developed through his life and work experiences. A set of actions
where formulated to pre-launch the automobile brand in this market and tasks, such as designing and
developing marketing material and then deciding on which advertising channels to use, where successfully
completed with the input of both sets of managers.
It may be useful to take stock of the experiences that staff that could be employed in the formulation
and execution of the requisite competitive action have had in other territories or industries to ascertain
possible relevance.
Industry maturity
Based on my research, the competitive set tended to be fragmented and opaque to managers operating
in nascent industries, while in mature industries the competitive set tended to be well established and
managers’ frames of reference tended to be more aware of who their competitors were and what their
competitors were doing in the context of competitive actions. The managers who were interviewed at IT
companies, whose industrial structures were still evolving and, therefore, their competitive sets were not
as clearly defined as those of the automotive or FMCG industries, were less deliberate in their approaches
to gathering market intelligence and formulating and executing competitive actions. They viewed their
competitive environments less clearly than those in the automotive and FMCG industries and were less
aware of how competitors might react to their competitive actions. They were also less formulaic in how
they gathered data and made decisions related to competitive actions.
A fruit juice manufacturer had very precise sales data for his brands and those of his competitors and
was able to estimate the income and expenses associated with producing and marketing his brands, as
well as those of his competitors’. The approach to formulating competitive actions was also very precise,
surveys were used to gauge market acceptance and a tool was used to estimate sales volumes related
to new products being considered and how much would need to be spent on marketing to achieve
these volumes.
One of the managers interviewed at a company that produces smart cards, was aware that if all they
did was produce and market them, their competition would be intense and their margins would be low.
The manager also took a resource based view of the business and, taking into account their size and the
relatively high skills sets and the corresponding cost of their personnel, decided to use the smart cards
It is useful to be aware of how mature the industry you operate in is, and how well developed it’s structures
are. This has an impact on the data that is available to you and your competitors and it’s sources, as well as
the rivalry you are likely to experience, which in turn affects the objectives you can set for yourself and the
type of actions that are likely to be successful. It is also worth reading the section that follow, particularly
those about ‘Fragmentation’ and ‘Strategic groups & cognitive communities’.
In mature industries Competitors’ data (sales data etc.) should be available through formal channels, such
as marketing agencies, to use in formulating competitive actions. You could try to augment this data with
data obtained through informal sources, such as employees that used to work for competitors and shared
customers that are prepared to talk about your competitors to gain a more well-rounded view of your
competitors’ plans and actions. In nascent industries competitors’ data (sales data etc.) won’t be readily
available so you will need to use informal sources, such as employees that used to work for competitors
and shared customers that are prepared to talk about your competitors.
Fragmentation
Useful for understanding industry structures, particularly in objective setting and in deciding on which of
the 5 levers to use
The fragmentation of competitors in an industrial structure is more likely to be evidenced in a nascent or
growing industry than a mature one, where industrial structures have been established over many years.
In my research, I analysed the way in which a smart card producer that uses the cards as mechanisms to
develop and launch products that fill specific market needs, views and relates to competitors and potential
competitors. The company sought to avoid competing with other smart card producers’ head on by
finding customer needs that haven’t been satisfied and that they could respond to with solutions that
used the smart card as a delivery mechanism. These customer needs where synonymous with nascent and
fragmented markets and their focus was on satisfying customer needs with little or no consideration for the
competitive environment. This is a function of the maturity of the industry they operate in and its relatively
unorganised structure.
Fragmented industries can present great opportunities and the smart card producer is a very good
example of how companies can avoid head-to-head competition by seeking out unsatisfied customer
requirements in parallel industries that are nascent and fragmented. This is the approach advocated by
Kim and Mauborgne in their 1999 article ‘Creating New Market Space’ published in the Harvard Business
Review. They describe the approach as seeking ‘new value curves’.
If you are operating in a nascent or growing industry, it is worth asking yourself if you are aware of
possible new market entrants? In many organisations, the links between the market intelligence gathering
function and the sales, marketing and planning functions are weak. With these functions integrated, the
organisation will be in a better position to anticipate and deal with threats from new market entrants
as early on as possible, which is particularly pertinent to fragmented industries whose structures are
still evolving.
The construction of cognitive groups allows managers to estimate the effects of environmental changes
on sets of organisations within an industry, instead of having to estimate the effects on all firms individually
(Porac, Thomas and Baden-Fuller, 1989). Firms that produce similar products or provide similar services are
often similarly affected by the conditions to which they are exposed (Tallman et al., 2004). Prevailing wage
rates, raw material availability and shifting customer demands are examples of environmental conditions
that similarly impact organisations within a cognitive group. These conditions can possess both limiting
and enabling characteristics that can affect the direction of change for the organisation (Bloodgood and
Morrow, 2003). Managers are attuned to how firms within their cognitive group compete with one another
and are likely to use competitive analysis to help them better understand and predict these organisations’
actions (Porter, 1980).
Though essentially an individual-level concept, cognitive frameworks are influenced by the interactions
individuals have with others (Bogner and Barr, 2000). As interactions occur among a number of different
individuals within a given social grouping, the commonly shared ideas begin to take on an existence of
their own, independent of the individuals that created them, and frameworks that exists at supra-individual
levels begin to emerge (Wiley, 1988). These “shared belief systems” make coordinated activity possible
by providing a common framework for observing and interpreting new stimuli and for coordinating
appropriate action (Kelly, 1955).
Individuals in an industry interact with each other. They go to the same conferences and exhibitions,
they read the same industry literature and they recruit staff from the same labour pool (Reger and Huff,
1993). They share the same suppliers in their value chain activities and observe what competitors do
through benchmarking (Porac et al., 1989). As a result, shared beliefs about competitive challenges and
opportunities are created through the cross-fertilisation of such interaction. Potentially, this may lead to the
adoption of similar ideas and practices and thus may hinder differentiation.
It is also evident form my research that oligopolies act in a coordinated fashion in the context of
competitive actions. Kelly (1995) noted “Shared belief systems enable coordinated activity by providing a
common framework”. These structures are associated with industry maturity. In other words, as an industry
matures so the structures become more and more engrained. The research leading to the development
of this guide confirms this insofar as managers in the mature industries, including the automotive, financial
services, FMCG and fashion industries, were far more aware of their competitors and, therefore, the
structures of their industries, than the managers operating in nascent (emerging and growth) industries,
including the information technology, smart cards and new media industries. Wiley (1988) asserts that
supra-individual level frameworks emerge as interactions take place among different individuals within
a given social grouping and the commonly shared ideas begin to take on an existence of their own,
independent of the individuals that created them.
Managers operating within defined strategic groups may consider deviating from industry norms, in the
context of product development, communication campaigns and the reconfiguration of product or service
offerings or the way in which they are packaged, in an attempt to increase their profit levels above their
industry norms. Managers may also prefer to take comfort in not deviating from industry norms for fear of
possibly compromising their profits.
Degree of turbulence
Useful in understanding the effect turbulent environments might have on competitive actions
throughout the formulation process
Conventional cognitive frameworks employed to make sense of industrial competitive environments may
not work in turbulent industries. Bogner and Barr (2000) describe the cognitive frameworks employed in
hypercompetitive industries as “adaptive sense-making” and suggest that in hypercompetition those
processes continue indefinitely as members of the industry continually seek to disrupt it. Further, they
argue that these processes can become institutionalised as standard operating procedures within firms
and as shared recipes within industries, which in turn perpetuates hyper-turbulent conditions. Thus,
hypercompetition becomes a relatively permanent situation, though it may be punctuated by brief periods
of stability.
Schneider and Shiffrin (1977) observed two qualitatively distinct processing modes in their study, being
‘Automatic’ and ’Controlled’. Automatic processing was described as unintentional, involuntary, effortless,
autonomous and occurring outside of awareness. In contrast, controlled processing was described as
flexible, within an individual’s intentional control, effortful, active, constrained by short-term attentional
resources and motivated or strategic. Uleman (1989) formulated an expanding continuum of multiple,
fuzzy and overlapping cognitive processing modes that form a progression from absolutely automatic to
unconditionally controlled.
Figure 4: Controlled vs. automatic decision making in the context of competitive action formulation
Reger & Palmer (1996) found that as situational uniqueness increases, accurate interpretation becomes
more difficult and, in unfamiliar environments, automatic category assignments based on out-dated
maps are likely to result in erroneous action, as automatic judgments are made without reflection.
They concluded that managers’ cognitive maps, on a collective basis, became less consensual as the
environment became more turbulent. However, the mean number of constructs per individual increased
only slightly and not significantly.
Reger and Palmer (1996) stated that many strategic decisions are made under stress and time pressure
and, despite sophisticated planning and decision support systems aimed at coercing executives
into controlled processing, automatic cognitive processing may be the dominant mode in strategic
issue diagnosis.
When environments are relatively stable for long periods of time, reinforcement of well-learned, ready-
made categories occur (Reger and Palmer 1996, Dutton 1993). This results in a strong convergence
between automatic and controlled schemas. Automatic and controlled mental models are expected to
remain similar until the environment changes substantially enough to render them obsolete (Reger and
Palmer 1996).
Consistent with Schumpeter’s (1942) and the Austrian school of economics theory of innovation and
abnormal profits, Wiggins & Ruefli (2005) assert that no one except the innovator makes a genuine ‘profit’
and that the innovator’s profit is always quite short-lived. Their research finds that:
• Periods of persistent superior economic performance have decreased in duration over time
• Hypercompetition is not limited to high-technology industries, but occurs throughout most industries,
but that superior economic performance decreases in duration over time in both ‘high-tech’ and ‘low-
tech’ industries but at a slower rate in ‘low-tech’ industries
Over time, companies increasingly have sought to sustain competitive advantage by concatenating a
series of short-term competitive advantages. Schumpeter and Wiggins & Ruefli contend that the only way
to sustain superior economic performance or abnormal profits is to constantly innovate.
The research leading to the development of this guide found that the intensity of competition is also
a function of cultural and national norms, as well as regulation. For example, the anti-corruption laws
introduced in Mainland China caused considerable competitive upheaval in the fashion industry and the
procurement regulations imposed on state-owned entities in Kazakhstan guided the way in which other
state-owned entities marketed and sold their products and services. D’Aveni (1994) noted that the airline,
Managers that find themselves operating in competitive environments that are turbulent, or are becoming
ever more turbulent, should be aware of the impact the situational uniqueness is likely to have on
their environmental interpretations and their mode of processing. Regarding how to effectively deal
with increasing turbulence, managers could consider one of two approaches, depending on the core
competencies of their companies. These include:
1. Innovate in order to sustain superior economic performance. This innovation could apply to products,
pricing policies, communication campaigns, sales and distribution structures and practices or
business models.
2. Look to apply your core competencies to other products or services or in other industries or territories
where ‘new value curves’, as advocated by Kim and Mauborgne in their article ‘Creating New Market
Space’ published in the Harvard Business Review in 1999.
In either instance, it would be worthwhile reading the article by Prahalad and Hamel (1990) titled ‘The
core competence of the corporation’ and the article by Collis and Montgomery (1995) ‘Competing on
Resources’, which both provide frameworks that companies can use to differentiate themselves from rivals.
These are premised on the Resource Based View (RBV) concept described by Edith Penrose in her 1959
article ‘The theory of the growth of the firm’.
2. Bloodgood, J.M. and Morrow, J.L. (2003), S trategic Organisational Change: Exploring the Roles of
Environmental Structure, Internal Conscious Awareness and Knowledge, Journal of Management
Studies, Vol. 40 Issue 7, November 2003, p1761-1782
3. Bloodgood, Turnley and Bauerschmidt (2007), Intra-industry shared cognitions and organizational
competitiveness, Strategic Change, John Wiley & Sons, Sept-Oct 2007
9. D’Aveni, R. (2007), M
apping Your Competitive Position, Harvard Business Review, November 2007, p
110-120
10. Dearborn; de Witt, C. and Simon, H.A. (1958) S elective Perception: A Note on the Departmental
Identification of Executives, Sociometry, Vol. 21, p140-144
11. Dutton, J.E. (1993), Interpretations on automatic: a different view of strategic diagnosis, Journal of
Management Studies, Vol. 30 Issue 3, May 1993, pg 339-357
15. Gripsrud, G. and Grønhaug, K. (1985) S tructure and Strategy in grocery retailing: a sociometric
approach, Journal of Industrial Economics, March 1985, Vol. 33 Issue 3, p339-348
16. Hodgkinson, G.P. and Johnson, G. (1994), E xploiting the mental models of competitive strategists: the
case for a processual approach, Journal of Management Studies, July 1994, Vol. 31 Issue 4, p525-551
Page 184
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Page 186
Page 187
Page 188
Page 189
Page 190
Page 191
De Chernatony, The study found that managers don’t view their industries in
L. ; Daniels, the classical economic sense, based on firms with similar
K.; Johnson, G. technological production characteristics or easily
(1993), “A Cognitive substitutable products or material processes. They are not
Perspective on attentive to these details and, instead, to cope with their
Managers' finite cognitive capabilities, they only mentally map a small
Perceptions of number of competitors. Furthermore, managers tend to have
Competition”, differing perspectives regarding the competitive structures of
Journal of Marketing their industries
Management,
October 1993, Vol. 9
Issue 4, p373-381
Dohyeon, K. (2013), The study suggests industrial organisations or strategic
“Cognitive groups are cognitive communities formed by strong outside
communities and authority (legitimacy-based groups) in which managers share
legitimacy based similar mental models of their competitive environments.
groups: the role of The study also suggests that managers of relatively new
external entrants show an apparent cognitive similarity to managers
categorisation on of firms within their legitimacy-based group and that
cognitive similarity”, legitimacy providers exert a strong influence of on the
Academy of formation of competitive cognition. The authors suggest that
Strategic the number of legitimacy-based groups may predict the
Management number of cognitive communities.
Journal, 2013, Vol.
12 Issue 2, p1-29
Page 192
Page 193
Krieger, A.M. and The authors describe their tool for competitive positioning,
Green, P.E. (2001), named VOICE, that they have created to provide an approach
“A decision support to developing message bundles and targeting potential-buyer
model for selecting segments. The tool is based on the use of a quadrant chart to
product/service map the relative performance and the relative importance of
benefit various product attributes. The tool’s inputs include survey
positioning’s”, data on respondents’ judged attribute importance ratings
European Journal of and perceived performance levels of the different
Operational competitors for each attribute.
Research, Vol. 142,
p187-202
Page 194
McGrath, R.G. and The article identifies two antecedents to competence, which,
MacMillan, I.C. the article asserts, results in competitive advantage. These
(1995), “Defining include the ‘comprehension’ of the management team and
and developing the ‘deftness’ of their task execution. A dynamic, process-
competence: A oriented framework is provided. that takes ‘comprehension’
strategic process and ‘deftness’ as inputs to ‘emerging competence’, which is
paradigm” Strategic used to develop ‘competitive advantage’ that results in rent,
Management or abnormal profits.
Journal. May 1995,
Vol. 16 Issue 4,
p251-275
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Table 1: Summary of literature review
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Competitive action 1 - Luxury car 'It's closer than you think' campaign
Context
• There is a misalignment between the market perception of the cars' prices and what they actually cost. The market perceives them to
be a lot more expensive than they actually are.
• The manager defines his competition as “any reward for business success, which could include an expensive holiday, a yacht, an
investment or a luxury motorcar”. He was trying to think beyond the conventional definition of competitors but is probably
broadening the definition too much.
• The company interviewed are cost sensitive when it comes to market research and, therefore, don’t use survey and rely primarily on
feedback received directly from their customers through their salesmen and through a Customer Relationship Management (CRM)
system, in which all customer interactions are logged, to gather market intelligence.
• The manager interviewed is the General Manager of the national distributor and is self-trained, doesn’t have a formal marketing
qualification and worked his way up from being a salesman.
Intervention Outcomes
• The manager acted on feedback • They wanted to let their target market
received from customers Mechanism know that their cars are more affordable
• The manager doesn’t use any
than they are perceived to be but
They came up with the tag line
frameworks or techniques to without detracted from the value of the
‘It’s closer than you think’,
formulate their competitive actions. brand.
which encapsulates the
• They respond directly to interactions • The manager had very direct and short-
message they were trying to
with customers and prospective term expectations (i.e. execute a
send prospective customers
customers so the relationship campaign and achieve an immediate
regarding the actual price of
between their knowledge of the performance in sales) and was
their cars without saying 'they
market and the competitive actions disappointed by the outcome of the
are actually cheaper than the
they take are very direct. campaign using the tag line because less
market perceives them to be'
• The feedback from customers led additional cars were sold after the
me to embark on a campaign to campaign.
change that price perception.
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Competitive action 2 - 'It's closer than you think' media selection and placement
Context
According to the manager interviewed, the brands they compete with directly include C1, C2, C3, C4, C5’s top products the top end C6 and
C7 products. The manager is, therefore, aware of his immediate group of competitors, which would be referred to us a 'strategic group' in
Industrial Organisation literature.
Outcomes
Intervention Mechanism
• The selection and placement of
• The tag line, ‘It’s closer than you think’,
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Context
• The manager believed that simply sending a message to prospective customers that their cars are more affordable than they might
have though was not enough, and the cars had to be made more affordable too.
• The manager had the idea of combining the advertising campaign with competitive actions that actually made the cars more
affordable and combined it with a cost-effective finance plan and a warranty on used cars.
Intervention
Outcomes
• The manager had the idea that used
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• The business is an IT company that, amongst other things, produces loyalty cards with very specific business applications
• The manager uses a tool called the Competitive Compass. According to the tool, the business is in the middle with higher perceived value
but higher than average perceived prices, rather than a total niche, which would have high prices, higher perceived value and, potentially,
low volume.
• The manager associates high-volume, low-margin businesses with relatively small budgets for R&D, which results in them not being as
innovative as their low-volume, high-margin industry peers.
• The business has to focus on a 'low volume, high value' niche in order to compete effectively because its cost base is higher. Applying the
Resource Based View, they employ comparatively talented people, which result in relatively high costs
• The manager’s approach has been to look beyond what is currently being done, to focus on issues and challenges their clients are faced
with and to develop solutions to satisfy them.
Outcomes
Intervention Mechanism
• The new loyalty card was
• Part of the business produces smart cards, which is highly commoditised A new loyalty used as a vehicle to deliver
market to be in. According to the manager, if that was all the business card was a unique and innovative
did, and if it operated solely in the smart card producing environment, it launched that service with high margins.
would be challenging, as they would be under pressure to act rewards users • The manager intends to
responsively to changes in market conditions. for using public develop ‘You Can Do It’ as
• The development life cycles for such service offerings are long. However, services such as a business in its own right
a number of development-related processes were run in parallel, schools and and to get it to a point
resulting in reduced lifecycle time. public transport where it has sufficient
• To develop the intervention, the manager read white papers regarding with points that traction, in terms of the
developments in the transport sector and developments in government, can be number of businesses
as well as looking at businesses and why they’re going out business. redeemed at participating in the
• To gather market-data the company surveyed people telling them what supermarket programme, and then sell
they were thinking of doing and asked “what do you think about it?” partners. it as a stand-alone business
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• The company develops software for the institutional asset management industry, which is a very stable one. Therefore, buyer bargaining
power is high and opportunities exist to decrease operating costs through outsourcing, shared services, ‘software as a service’ etc.
• A new, small competitor, C1 with slightly disruptive compliance technology appeared and the manager didn’t see them as a threat at first
but began to when they introduced a new product to the market.
• C1 sold their software on a one-year service contract basis to get around the customers’ procurement policies, which allowed them to
compete with the larger incumbent players by selling to large blue chip organisations that they would not otherwise have been able to.
• Internal development is an alternative option to buying software for investment managers and, therefore, the product offering had to be
compelling enough for prospective customers not to want to go the internal development route.
• The company did quite a bit of work to understand C1 pricing model and it became apparent that they didn’t really follow a model because
they were so small and, therefore, priced the software on a deal by deal basis.
Intervention Outcomes
Mechanism
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• The company operates in an oligopolistic industry in which it is very hard for participants to differentiate themselves from each other or
to create barriers to entry.
• A customer satisfaction survey is carried out every year but the results don’t seem to change much. The company also uses mystery
shoppers who ask randomly selected customers questions to understand their needs as a way of gathering data about the appeal and the
suitability of its products to customers and prospective customers.
• Before the intervention the company had a relatively small share of the mortgage market and the interest rate cycle was changing.
Intervention Outcomes
• The process started at the ALCO (Asset/Liability Mechanism
• Increasing the
Committee). The market was liquid, particularly at • The existing mortgage loan product mortgage loan
the short end, and rates were coming down. was updated. All banks in the market book has been a
• The company initially thought of offering a rate of offer mortgage loan products with goal since the
5.5% for the first two years but thought this would interest rates of around 8% per annum. company’s last
incite retaliation from competitors. Their The company’s new product only costs annual planning
Asset/Liability committee went for 4.5% because 4.5% for the first two years. The terms cycle.
they thought they would have first mover of the product include not being able • The product has
advantage. to cancel it within 5 years. This period been a huge
• Goals are discussed in the product development allows the product to become success and we
forum, which is a multi-functional meeting in which profitable for the company. have moved from
all goals are discussed across various functions in the • Billboards and posters in the branches the no. 2 to the
bank. were used, as well as radio advertising, no. 1 spot for
• The market is analysed and priorities are set where to promote the updated mortgage mortgage lending
the bank wants to focus its growth and targets are product. in our market.
set. This is done annually.
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• The company operates in an industry that distributes and retails carpets and textiles in a developing market
• Information on competitors is hard to gather. Most of it is obtained from customers who speak about the company’s competitors, as well
as from employees that used to work for their competitors, who tell them about their competitors’ prices and their sales volumes.
• The company is the largest player in their industry in the country they operate in. They have four or five competitors and the second
largest is only around 50-60% of their size.
• This business has incredible economies of scale and a strong supplier bargaining position relative to the other flooring businesses in their
country.
• The company are the sole agents for all carpets manufactured in a particular country that is the only carpet-manufacturing nation in the
Outcomes
two countries shared economic bloc. This represents a barrier to competitors, as there aren’t any duties on goods traded within the
Intervention
• The actions
• The manager observed Mechanism helped the
and copied the number
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• The company wanted to change its strategy to
• The manager spent a month in the store observing • The company being in the flooring business, rather than the
customer interactions and customer comments. introduced a 4G carpeting business. They wanted to include
• Once we had decided what they wanted to do, service with both other forms of flooring in their product
they set about categorising the carpets their voice and data. offering, including wooden floors, PVC and
competitors sell and split them into two • They dropped their tiled flooring.
categories, including 'price sensitive' and 'style rates to below C1’s • They wanted to widen range of competitors
aware'. • The company used we have.
• To determine the 'list' prices they gathered data a billboard • The businesses turnover has more than
on competitors’ price lists. campaign and doubled since the manager over in June 2013,
• Porter's 5 forces was used to map substitutes, placed the from around $3.5M/annum to around
customers, rivals and suppliers. There are a few billboards in the $9M/annum. Part of the increase is due to the
suppliers in the industry and a lot of customers. vicinities of C1's market segmentation strategy and part of it is
Therefore, the power is vested with the suppliers. existing billboards due to the introduction of curtain materials.
• Every week they review their competitors' price and made • Before the competitive action we used to
lists and adjust their own prices to ensure they are reference to their import 1 container of BCF product every
below their competitors lower priced and month. Thereafter this increased to 1 1/2
faster data containers every month.
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Competitive action 9 – Sales to fellow state institutions in the last fiscal quarter
Context
• The company’s systems integration business has a number of competitors, who are sometimes partners (e.g. a large ERP supplier,
‘ERP1’).
• There are two to three companies included in the company’s competitive set that can implement large-scale projects in the tens of
millions of US Dollars, including the company itself.
• In terms of competitors that are purely IT companies, the company has between 5 and 10. The uncertainty with respect to the exact
number indicates that the manager doesn't pay that much attention to the definition of their competitor set.
• National companies must consider other national companies before private sector companies for the products and services they
procure.
• Competitors are able to offer irregular payments to customers and, therefore, many customers are shut out to the incumbent.
• National companies that have unspent budget and don't have the time for tender processes, are able to buy directly from other
national companies without going through tender processes.
Intervention Mechanism
Outcomes
• The competitive advantage that the manager's • The company decided
The company positioned itself
company had over private sector competitors to target state-owned
to capture the business of
becomes increasingly relevant as the year end companies with
state institutions that could
approaches and state-owned companies have unused budgets at the
only use their remaining
unused budget. end of the fiscal year
budget in the last quarter of a
• The company’s management understand that yielded a result.
fiscal year because of the
they are inefficient and will have to transform • One of the other state-
tender process required of
the business in the next 3-5 years, which is owned companies
them if they wanted to
their grand strategy that overarches both the signed a deal with us in
procure products or services
revenue and the expense side of the income 2013. The deal was
from the private sector.
statement. signed right at the end
of the year.
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Context
• The company is the only mobile telephony company that also has a fixed-line business and this is a competitive advantage
• The businesses closest competitor, C1, is at a disadvantage in not being to offer a landline service or 4G/LTE data.
• The manager has defined his three closest mobile telephony competitors and they include C1, C2 and C3
• Customer usage of the company’s services is below the industry benchmark and there is, therefore, room to improve this metric.
Average Revenue per User (ARU) is the specific metric used for this purpose in this industry.
Intervention
Mechanism
• The company used consultants to help to draft
The company
the marketing strategy for the wireless and fixed
used the Outcomes
line business. Many of them have international
competitive ]
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• Customers are continually evaluating the total cost of ownership and looking for ways to reduce it.
• The company competes with different competitors in different areas but none of them are able to offer the same turnkey solutions.
• Traditional competitors \ were cheaper and offer rental arrangements. They also offer broking services bundled with their software
• The company was perceived to be expensive and, therefore, targeted larger customers, incl. large corporations and government agencies.
• The manager stated “As you move down to the smaller customers, they are less sophisticated and don’t have their own IT departments.
They use simple software packages, often provided by their banks. As they grow, they become multi-banked and out-grow the software
packages provided by their banks. The market was moving up to where the company was positioned and they starting seeing their
emerging competitors in bidding processes.”
• The company had to compete but didn’t want to cannibalise their existing clients.
• Bundling services is a way of segmenting the market. Managed services allow the company to add more functionality very easily and to
circumvent the bidding process in doing so. It also makes control over the technical environment easier.
Intervention Outcomes
• The company looked at parallel industries for ideas Mechanism • The action allowed
• Questionnaires were sent to targeted customers with 5 key • Started providing managed services, the company to target
questions to assimilate customer perceptions and whereby it hosted the software. This smaller customers
requirements. resulted in customers being able to that didn’t have the
• To test the market, low-level noise about possible new solutions account for the software as an expense, budgets to buy their
was created through product presentations, sales calls, and not on-balance sheet software
proposals etc. • Multiple customers were managed using • The company were
• Due to its expansive customer base it has an extended breadth the same technical infrastructure, reducing first to market with
of products and services relative to competitors, and is able to costs. their managed
bundle them in a standardised manner. • The customer proposition was ‘spend services and have
• The offering included all upgrades, which can have a very large more with us and the overall cost will be since always had a
impact of customers’ operations. reduced’. dominant position.
• Managed services
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• The company issued credit default swaps (CDSs) using ISDA agreements and insuring against the default of baskets of corporations.
• The company was capitalised with US$350M and, at its height, had issued CDSs with a total exposure of US$12B.
• The company started trading in July 2007. The CDS market crises started in mid-2007 and resulted in a dramatic re-pricing of risk.
• In 2008 regulators became involved and the view was that CDSs were the problem and their policies changed.
• Banks started saying “we can’t deal at these levels”. This started happening more and more and led to the defining moment when the
company’s management realised they could not continue with ‘business as usual’.
• At this point there was an inflexibility of the company to evolve due to the rigidity of the rating agencies.
Intervention
Outcome
• To start with the company had 8 direct competitors spread across New York, London and Paris.
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• The size of the new car market for their flagship saloon in this emerging market is only around 300-350 vehicles/annum, whereas it’s
around 1,000 vehicles/annum for the entry-level priced saloon.
• The manager states that C1 and C2 have greater margins but it doesn’t really make a difference because “people buy brands”. He says,
“I can’t go and shout value, I have to shout brand”.
• They will also be launching an SUV (Sports Utility Vehicle) that will compete with the C1’s very popular SUV and C2’s very popular SUV
and will be priced in line with these two competitive models. C3, which is one of the closest competitors, will also be launching an SUV
at around the same time.
Intervention
Mechanism Outcomes
closest competitors, had done in this emerging • The company invested • The company plans
market, but on a smaller scale. in a large flagship to capture 10% of
• The distributor will start by focusing exclusively on showroom in the main the total market for
retail and developing the brand through their own commercial city of this their new entry-level
showrooms. They’ve hired a Distribution Manager emerging market. priced saloon (i.e.
but he will be used in the retail business to start • They embarked on an 100 vehicles/annum)
with. above-the-line • Once all their new
• The client they’re targeting is global and well- advertising campaign vehicles have been
travelled and is familiar with the brand. Therefore, using different media launched, their aim
marketing campaigns are consistent across the globe to appeal to they’re will be to sell 250-
and they will use the same creative content that is target markets, 350 vehicles/annum.
used globally for their advertising campaign. including TV, print,
social media and radio.
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Context
• The company’s closest competitor is C1, who have four daily titles, while the company has a single national newspaper that is very
similar in reach and in readership numbers to all four.
• The company was acutely aware of the competitive threat posed by C1 particularly and was keen to distinguish its product set form
theirs as a way of competing more effectively and becoming relatively more profitable.
Intervention
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• The manager defines his competitive set by including four competitors in total, including C1, C2, C3 and C4.
• Through ownership structures, the company has sales rights to two television stations and two radio stations
Intervention Outcomes
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• The company had two brands: Brand A, a carbonated fruit juice brand, and Brand B, a non-carbonated fruit juice brand.
• Brand A had a market share of around 2% and Brand B had a similar market share.
• The company didn’t have adequate funds to compete in the market place with two competing brands and needed to find a
solution to the problem of supporting two competing brands while their market share for both was diminishing.
• The fruit juice market was saturated (there were too many brands relative to the size of the market)
• For the non-carbonated drink there were two main competitors, including Competitor 1 (100% fruit juice) and Competitor 2
(fruit nectar drink) and for the carbonated drink there is one main competitor, Competitor 3
Outcomes
Intervention
• By
• The trigger to this competitive action was the company’s low Mechanism
discontinuing
market share in both segments, as well as their respective shares • The management decided to Brand B, the
of the overall fruit juice market focus on just one market on company was
• Analysing income and costs, the company’s management the basis of them not able to commit
questioned the business rationale for supporting two brands and generating the income to more
reached the conclusion that there was little point in doing so. justify being able to dedicate investment
• A survey was used to gather data concerning market perception sufficient budget to be able to focused on
of Brand A and Brand B and the market research tool was used to compete effectively in two. Brand A
predict uplift of each brand assuming investments in • Brand B was discontinued • The company
redeveloping the brands as well as the uplift in the event of the • They kept Brand A but was able to
two brands being collapsed into one. decided to promote it to regain market
• The company considered merging the two existing products into make up for year of under- share and
one, with the names ‘Brand A Still’ and ‘Brand A Sparkling’ but, investment in the brand. improve their
after the seeing the outcome of the research, abandoned this profitability in
idea. this market.
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Context
• Sales at this confectionary manufacturer were flattening out. Growth prospects in confectionary goods were limited.
• The market was consolidating and there was a lot of M&A activity at the time. Specifically, strategic acquisitions with the
objective of acquiring new products to extend product lines were taking place.
• The company had been growing but growth had stagnated and they were looking to reposition the business for growth.
Outcomes
Intervention
• As a result of the
Research was carried Mechanism expanded snacking
out to establish why
Page 218
• The manager interviewed was responsible for managing under-arm deodorant products at a large FMCG manufacturer
• The trend in the industry was away from aerosol cans and towards deodorant sticks
• The company were experiencing a sagging market share in their under-arm deodorant products and wanted to regain market
share.
Intervention
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An existing global soft drinks manufacturer with success in the manager’s market. They wanted to extend their product line.
Intervention
internally within the group to see • A new kids drink that was sold Outcome
in a pouch and sold at single-
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Intervention
agency showed that their consumers form of sachets that • The company was able
were very price sensitive. each produces two litres to grow the category
• Given the price sensitive nature of their of fabric softener. and gain a larger share
consumers, the company’s management • The refills were of the fabric softener
thought that if they introduced refills that launched through market.
had lower packaging requirements and, awareness clinics, in • The introduction of
therefore, costs, they’d be able to offer which use of the new refills was a great
this new product category at a reduced product was success.
cost to any comparable ‘full-packaged’ demonstrated.
fabric softener.
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• The company and its competitors have been developing and manufacturing brake pads for large mining tracks, which was the application
behind this competitive action.
• Traditionally, brake pads are made using formaldehyde resin, which is toxic and bad for the environment.
• Two trucks recently caught fire at a mine in an emerging market, caused by their brake pads. This raised global awareness regarding the use of
sub-standard brakes that aren’t able to endure long periods of intense use, as those used by the mines are subjected to.
• Car brake pads margins are low (a few pence each). Mining truck brake pads sell for ca. GBP35 each and cost ca. GBP15 to manufacture.
• The big players are untouchable. M1, an Australian manufacturer, use steel for their brake pads and, because they buy it in such large
quantities, they buy it at a price that makes competing with them prohibitive to any other business. The big players also have very sophisticated
market intelligence.
• The company always tests all their competitors’ products to identify their flaws and focuses on beating them on their technical specifications.
Outcomes
• A mine asked the company to develop a highly durable truck brake pad a brake pad for the mining
• The company looked at aircraft brakes that are subjected to very intense use and, industry that was unique and they
therefore, very high heat, to see how they were constructed and the materials that Mechanism could, therefore, realise good
were being used.
margins.
A brake
• The mine that the brakes were developed for use K1 trucks and K1 insist on using their • A product was developed that met
pad was
own brake pads, which are manufactured by C2 who also produce the callipers. C2 very high environmental
developed
bundle the pads with the callipers making it very hard for independent brake standards.
using
manufacturers to compete. The company thinks the mine will put enough pressure on carbon and • The new brake pad has been very
K1 for them to force C2 to separate the sale of callipers from the sale of brake pads. steel. well received by the market and
• Distributors weren’t keen to stock the new brake pad because it lasts four times as long the sponsoring customer plan to
as more traditional brake pads and they would, therefore, sell four times fewer. This fit this product to every one of
meant the company had to go after a ‘high-quality’ niche and sell directly to mines. their mining trucks
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• The company was a banking institution with a strong brand in its home market but not elsewhere.
• The company’s balance sheet was concentrated in long-term assets, and wanted to grow its book of shorter-term assets.
• The auto-finance market is incredibly price sensitive and customers tend to go with the cheapest financing deal, as it is an oligopolistic
industry and it’s very hard to distinguish one financing deal from another on metrics other than price.
• In credit scoring customers, the company could see which competitors they were competing with by viewing credit report requests.
Intervention
• The manager consulted with his colleagues who were more mature and Mechanism Outcomes
had more experience. They thought the company had to be consistent • A new subsidiary was • The company was able to
in new markets and provide a superior service if it wanted to compete established to provide grow its footprint in auto-
effectively auto-finance indirectly financing by expanding
• They commissioned surveys that showed their pricing was competitive. through auto-dealers, geographically.
• They knew that transacting quickly was an important differentiator. offering a consistent • The company had done
• Their approach was to setup subsidiaries in the state and hire locals service with fast turn- well in its home market
who understood local nuances. A local would to be hired as the around times but without and it was able to
manager’s number two with limits that allowed them to approve 50% discounting their pricing replicate the success in
of the deals. to ‘buy’ market share. other markets.
• They attended car shows at the weekends and when most of their • Banks were prohibited • By expanding
competitors left on Saturday afternoon they would stay on. from establishing geographically, the
• The subsidiaries books were at least as good as the parent’s, in terms branches in other states company was able to be
of losses. Apart from the high quality of the subsidiary’s book, having a so they had to establish a very selective in the deals
subsidiary also gave the parent a credit diversification benefit and subsidiary whenever they they originated and,
because the subsidiary’s region wasn’t correlated with the home expanded into a new thereby, maintain their
market there was a portfolio effect. state. existing quality of loans.
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• The products went into the Chinese market at the wrong price. Stores were opened in the best malls in China and the mall owners had set
their own standards in terms of how the price level of their tenants, and in few cases how the tenants should price their merchandise. These
pricing guidelines were stated in the lease agreements and, therefore, tenants had to follow them or they would be in breach of their lease
agreements and would risk having their agreements cancelled.
• A product that cost GBP79 on Jermyn Street would cost GBP189 in China and Hong Kong’s prices were around half of China’s. Competitor 1
had a much narrower price differential between Hong Kong and the Chinese mainland than the company. The reason for the price inflation
was that the brand needed to be in these particular malls and therefore had to be within the same price banding.
• When the Hong Kong market opened to the Mainland Chinese market, Hong Kong sales doubled and Chinese sales dropped by around 60%.
• The anti-corruption law also had an effect on Chinese sales. Watch brands’ sale’s dropped by around 80% as a result.
• British products are perceived to be superior to those manufactured in China, Hong Kong or elsewhere. Japanese consumers of this
Intervention
Outcomes
• As soon as the company’s CEO decided to Mechanism
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• The product is produced by the company, one of the largest distillers in the world, and is seen by the London-based company as a
faster-growing addition in Nigeria to its flagship stout.
• Since its introduction in Nigeria in 2013, the new product has captured more than 50% of the non-beer bottled drinks with a similar
alcoholic strength.
• A 40% slump in oil prices is expected to curb growth of the Nigerian economy to 4.8% in 2015 from 6.3% in 2014, which has had an
impact on disposable incomes in the country.
• The drink competes primarily with locally produced beers, ciders and lagers. Competitors in Nigeria were starting to introduce their
own herbal drinks to compete with the drink’s popularity. These competitors included the local unit of a major European alcoholic
drinks manufacturer, who started selling Competitive product 1. Competitive product 2 followed later this year.
Intervention Outcomes
• The company spoke with the Mechanism • The company was able to replicate
management of its subsidiaries around
the drink’s success in Nigeria in
The Kenyan unit of the
Africa and, based on these discussions, business introduced the Kenya
shortlisted Ghana and Kenya as countries drink in March in • Apart from increasing revenue
in which it wanted to launch the new anticipation of the same across Africa, this also helped
drink. success it had diversify income from this
• Based on the local distiller’s readiness experienced with the particular drink away from
and willingness, it was decided that the drink in Nigeria. Nigeria, which has a vulnerable
drink would be launched in Kenya first. economy and where competitors
were starting to erode the success
of the drink.
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• The British fashion brand has had a presence in the U.S.A. since the 1990s, through both company-owned stores as well as prominent
retailers such as Department store 1 (‘DP1’).
• Sell-through figures (the portion of the collection sold in season and that doesn’t go on sale) at DP1 were initially averaging around
15%.
• Most designers were happy with 30%+ sell-through rates at DP1 because they valued being promoted there and saw the retailer as a
marketing tool that could be used to position them in the U.S.A. market along with other luxury fashion brands.
Intervention Outcomes
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• There are four sectors within the fruit juice market. Including 100% fruit juice, nectars, carbonated fruit juices and juice drinks.
• The company was experiencing diminishing market share in its non-carbonated fruit juice sector.
• There were two main competitors, including Competitor 1 (100% fruit juice) and Competitor 2 (fruit nectar drink). For the carbonated
drinks, there was one main competitor, Competitor 3.
• Non-carbonated fruit juices represented the most attractive market with the least competition.
Intervention Mechanism
• The company’s local management looked to see what products the group had in the global The company
innovation pipeline that could be introduced to their market to compete more effectively in the launched a
segment. They found a suitable new product to introduce to the market. Had this product not new non- Outcome
been available, they would have had to invest R&D in developing one. They also looked to see carbonated
how the product was performing in other markets and found that it had become the no. 1 fruit The
product,
juice brand in the Middle-East. company
Brand 1,
• Quantitative research was carried out to ascertain market acceptability. Specifically, a survey expanded
which was in
was used and questions were asked concerning taste, packaging, the feel of drinking it etc. The its juice
the
quantitative research established whether or not the product would be priced correctly, if the portfolio
company’s
packaging was right for the market and if the branding resonated with the target audience. and its
global share of
• A research tool is used to predict uplift based on the results of the survey. The tool is also used innovation the
to establish what the marketing budget should be and what the market conditions (e.g. market pipeline at market
size and whether the market is growing or contracting) are. the time of
• The research is needed to sell new products to the bottlers/distributors. developing
• The new proposition will be to compete in the ‘fruit juice’ segment with a drink that has 5%- the
25% fruit juice content, as there weren’t any competitors in this segment and that meant the competitive
company would have a first mover advantage. action.
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Innovation
Type of &
competitive Size of dynamism Developed/ Methods used to Noteworthy
action (see Trigger for organisation score for emerging/ develop the manager's
Competitive key 'key' competitive Objective of (approx. Industry Industry sector (1- Managers' developing competitive statements/
action worksheet) action competitive action employees) sector structure 10) backgrounds market action perceptions
3 - Used car Update or Make used Improve the quality 40 Automotive Very distinct 4 No formal Emerging Intuition, no Changing the
warranty repackaging vehicles perception and, strategic business formal research, product’s attributes
programme of an more therefore, the groups with education. direct feedback and/or packaging can
existing comparable prices of used high levels Father owned from customers alter the competitive
product or to other vehicles and sell of rivalry a luxury car is relied on very set of a specific
service manufacture more by taking distributor and heavily and a product.
offering rs new from other dealership and CRM system is
vehicles in manufacturers new the manager used.
the context vehicle sales. started out as
of customer a salesman
purchasing and worked
decisions. his way up
4 - 'You can Developme Use their Improve income 70 IT Evolving and 8 Entrepreneur Developed Industry specific The company
do it' nt/launch existing and profitability by loosely with no formal literature, produces smart cards
campaign of a new resources to introducing a niche organised business government/reg but the manager
launched by product extend the product with high industry qualification ulatory realises that the
a UK IT product margins. structure who attended communications, margins associated
services range. with a lot of the Business interviews, with simply
company scope for Growth surveys, R&D, producing smart
innovation Programme of beta testing cards are very low
the Cranfield because there are
Centre for many competitors.
Executive So, her approach was
Development to use the smart card
(CCED). as a vehicle to create
a service offering.
Page 229
Innovation
Type of &
competitive Size of dynamism Developed/ Methods used to
action (see Trigger for Objective of organisation score for emerging/ develop the Noteworthy manager's
Competitive key 'key' competitive competitive (approx. Industry Industry sector (1- Managers' developing competitive statements/
action worksheet) action action employees) sector structure 10) backgrounds market action perceptions
5 – Software Development/l A new, much To fend of the 1,000+ IT Distinct 6 Technology Developed Direct The manager regards
product aunch of a smaller competitive strategic background, interactions with the companies size and
development to new product competitor threat from group with completed a customers, its comprehensive set
fend off a threat appeared the new, small intense five year partnership with of resources as a
from a much offering new competitor rivalry and Master’s a law firm to providing a strong
smaller functionality. and to constant programme develop the competitive advantage
competitor maintain a jostling for that was both business rules. yet a much smaller
comprehensiv position a general competitor can come
e suite of within it engineering from nowhere and
software degree and an challenge them, using
products. MBA in one on innovative business
a scholarship methods, such as
from IBM and providing the service on
after a 1-year renewable
university he basis.
went to work
for an
investment
bank, Solomon
Brothers, in
their IT
department.
6 – Development Update or Relatively low Improve their 1,000+ Retail Oligopoly 2 BSc in Developing Macro-economic The company used their
of a new repackaging of mortgage loan share of the banking with distinct Economics analysis, anticipation of a
mortgage an existing market mortgage loan strategic from the LSE customer downward shift in
product by a product or penetration market groups, and an MSc in surveys, market interest rates to offer a
bank in an service stable Finance & analysis, ALCO reduced rate on
developing offering industry and Economics committee mortgage loans for the
market little room from the LSE. discussions first two years - they
to initially thought of
distinguish setting this at 5.5%
brand or (from 8%) by ended up
product setting it at 4.5%.
offerings
Page 230
Innovation
Type of &
competitive Size of dynamism Developed/ Methods used to
action (see Trigger for Objective of organisation score for emerging/ develop the Noteworthy manager's
Competitive key 'key' competitive competitive (approx. Industry Industry sector (1- Managers' developing competitive statements/
action worksheet) action action employees) sector structure 10) backgrounds market action perceptions
7 – Market Market Manager new Increase 50 Retail – Industry 3 BSc in Developing Porter's 5-forces, The firm was
segmentation segmentation to business turnover by home-ware with few Accounting & ethnography repositioned from a
and re-pricing and looking at broadening competitors Finance from (observing 'carpet' supplier to a
products by a ways to the service , incl. one the LSE and an consumer 'flooring' supplier.
flooring business improve its offering and giant, one MBA from behaviour),
in Kenya profitability thereby semi-giant Warwick. The interviewing
competing and around manager says consumers and
with more 4 smaller he uses three employees who
companies. competitors of the MBA used to work for
modules have competitors
really helped
him, including
'Marketing',
'Service
Management'
and 'Supply
Chain
Management'.
8 – Introduction Development/ Acquisition of Fend off 1,000+ Telecoms Oligopoly 7 Studied Emerging Observed and Their nearest
of 4G service launch of a an LTE license intense rivalry with a few electrical copied competitor ('C1') has
with voice and new product - a new unique from their players and engineering in counterparts in much better voice
data by a mobile resource nearest fierce St Petersburg other countries. coverage but doesn't
telecoms competitor competition between 1988 They copied have an LTE license. The
company in an and 1994, their nearest company used a
emerging market attended Ohio rivals pricing billboard campaign and
State structure. placed the billboards in
university in the vicinities of C1's
1997 where he existing billboards and
completed a 2- made reference to their
year MBA lower prices for data
programme and faster.
specialising in
Finance and
Management
Information
Systems.
Page 231
Innovation
Type of &
competitive Size of dynamism Developed/ Methods used to
action (see Trigger for Objective of organisation score for emerging/ develop the Noteworthy manager's
Competitive key 'key' competitive competitive (approx. Industry Industry sector (1- Managers' developing competitive statements/
action worksheet) action action employees) sector structure 10) backgrounds market action perceptions
9 – Sales to Marketing Flagging sales To make sales 1,000+ IT 5-10 6 Studied Emerging Discussions with The competitive
fellow state campaign to other state- competitors electrical other state- advantage that the
institutions in owned , depending engineering in owned manager's company
the last fiscal enterprises on how they St Petersburg enterprises had over private sector
quarter in an that had are defined, between 1988 competitors becomes
emerging market unspent with and 1994, increasingly relevant as
budget in their distinguishe attended Ohio the year end
last quarters d solution State approaches and state-
and couldn't offerings. university in owned companies have
buy from Procuremen 1997 where he unused budget.
privately held t normally completed a 2-
companies through year MBA
because of bidding/ten programme
time der specialising in
constraints processes. Finance and
and Management
bureaucratic Information
processes. Systems.
10 – Bundling of Update or Search for Fend off 1,000+ Telecoms Oligopoly 7 Studied Emerging Consultants The company used the
mobile and repackaging of innovative was competitive with a few electrical were used to competitive advantage
fixed-line an existing to fend off the threat from players and engineering in develop the it has in being able to
services in an product or threat from closest fierce St Petersburg marketing offer both fixed-line and
emerging market service their closest competitor. competition between 1988 strategy. mobile numbers on
offering rival. and 1994, Customers were single SIMs to compete
attended Ohio also interviewed more effectively.
State but only to
university in measure the
1997 where he company's
completed a 2- quality of
year MBA service.
programme
specialising in
Finance and
Management
Information
Systems.
Page 232
Innovation
Type of &
competitive Size of dynamism Developed/ Methods used to
action (see Trigger for Objective of organisation score for emerging/ develop the Noteworthy manager's
Competitive key 'key' competitive competitive (approx. Industry Industry sector (1- Managers' developing competitive statements/
action worksheet) action action employees) sector structure 10) backgrounds market action perceptions
11 – Bundling of Update or Search for They wanted 1,000+ IT 5-10 7 Qualified Emerging Questionnaires The manager thought
software and repackaging of ways to to be able to competitors accountant were sent to that by combining
services by a an existing increase their target smaller , depending that then targeted resources, including
large financial product or prospective customers on how they moved into customers with 5 both internal resources
software vendor service customer that didn't are defined, financial key questions to and those made
offering base. have the with software sales assimilate available to them by
budgets to distinguishe and then customer partners at preferential
make large d solution management. perceptions and rates because of their
software offerings. requirements. size, they would have a
procurements. Procuremen Low-level noise competitive advantage
t normally was created over smaller
through about possible competitors in price
bidding/ten new solutions and in the functional
der through product breadth of their
processes. presentations, solution offerings.
sales calls,
proposals and
interviews
12 – Product re- Product re- Dramatic To be able to 15 Financial 8 9 MBA in Developed Monitored When the company
pricing by a pricing change in sell the credit services competitors finance and competitors very started they dealt with
credit default market default swap that were all currently busy closely by hiring the world's largest
swaps conditions agreements price takers with a from them, banks at very profitable
underwriter they had and were all Doctorate being friendly levels but there came a
underwritten very aware researching and talk with point where they
with a decent of what the corporate them and talking started saying "we can't
return to their others were governance with common deal with you at these
shareholders doing and issues. Always customers. Hired levels", leading the
how they worked in an insurance company to realise it
were pricing financial specialist to wasn't 'business as
their services, in evaluate the usual'.
products. many different businesses
Therefore, roles and, assets and make
this could therefore, has recommend
be regarded a very good options.
as an knowledge of
oligopoly. the industry.
Page 233
Innovation
Type of &
competitive Size of dynamism Developed/ Methods used to
action (see Trigger for Objective of organisation score for emerging/ develop the Noteworthy manager's
Competitive key 'key' competitive competitive (approx. Industry Industry sector (1- Managers' developing competitive statements/
action worksheet) action action employees) sector structure 10) backgrounds market action perceptions
13 – Re-launch Update or Acquisition of Increase sales 35 Automotive Very clear 4 No formal Emerging Followed their The manager is focused
of a luxury repackaging of the business to between strategic business closest on promoting the
motorcar brand an existing by a new 250 and 350 group education. competitor, who visceral elements of the
in an emerging product or owner. units/annum within a Father owned are very brand to develop the
market service and capture a broader a luxury car successful and business. E.g. he stated,
offering larger slice of established distributor and much larger, as "I can’t go and shout
the total industry dealership and well as deploying value, I have to shout
market with well- the manager the brands brand”.
defined started out as global marketing
borders. a salesman campaigns and
and worked business
his way up strategies.
14 – Strategic Corporate Acquisition of Package 1,000+ Media Very clear 6 Worked in the Emerging Scanned the The company was trying
acquisition by a action the business complimentar sets of media industry market for to blur the lines
media group in by a private y service competitors for a long companies with between different
an emerging equity fund offerings for different time, as an complimentary product offerings and,
market looking to together to product entrepreneur products/service therefore, different
grow it raise mobility offerings. and executive s that could be competitor sets, by
through barriers by for around the bundled with packaging different
corporate providing last 20 years. their existing products with different
action. solutions that No formal, product competitors together.
competitors relevant post- offerings.
cant. graduate
education.
15 – Bundling of Update or Private equity Wanted to 1,000+ Media Very clear 6 Worked in the Emerging Researched The company formed a
value added repackaging of firm that owns started sets of media industry international partnership with a
services by a an existing the business providing competitors \ as an trends, looked at company that owns a
media group in product or wants to raise integrated for different entrepreneur what they had number of leading
an emerging service mobility marketing product and executive that they could FMCG brands in an
market offering barriers. solutions as a offerings. for around the bundle together attempt to 'own'
way of last 20 years. to create advertising in that
competing No formal, marketing industry.
more relevant post- campaigns using
effectively. graduate several different
education. types of media.
Page 234
Innovation
Type of &
competitive Size of dynamism Developed/ Methods used to Noteworthy
action (see Trigger for Objective of organisation score for emerging/ develop the manager's
Competitive key 'key' competitive competitive (approx. Industry Industry sector (1- Managers' developing competitive statements/
action worksheet) action action employees) sector structure 10) backgrounds market action perceptions
16 – Merging of Development Flagging sales Cost 1,000+ FMCG Very clear 5 BSc and an MBA. Emerging Analysed both The research is
two brands into /launch of a and low rationalisation strategic Strong formal products’ needed to motivate
one by a large new product market share and to regain group and very incomes and changes in product
drinks lost market within a extensive costs and used range and marketing
manufacturer share broader marketing surveys to strategies to
established management establish the distributors and
industry career history in market appeal of bottlers.
with well- the FMCG the existing
defined industry with products.
borders. multinational.
17 – Product line Development Flagging sales Reposition the 1,000+ FMCG Very clear 3 BSc and an MBA. Emerging Surveys to Through the surveys
expansion by a /launch of a in the industry business for strategic Strong formal establish why it was established
confectionary new product sector that the growth group and very consumers that people buy
manufacturer company within a extensive bought their confectionary
operated in. broader marketing products. products to snack
established management between meals and,
industry career history in as a result, the
with well- the FMCG company decided to
defined industry with expand its snacking
borders. major product line.
international
groups.
18 – New Development The existing Gain a market 1,000+ FMCG Very clear 5 BSc and an MBA. Emerging One million A new stick
product /launch of a product was share of at strategic Strong formal consumers were deodorant product
development new product being replaced least 10% in group and very surveyed to was launched,
and launch by an by new one year by within a extensive establish how replacing the aerosol
FMCG product with introducing a broader marketing they could make can product. The
manufacturer the same new substitute established management an impact in survey was used to
application. product. industry career history in changing promote the
with well- the FMCG personal hygiene forthcoming product,
defined industry with products. and to understand
borders. major consumer
international perceptions
groups.
Page 235
Innovation
Type of &
competitive Size of dynamism Developed/ Methods used to Noteworthy
action (see Trigger for Objective of organisation score for emerging/ develop the manager's
Competitive key 'key' competitive competitive (approx. Industry Industry sector (1- Managers' developing competitive statements/
action worksheet) action action employees) sector structure 10) backgrounds market action perceptions
19 – New Development Global group Grow revenue 1,000+ FMCG Very clear 5 BSc and an Emerging Surveys were Through surveys they
product /launch of a looking to by introducing strategic MBA. Strong used to established that
development new product grow their a new group formal and understand the there was unsatisfied
and launch by a business in product. within a very extensive market needs demand for drinks for
drinks this territory. broader marketing and what was toddlers and were
manufacturer established management available within able to adopt key
industry career history the global group learning’s for this
with well- in the FMCG to satisfy the product form the
defined industry with needs. Latin American
borders. major market.
international
groups.
20 – Product line Development Group wanted To gain a 1,000+ FMCG Very clear 5 BSc and an Emerging Marketing Given consumer price
extension by a /launch of a to grow their larger share of strategic MBA. Strong agency was used sensitivity, refills that
FMCG new product business in the fabric group formal and to establish had lower packaging
manufacturer this category. softener within a very extensive consumer needs requirements were
market. broader marketing and attitudes. introduced at a lower
established management price to any
industry career history comparable ‘full-
with well- in the FMCG packaged’ fabric
defined industry with softener.
borders. multinationals.
21 – Development Looking for Produce a 15 Automotive Industry 7 Worked in the Emerging No formal Produced a high-
Development of /launch of a opportunities highly with few brake pad marketing quality product for a
a competitive new product to develop specialised competitors industry as an methods or tools very specific market
product by a niche product that , incl. giants entrepreneur were used. The segment, competing
niche brake pad products. would that are part and an new product was with much larger
manufacturer produce good of executive for development manufacturers that
margins for integrated around the was driven by a bundle brake pads
the business. automotive last 20 years. customer with callipers.
businesses No formal, requirement.
and small, relevant post- Borrowed from
niche graduate other industries
competitors education. to develop the
. product itself.
Page 236
Innovation
Type of &
competitive Size of dynamism Developed/ Methods used to Noteworthy
action (see Trigger for Objective of organisation score for emerging/ develop the manager's
Competitive key 'key' competitive competitive (approx. Industry Industry sector (1- Managers' developing competitive statements/
action worksheet) action action employees) sector structure 10) backgrounds market action perceptions
22 – Geographical Too many Maintain the 1,000+ Financial Oligopoly 4 MBA in Developed Survey's to The auto-finance
Geographical expansion long-term quality of services with a few finance and establish the market is incredibly
expansion of an assets on the loans they had players and currently busy suitability of their price sensitive and
auto-financing bank's balance on their books fierce with a pricing strategy. customers tend to
company in the sheet and they in new competition Doctorate go with the cheapest
U.S.A. wanted to territories researching financing deal, as it
grow their corporate is an oligopolistic
short-term governance industry and it’s very
assets, issues. Always hard to distinguish
therefore, worked in one financing deal
they wanted financial from another on
to expand services, in metrics other than
their auto many different price. Auto-finance
financing roles and, was sold indirectly
business. therefore, has through auto-
a very good dealers, offering a
knowledge of consistent service
the industry. with fast turn-
around times but
without discounting
their pricing to ‘buy’
market share.
23 – Product re- Update or Hong Kong Arrest the flow 500 Fashion Very clear 5 Worked in the Emerging The manager A new label was
positioning in repackaging of market of customers strategic fashion spent around a developed
the Chinese an existing opened up to from mainland group industry for a week looking at exclusively for the
market by a product or Chinese China to Hong within a long time, as competitors Chinese market.
British luxury- service visitors, Kong broader salesman and product mixes, Because the label
clothing brand offering causing a established an executive their pricing and was unique prices
sharp drop in industry. for around the the products couldn’t be
sales due to last 30 years. they were compared with
relatively high No formal, offering in China. prices elsewhere.
prices. relevant post- Introduced more UK
graduate manufactured
education. products, which are
perceived to be
superior.
Page 237
Innovation
Type of &
competitive Size of dynamism Developed/ Methods used to Noteworthy
action (see Trigger for Objective of organisation score for emerging/ develop the manager's
Competitive key 'key' competitive competitive (approx. Industry Industry sector (1- Managers' developing competitive statements/
action worksheet) action action employees) sector structure 10) backgrounds market action perceptions
24 – Geographic Geographical Diversification Successfully 1,000+ Alcoholic Very clear 4 BSc and an Developing Discussions with The drink is in a new
expansion of a expansion away from the launch the beverages strategic MBA. Strong managers of category but
new product by first market product in group formal and subsidiaries competes primarily
an international for the another within a very extensive around Africa with locally
alcoholic drinks product, African market broader marketing produced beers,
company where sales and emulate established management ciders and lagers.
had stagnated. the success industry career history The group was
they had with well- in the hoping to use its
achieved in defined alcoholic 'first mover'
Nigeria. borders. beverages advantage to attack
industry. existing markets.
25 – Product re- Update or Low sell- Improve sell- 1,000+ Fashion Very clear 6 Worked in the Developed Interviewed the The men’s’ business
pricing in the repackaging of through through rates strategic fashion management and collection was
U.S.A. market by an existing figures in the for their group industry for a floor staff at the redesigned for the
a British luxury- product or U.S.A. men’s' within a long time, as retailer. U.S.A. market. The
clothing brand service business line broader salesman and brand, rather than
offering at a major established an executive the retailer drove
retailer in the industry. for around the this intervention, as
U.S.A. last 30 years. it was the brand that
No formal, questioned the low
relevant post- sell-through figures.
graduate
education.
26 – Launch of a Development Flagging sales Regain lost 1,000+ FMCG Very clear 5 BSc and an Emerging Analysed the The company
new fruit juice /launch of a and low market share strategic MBA. Strong performance of created a new
drink by a large new product market share group formal and potential new segment by
drinks in a particular within a very extensive products in other introducing the new
manufacturer sector of the broader marketing markets and product to the
market established management used surveys to market and,
industry career history establish their therefore, didn't
with well- in the FMCG market appeal have any
defined industry with and a tool to competitors and
borders. major estimate sales would have a 'first
international volumes. mover' advantage.
groups.
Page 238
Page 239
Page 240
• Please list and describe the internal inputs to deciding on the details related to
the execution of this particular action (e.g., the findings of an industry report,
research by consultants, research by employees, a survey or scan of the
market)?
• What was achieved through this action?
• Did the outcome of this action meet your personal expectations, as well as the
performance targets set at an organisational level?
Page 241
Competitive intelligence
• Is a formal competitive intelligence gathering process in place?
• Is there a dedicated function within the organisation for the gathering of
competitive intelligence?
• What are the sources of competitive intelligence?
• How is competitive intelligence collated and disseminated within the
organisation, both formally and informally?
Page 242
Page 243
[To gather market data] we went A good way to test the Gauging the Market
out and started speaking with market is to engage market, Public intelligence
people and saying “this is what people and ask them perceptions,
we’re thinking of doing and what do what they think. Validating
you think about it?” business
concepts
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Page 246
So everyone has been spec’ed up Once beta testing has Product Investment
and configured [for beta testing] been concluded, the new development,
and we’ll start to see the fruits of business will become Investment
that labour next year. profitable. pay-off
Page 247
UK IT services company
Competitive action: Launched a new loyalty card
Introduction
The CEO of an Information Technology services company in the United Kingdom (the
‘interviewee’) was interviewed and asked specific questions about a new service they
developed for government that will be cost-neutral to them.
The interviewee is the founder and CEO of a company that provides IT services centred
on the provision of loyalty cards. Their clients include local governments, P1 and
national government agencies. They also provide services related to businesses
corporate social responsibility programmes.
Interview
Interviewer: To start with, could you tell me about the competitive environment you
operate in and how you think about competition?
Interviewee: When you think about competitors you tend to move away from looking
into the future. My approach has been to look beyond what is currently being done.
So, we focus on issues and challenges that our clients have and on developing a suite
of product offerings to satisfy them.
Interviewer: Could you give me an example?
Interviewee: We’re about to acquire a company that has a product that will satisfy a
change in legislation. We’re working with P1 and bringing together different products
and markets to support them. This is currently in due diligence. My personal focus is
headlights on the future and I’ve been working on a programme called ‘You can do it’.
It was developed in response to a sagging economy and public sector cost pressures
and it encourages the use of public transport and hospital beds.
Interviewer: You say the card is cost-neutral to government. I guess the rationale
behind the product then is to offer something where Novacroft are able to make
money but there’s a cost neutral business case to present to government?
Page 248
Interviewee: From our point of view it satisfies the needs of Public Transport because,
in the world we now live in, it’s really good to see that things such as Corporate Social
Responsibility, which were seen as a bit fluffy, are now starting to find their way into
tenders. So in Rail, for instance, there is an element of 5% in evaluation criteria for
meeting Corporate Social Responsibility needs and what they don’t have is
measurability. And in fact what I’ve learnt through the research we’ve been doing over
the last three years is that corporate social responsibility is a little bit like marketing
was, which is some stuff that you do and you have no idea of how effective it is where
now we can say actually, if you want to do these things, we can measure it. We can
provide meaningful information on behavioural change.
Interviewer: I guess in this case that would be the use of public transport. That would
be the yardstick?
Interviewee: Yes. It might be that you’ve got to demonstrate that people are using
public transport but you also have to demonstrate that you’re having a positive effect
on public community and that’s a big issue now. You need to demonstrate that you
care about the community so, rather than just buying a plot of land and plonking
something on it so no one else can buy it, you’re actually thinking about the needs of
the community because if you do that, actually leads to greater profitability. And it’s
the bit in the boardroom I think that people say yes, yes, yes to but it doesn’t really
matter because we’ve got to go to the city and produce the results but actually if they
think more about that, if a consumer likes you or respects you, they’re more likely to
shop with you.
Interviewer: If your values resonate with them that counts for something.
Interviewee: Yes, and you can see that with A4 and what’s happened to them. They
grew so massively before the economy burst. And now, some years later, they’re in a
very bad position. Here we see A2 and A1 who really were nowhere in the UK and all
of a sudden they’re motoring like Billy to the top. They’re becoming likeable. They
have a great product range – the biggest range in the country and they’re selling it
cheaply while still demonstrating that it’s good quality and they’re not arrogant and
don’t come across like egotistical maniacs as potentially the way A4 does. A4 has just
changed it and said they’ve got champions. It’ll take a while though.
Interviewer: So you’re talking about the public perception of the brand and the ethos
of the brand that customers relate to, which is what A1 and A2 have. Product for
product they probably are cheaper than A4.
Interviewee: They are. And what they’re doing is ‘A5’ type advertising. They have the
same kind of feel to them but then they go ‘but it’s A2’ These products are really nice
but just cheaper.
Interviewer: I think what they probably lack is the brashness that A4 have.
Page 249
Interviewee: Exactly. They’ve been with us in this country for a long time but they’ve
just quietly come along and made the big boys hop. While those big boys were fighting
among themselves in a cage protecting what they had, they’d forgotten about the
smaller competitors.
Interviewer: Going back to the programme for public transport, what do you call it?
Interviewee: You can do it.
Interviewer: It wasn’t really a response to competitive pressure; it was a response to a
gap in the market?
Interviewee: It’s interesting because how we tend to think differently about
competitiveness in that it’s not only when you’re competing in a race, whatever that is,
but competitiveness can also be changes of circumstances. So it’s a response to a
potential change in a circumstance, which would see us losing the competitive race if
you like, in that we wouldn’t fare very well in selling high volume, low price. Because
what we do is technology based and we pay upper-quartile for our salaries so we aim
to get what we call ‘super heros’. So, if we’re looking for real talent you can’t really get
it if you’re selling a ‘high volume, low price’ product because why do you need that
talent if it’s mainly an automated process that isn’t different from anything else.
Interviewer: Could you perhaps go into the thinking? You’d realised and
conceptualised the opportunity, what sort of processes, cognitive and material, to you
go through to conceptualise the product? In other words, how it should be priced,
what the product features should be, which retailers you should involve, how you
should approach government you should involve, right done to the hardware – the
card and the processes you needed internally to support this programme?
Interviewee: From the outset it was reading things like white papers. A lot of reading
things like what’s happened in terms of transport. What will happen in government –
so I flew through the party material. So looking at businesses and why they’re going
out business. Looking back, I do have thing – what happens in the future is determined
by what happened in our pasts. So, reflecting on 1980 something, one of the biggest
economic changes. Sir John Harvey Jones said that the businesses that were successful
were the ones that got fit for business. So, looking at things that worked then and
things that didn’t work and looking at completely different things like TV programmes,
looking at different markets, what have they done, how do they operate, what has
made them successful and then collaborating. We’ve had lots and lots of collaboration
sessions internally with statements about “what would you do if…” kind of scenarios,
coming up with ideas and then going out. So coming up with “these are the key areas
we want to focus on: people, UK GDP and collaborating with retailers”. From that sort
of analysis we went out and started speaking with people and saying “this is what
we’re thinking of doing and what do you think about it?”
Page 250
Interviewer: When you say “speaking to people”, do you mean prospective consumers
or do you mean stakeholders, such as government and the retailers?
Interviewee: Yes, stakeholders and also speaking to organisations like Business in the
community to understand their take on it and then, through them, to open up to the
consumers. And, actually found quite early on is that developing partnerships with
organisations like Business in the community has been phenomenally useful because
they’ve opened doors that potentially we wouldn’t have been able to open as easily or
at all. So, putting the ideas to Ministers, putting the ideas to retailers at CEO level, and
other organisations like BA Academies and getting their views on it and their views
have helped shape what it should like and then take their views back and
understanding what it means for the Novacroft business case and then going to the
Knowledge Transfer Partnership to get partial funding for the Remote loading device.
Interviewer: Sorry, who would provide the funding?
Interviewee: The Knowledge Transfer Partnership, which is part of the Business Skills
and Innovation Department.
Interviewer: I guess when all of that was in place and you knew what your proposition
would be and you had had all these discussions with government ministers, the CEO’s
of the retailers and so on, and you had funding for the loading devices you were able
to print the Metro cards and roll out the plan.
Interviewee: One thing we found in going through the research and going out and
talking to people is that we could impact on self-esteem, we could raise awareness and
individuals could have an impact on society, apart from these three things, what we
found through the research is that there are two tranches of opportunities that we
hadn’t seen until we started speaking with people. So, for instance, charities’ in the UK
spend quite a bit of money in the Pound on administration. So, if we can impact on
three things there, which is reducing the amount of money they spend on
administration outside of generating income for themselves, if we can increase
membership and if we can provide richer data for them to be able to get better
sponsorship then we’re doing them a great service. So we’ve adapted ‘You Can Do It’,
it’s the same thing but we’re also using ‘You Can Do It’ to do that and we’ve won
British Legion on the programme. So, but looking at the problem public transport faced
and coming up with ‘You Can Do It’, and through the discussions, has led us to new
market opportunities and that is something that our competitors in the market would
not be doing because of our thought processes and what we’re doing, or they’re not
doing.
Interviewer: I guess the barriers to entry are significantly high to deter anyone else
from trying to do what you’re doing. The next question I was going to ask you is about
timeframes but I imagine for someone else to introduce a scheme like this would
probably have a year lead time and you’d find the stakeholders would be saying “but
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we’re already doing this with Novacroft and why would we want a second Metro
card”.
Interviewee: Yes, exactly, exactly. So, the great thing is if you take this to British Legion
it’s such rich pickings for us because we can put in a card and they have a very archaic,
laminated thing at the moment. We can put the card in, we can recognise people
when they go to an event, which they can’t currently do. They say they can do it but
they have no idea of what their members are doing. We can make it easier for them to
join, that’s the easy peazy stuff, and then we can create profiles for everything they do
with data which means that when they go out to get sponsorship it makes it much
easier and that uses everything in our smorgasbord of products and services – we’re
just using it in a different way. But, it still fits into ‘You Can Do It’ because A3’s, who
are one of the sponsors of British Legion, benefit from members of British Legion using
their spanking new membership cards going into A3’s and spending their rewards
using their membership cards and that increases the value of the brand to individuals
and also increases foot-fall to A3’s.
Interviewer: And I’m sure in time you’ll probably come up with many more
applications for exactly the same concept.
Interviewee: ‘You Can Do It’ is a business in its own right and my mission there was to
get it to a point where we’ve got traction, in terms of the number of businesses
working with us, and then it’ll be an attractive business to sell.
Interviewer: As a stand-alone piece?
Interviewee: Yes
Interviewer: You’ll spin it out of Novacroft. It has all the hallmarks of a PPP, a Public
Private Partnership?
Interviewee: Yes, it has.
Interviewer: I was going to ask you about timeframes. So, you’ve got, very broadly, if
you were to compartmentalise this into a number of steps, the first one would be
‘conceptualisation’, a number of discussions and reading about changes to the
legislature that is about to take place. I would say the next step is ‘research’, so more
depth – what do people really think, what can really be done. I would think the third
step would then be ‘solution design’, then ‘prototyping’ and then ‘roll out’. What
would the timeframes for each step be?
Interviewee: I would say the first one was about three months and the research is still
on-going but I would say 18 months to two years but, while we were doing that, we
has also started developing our remote loading device. So, there was something that
we continued doing as part of the research while we started producing the prototype
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etc. The remote loading device has taken two and a half, nearly three years, to
develop, which is too long.
Interviewer: A lot longer than you would have liked. So where are you with the
programme now?
Interviewee: So the programme now is we have a number of organisations about to
start using it. So everyone has been spec’ed up and configured and we’ll start to see
the fruits of that labour next year.
Interviewer: But that’ll be for a prototype with beta testing customers for lack of a
better description?
Interviewee: Yes
Interviewer: And that’s probably a year away?
Interviewee: Yes, our mission for You Can Do It with British Rail has been to have it
fully functioning by 2017. In the meantime, in charity and education we can get it
moving a lot quicker.
Interviewer: I must really commend o your long-term vision. It’s often hard to see
beyond a year. It’s not like manufacturing, where everything is sequenced. Whereas
when you think of something like this where you know there is this much to do and the
pay-off is that far down the line it really is commendable.
Interviewee: It’s challenging because people say “It’s massive, it’s too big, you can’t do
this much with so many people” but actually we’re making it very specific really in
what it’s trying to achieve and part of the research shows that it’s going to take a long
time. The brilliant thing about these exploratory discussions is that you find out stuff
and the charity and education coming out of that are massive opportunities for us that
we’ve moved into, and are moving into very quickly. So I think it’s interesting because
when I look at, if you operate on a very narrow margin then you probably don’t have
the luxury of being able to say let’s invest, invest, invest for the future because you
need those funds for now and I think that’s another reason why I prefer to keep away
from ‘high volume, low cost’ type environments. If I operated in that environment, we
had a part of the business producing smart cards for instance, which is commoditised if
you’re only doing that, and the challenge if I only operated in that environment would
be that I’d have to act now and if you have to act now to do something it’s challenging.
What we have done in that environment is looked at lean manufacturing so we’ve
leaned everything up and, as a result of doing that, it’s a much simpler operation,
much more cost-effective and we have been able to make our prices more
appropriate. Once we’ve done that we’ve said “okay, let’s take you metros card, you
want it as cheap as possible” – not that we said that to them – “you want it as cheap as
possible, you’re paying this much to that much, let’s look at what we can do for you to
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Category 1 - Stimuli
• Consumer misperceptions
• Threats from new market entrants
• Changes in market conditions, including regulatory, economic or consumer
behaviour changes
• Shareholder pressure to improve performance
• The emergence of new technologies
• Poor sales performance
• Customer requests
• Top management pressure to diversify businesses
Category 2 - Objectives
• Increase share of existing market
• Maintain market position and profit levels
• Expand business through new unit, product or service
• Generate or increase sales in a new market
Category 3 - Competitive environment
• Industry maturity
• Degree of turbulence in the industry
• Industry fragmentation
Category 4 - Company-level variables
• Company size relative to competitors
• Company profitability relative to competitors
Category 5 - Manager-level variables
• Manager’s age
• Level of formal training of manager
• Manager’s location relative to home market
• Broadness of functional background of manager
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• Stimulus
• Objectives
• Levers
• Actions
• Refinement
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