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Outline And Evaluate The Principal Weaknesses Associated With Competitive Analysis As Used By Managers Attempting To Deepen Their Understanding Of The Business Environment

1812 words - 8 pages

Nowadays, analysing competition is crucial for managers in order to understand the environment in which the business evolves, its competitors (their goals, plans etc) as well as implement strategies and position their companies. They can use a wide variety of techniques, each having its strengths and weaknesses. According to Prescott and Grant (1988), to select the appropriate techniques, managers have to know the different techniques available, how they are related to each other, the focus and scope of the area and the constraints limiting the extent of analysis. To analyse competition efficiently, they have to combine some of the different techniques available as they all have a specific ...view middle of the document...

Reviewing their business' definition, the shape of the industry and the market over the time is crucial as industries change. Prahalad (1995) states that "many industries are undergoing massive transformation. Deregulation, global excess capacity, global competition, mergers and acquisitions, changing customer expectations, technological discontinuities [...] are changing industries, creating new industries and opening up new and large growth markets for existing businesses." For instance, chemical companies enter the pharmaceutical industry by making alliances with young biotechnology companies, not considered as a threat by the pharmaceutical companies. This change in the industry led the pharmaceutical companies to redefine the industry and its boundaries as well as their strategy.Managers need to be vigilant in identifying its competitors. A poor identification leads to a wrong positioning and a possible long time response to the different actions coming from those undetected rivals. This identification is dependent on the managers' perceptions and how they define the industry and its boundaries. Clark and Montgomery (1999) say that "an understanding on how managers construe their competitive environment is highly relevant to any understanding of competitor interaction." The problem with most competitive analysis is that they tend to focus on well-established companies while ignoring potential competition from other companies and thereby limiting the scope of the analysis. Competitors are not only companies with same goals, structure and/or resources. They can be smaller and 'invisible' but viable companies, possibly coming from abroad as well. With globalisation and industry changes, the number of potential competitors is consequently growing. An example illustrating this weakness is Apple which did not consider IBM as a potential threat when IBM made its entrance in the PC market. This was a fatal mistake on the part of Apple as IBM went on to rule the market in the forthcoming years.Weaknesses coming from the models themselves can be related to those two above. Managers have to keep in mind that the different models used only provide a snapshot of the current state of the industry. It means that models have to be reanalysed after a period of time as they assume the environment to be relatively static. Flower (2004) states that "these relatively static structure do not fit well with today's rapid changes in technology."Managers should not only lay emphasis on their competitors' visible functions. Ignoring the less visible aspects of their competitors leads to an incomplete set of strengths and weaknesses. This would result in the company underestimating the competences of its rivals and this would eventually lead to a late realisation of the competitors' strategic moves. Data may not be easy to collect and evaluate as the value of some competences is not easy to measure. Indeed, it is difficult to analyse till which point they contribute...

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