For example, from an outsider’s view, one might say that Apple has a corporate strategy of “not first to market, but the highest level of user friendly interfaces and packaged applications”. The customer outcome is “easiest to use, new innovations with the bugs worked out” (which is the reason why there is so much furor over Apple Maps not working with the iPhone 5 first release). Apple may not always be first to market (MP3 players were around for many years before the iPod) but then again, they are not serving the early adopters. What they do deliver, though not the first, has a better interface and is more integrated with other applications. Their corporate strategy and this customer outcome will not need to change quickly. However, if they want to hold and grow market share, their product strategy, down at the iPod level, will need to be more agile in order to flow with the technology trends.
So, once you have a clear picture of the landscape of possible customer outcomes, you need to map your competitors’ choices onto this space. What have they chosen? Why would these choices be right for them? What advantages does this give them and where are the weaknesses? Presumably these competitors are feeling the same industry forces (ala Michael Porter, see Tenet #5) that your company feels. Or do they? What actions, processes or resources have they put in place that minimizes the impact of these industry forces? For instance, by virtue of their investment over many years, perhaps they do not feel the “barrier to entry” force, but you will. Maybe your competition has a more vertically-integrated supply chain, their strategic response to the powerful vendor forces in the industry. As a result, this competitor will feel the impact of supplier power less than your firm. Understanding these industry forces is necessary not only to make your own choices, but it helps understand the choices made by your competition.
A good tool to fully understand your competitions’ strategy is the COAR map, as espoused by Prof. Sayan Chatterjee of Case Western Reserve. (See for example his book Failsafe Strategies.) Chatterjee uses the acronym COAR in the following way:
- C: Customer outcomes
- O: core Objectives
- A: key Activities
- R: critical Resources
This ordering is to remind you as a business leader of the steps in building your business. But it also helps in understanding your competition. Start by describing the unique Customer outcome that can be seen objectively from outside the company. What does the customer get by buying from competitor A? Then describe the Objectives competitor A must have in order to deliver this Customer outcome. For instance, if competitor A is Netflix and (at least part of) the Customer outcome may be stated as “we know what movies you want before you do, and we help you make your choices” then an Objective would be to create a method for learning from each customer and predicting with high accuracy what movies that customer would like to see. From here, you can begin to list the Activities Netflix needs to have (creating and refining a recommendation engine in software, creating an interaction method with the customer) and the Resources needed (web programmers, experts with real-world systems for recommendation, personalization, and machine learning, etc.)
Use a variety of visual aids to look at the competition. Stare at them. Learn from different ways to picture your competition. The well-described and widely used SWOT analysis (Strengths, Weaknesses, Opportunities and Threats) will give you one valuable picture, but look for others. For instance, one visual aid in understanding your competitive landscape is the so-called Mekko Chart (also known as a Marimekko Chart) used by most Fortune 100 companies. These charts can illuminate market share in the industry in a single picture. Mekko charts are stacked bar charts with full scale at 100%. They range significantly in the information presented. One example uses the vertical components of the bar to represent various competitors’ percent market share, while the horizontal axis represents either product types or market segments. The width of the vertical bars can then represent the total available market in dollars or percent. Here is an example:
Mekko charts present an important picture. They tell you the result of strategies. But they don’t describe the strategy itself. They tell you who is being successful, but you need to dig to understand why, and to see what holes are left for your firm to wedge into and begin to take market share. Finally, you need to always translate your thoughts into the customers’ minds… and into the “customer outcomes” that produces these results.
This kind of analysis is valuable in helping you to choose your own customer outcomes more wisely, to choose your strategy more carefully, and to create a value-adding core capability that will allow you to compete with more strength in the long term.
Understand your competitions’ choices, and speculate concerning their reasoning and their probable next moves. Then choose your own.
In the next blog, I will discuss Tenet #8, how do grow your company through carefully selected diversification around your core capabilities.