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 Chapter 12: A Practical Approach to Analysis I wish I could find another word to use instead of analysis. Analysis seems to make many business people break out in hives. Why, the very thought of it conjures up an intimidating array of equations, regression analyses and other statistical goodies. Analysis is really the application of common sense and experience to raw information. You need analysis in order to develop competitor and market intelligence, but you don't necessarily need a Ph.D. to develop it. Some of the greatest entrepreneurs in modern business -- Bill Gates of Microsoft, Ray Kroc of McDonald's -- analyzed their competition constantly (and successfully) without ever taking a course in business analysis. What they could do well is pick out the most valuable insights and act upon them. Information is the manager's main 'capital,' and it is he who must decide what information he needs and how to use it, according to Peter Drucker.1 For this capital to produce healthy returns, the manager must convert it into intelligence. Analysis is the means to do so. The analysis need not be complicated, only complete and accurate. There is no single way or model to analyze a company or a competitive environment. Most of the time analysis is simply the process of winnowing the good from the useless information and finding a framework in which to add value to that information. Ultimately, analysis is only "good" if you can make use of it and act upon it. This chapter takes a practical, real-world approach to analysis. It will assume that most managers do not have a great deal of time or resources and that these same managers possess the ability to analyze without necessarily remembering the intricacies of their college statistics courses. Using this rationale, the chapter is divided into the following sections:
Each section is illustrated with actual (disguised) cases from a variety of industries worldwide. Section 1: Learn To Read The Tea Leaves Intelligence is a Process of Focus Intelligence is a process of focus. In order to make solid business decisions, you need to (1) focus in on your market (sometimes easier said than done); (2) identify which of the many market forces is most important so you can concentrate your time and efforts; and (3) you need to understand which strategy your target company is pursuing and bring all your information-gathering and analysis efforts to bear on that strategy. Once again, it is time that is most critical here, and you need to spend it wisely. You cannot afford to waste it exploring the wrong market, the wrong competitor or the wrong strategy. To do so is to pursue the wrong market path and potential failure. This chapter will give you the ability, and the tools to focus your intelligence efforts. The Tools Around Us The tools for competitive analysis are all around us. The raw analytical material starts with the intelligence resources that exist at our fingertips, including news articles, broadcast news, trade shows, industry gossip and internal reports from Sales or R&D. The problem is that we spot a piece of the intelligence picture, here and there, but do not see the entire panorama. Sometimes by carefully reviewing the news and applying your industry experience, you can read between the lines. For instance, instead of reading each article in isolation as it appears in your daily newspaper or trade journal, you should make it a habit of clipping out articles of interest on your market and your competition and saving them in a file. Then, every week or so, pull out the most recent clippings and read them together. This process of simply comparing and contrasting the information you read can point out new competitive initiatives. This contrast and compare activity is a form of analysis. Let's examine elements of the big picture and see if we can determine aspects of competitive analysis and, ultimately, competitive strategy. Below are two Wall Street Journal articles. The articles themselves spawn questions and even suggest some answers. I have highlighted words or phrases within the articles that begin to hint at analytical concepts and "hot" buttons. Analytical Tidbit #1 "Time Warner's New Leadership Trims Business Connections From Ross Era" [Text in bold is that of the author's] "Time Warner Inc.'s chairman and chief executive, Gerald M. Levin, has quietly begun to dismantle some controversial business ties that marked the freewheeling corporate culture of his predecessor, the late Steven J. Ross." "Barely two months after Mr. Ross died . . . Mr. Levin is sharply paring back Time Warner's business relationship with Oded 'Ed' Aboodi, who was among the late executive's most trusted advisers as well as a personal friend." ". . . they say Mr. Levin is also attempting to remodel the sprawling entertainment and media company's culture to reflect his own more disciplined and conventional corporate style." "In addition to revising such arrangements, Mr. Levin has also overseen a restructuring of the Time Warner board . . . " Source: Wall Street Journal, February 25, 1993, page A3Questions
Possible Analysis:
Analytical Tidbit #2 "Microsoft Loses Bid for a Trademark On the Word 'Windows' for PC Software" [Text in bold is that of the author's] "The U.S. Patent & Trademark Office has rejected a bid by Microsoft Corp. to gain a trademark on the word "Window" when used to describe personal-computer software products." "Microsoft's efforts to win control over the term Windows has raised hackles among some software and computer companies, who see the campaign as part of a pattern of Microsoft attempts to overpower smaller rivals." " 'It hurts our ability to compete if Microsoft owns the name of Windows,' said Heidi Sinclair, Vice President , Corporate Strategy, at Borland International . . . " " 'It's hard to prevail against a company the size of Microsoft,' said Ed Anson, a software developer in Andover, Mass., who sold his trademarked HyperWindows name to Microsoft last year for less than $10,000." Source: Wall Street Journal, February 25, 1993, page B8Questions
Possible Analysis:
The above articles all generate questions, and identify some of the competitive forces players in those markets must face. Once you understand the competitive forces, but still have questions, what you need next is an analytical model, a way of thinking about your competition and the industry. The analytical model serves as a framework from which to develop intelligence on your competitors, suppliers, customers or any other players in your market. Section 2: Know When To Analyze . . . The Moment of Change Looking for "The Moment of Change": An Analytical Philosophy With thousands of potential sources and dozens of techniques available, the analyst needs to reach for the intelligence jugular. He or she must find and analyze the most critical information in a timely fashion. The Moment of Change can help analysts home in on key analytical opportunities. The definition is as follows: The Moment of Change is that time when a major event takes place. That event could come from within the company or from without, such as the hiring of many new employees or a change in environmental rules or . Any such event will generate a great deal of information on your target company and often on other affected subsidiary or affiliate operations.. The analyst does not have to witness the Moment, just be able to recognize it at a later date.The Moment of Change is based on the most basic of intelligence rules, cited earlier in the book.-- "Wherever money is exchanged, so is information." The rule itself implies that you have to be there at every business transaction or find some way to locate that transaction in order to find the information. The Moment of Change gives you greater opportunity to find the information you need, even after the fact. Because the Moment is a major, sometimes traumatic shift, it will generate not a mere trickle, but rather a shower of information sparks. Corporate divestiture, acquisition, and bankruptcy are all examples of upheavals of the status quo that literally will generate thousands of bits and pieces of important competitive information. It is during these specific Moments of Change that you need to begin your analysis. Looking at Real World Analysis . . . The Next Step The following section presents six disguised cases, based on a wide-range of competitive issues. Each case first presents the major questions the client had and offers an industry and competitive background discussion. The second part of each case describes the type of analytical framework we used and why we used it. The final section describes the findings and the analysis as it was presented to the client. Intelligence Case 2: Timelining: Forecasting New Product Introduction The Problem: A Fuld & Company pharmaceutical client had just learned that a competitor received Federal Drug Administration (FDA) approval for the potential marketing of an over-the-counter (OTC) drug that directly competes with one of its own consumer OTC products. This FDA go-ahead only permits the competitor to prepare its manufacturing facilities for FDA production quality inspection, in anticipation of receiving the final FDA approval for marketing the drug, which is expected within the next year. The client needed to know exactly when and in what quantity the competitor was going to launch its product. Knowing this would give the client the ability to precisely plan a preemptive marketing strike, using pricing and advertising tactics. The danger: If they missed the roll-out window, they stood to lose millions of dollars in market share. Time: The Intelligence Problem As with the first case, the problem usually dictates the analytical solution. In this instance, the client's concern centered around "time." "How long," the client wanted to know, "will it take for the competitor to introduce its product?" FDA approval only signaled a warning, not the actual product launch date. We needed to find a way to link the element of time with the release of information about the competitor. The analytical tool we used is called Timelining. What is Timelining? Like history, business processes repeat themselves. Timelining is a way to chart the order of how companies do things, tag the information spun off from these activities, and place that information into an analytical framework.. Almost every business process follows a certain pattern, which may differ from company to company. For a company to recreate or reinvent the way it does something each and every time, would be very costly . As a result, business is a process of repetition. Timelining forces the analyst to examine data in a chronological context. Instead of just seeing "4,7,1,3,2,6,5," Timelining is telling you to look out for a pattern -- 1,2,3,4,5,6,7. In the real world, you gather information about competition haphazardly. You may have a competitive goal in mind, but you pick up the information where and when it's available. By doing so, you can see if you have a pattern, or just a wild assortment of information pieces. So, even if you are missing some of the information, _, 2, 3, _,5, _,7, you can still see the pattern and where the information is leading you. A company has decided to release a new product. Between the moment of product release and the first decision, many events had to take place, such as the filing of engineering reports with the town and environmental authorities, plant inspections by utilities and equipment manufacturers installing new equipment, and so on. As the chart indicates, the information volume grows and becomes more available as we approach the date of the plant opening. "Wherever money is exchanged, so is information" once again makes clear that the more business transactions, the more information. More important to note: In order to build a plant, you need to undertake certain steps, in a specific order. Altogether, these steps create a chronological pattern. In this illustration the steps were as follows: Steps In The Pattern . . . 1,2,3 1. Decision to build 2. Site selection 3. Environmental Impact statement 4. Design work by an architectural engineering firm 5. Site work and construction 6. Equipment purchases 7. Equipment installation 8. Hiring Even if you only captured information relating to steps 1, 3, 4, 5, you can determine approximately when the plant would come on line. This is the beauty of timelining. You do not have to have every single piece of information in hand, only a few critical pieces. Once you have discovered the pattern, you have your answer. ...Back to the Case How We Developed The Timeline Identify each process taking place: If this were a study to examine how a banking competitor was streamlining its check processing operations, we would have met with the Information Systems staff at the client's bank, and anyone else who was involved in check processing -- both from the technology and personnel side of the bank. These folks intimately know each and every process step, the sequence and the length of time it takes to complete each piece. They can also describe how long it would likely take to improve or completely re-engineer such a process. They know the suppliers, the equipment and the costs. In the pharmaceutical case, we needed to understand each piece of equipment and how it worked, along with the expertise and personnel required at each stage. The client took the project manager on a tour of one of its plants. This allowed us to visually and mentally tag each piece of equipment and its purpose. [Note: This is a useful exercise, no matter what the intelligence assignment. If your analysts or interviewers can firmly picture the manufacturing or service process in their minds, they will have far more complete and accurate interviews.] The client also introduced us to its engineering, marketing and production staff who helped answer many of our more technical questions. The manufacturing details we received during these internal client interviews are what later helped us project the competitor's production volume up to one year into the future. Remember, the competitor's plant had not even opened yet. Some of the process details described below:
Knowing the above details was necessary in order for us to probe for details on the timing of the expected product launch. Because the FDA must certify all production equipment for quality control, it was important to understand the machinery being used. The Data Came In Randomly All the data sources, including interviews, FDA documents, news articles came in as we found them, in no particular order. Examples of what we discovered were:
Organizing Data By Time With the process understood, we had to map the sequence of events involving this process. Which event came first, second, third, and so on. The following describes the timelining sequence for the prospective roll-out.
Before we could draw any conclusions, we had to support our pieced-together timeline with more corroborating data. We interviewed dozens of other contacts in the industry, including: packaging materials suppliers, graphic designers, corrugated box manufacturers, trucking/shipping companies, and retail buyers. As always, our interviewing approach was straightforward. The information we received was, by and large, available in small pieces. The information only became intelligence when we were able to assemble it, in this case using a timeline. Combining our knowledge of the plant's actual FDA certification date and hiring information with the time it would take for the new employees to produce products at a certain yield rate, we were able to project how long it would take for the competitor to stockpile enough pills to launch the product. The estimated 6-7 week product launch window we supplied in our analysis helped the client successfully plan a preemptive strategy by flooding the market with price-cutting coupons, special institutional promotions, and so on. The analytical framework was a timeline. The resulting intelligence was the launch date. 1 The Changing World of the Executive, Peter Drucker, Times Books, 1985, page 37. Order your copy today. |
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