Home Value Investing Michael Porter Focus On “Likelihood, nature, and intensity of a competitor’s reaction”

Michael Porter Focus On “Likelihood, nature, and intensity of a competitor’s reaction”

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Introduction: According to the author of Competitive Strategy Techniques, Michael Porter, all competitors should be analyzed including existing competitors and potential competitors (firms that could overcome entry barriers, with a synergy for being in the industry, with an obvious extension, and customers or suppliers that may integrate backward or forward). Future goals, assumptions, current strategy, and capabilities are the main diagnostic components of competitor analysis.

Key Discussion: The book Competitive Strategy Techniques for Analyzing Industries and Competitors suggests that “Knowledge of competitor goals helps in predictions about the likelihood a competitor will change its strategy, how it will react to business downturns, how portfolio analysis will classify the business units and its reaction to strategy changes by other competitors.” The firm should also analyze competitor’s future goals at different levels of management and in multiple dimensions.

Examining a competitor’s assumptions is helpful in “identifying their biases or blind spots, managerial backgrounds, and advisory relationships” that the company might exploit to achieve a competitive advantage. “To develop a statement related to each competitor’s strategy, the current strategy is involved. This strategy is either implicit or explicit.” “To evaluate the competitor’s strengths and weaknesses, capabilities of competitor analysis is necessary.”

Some areas are products, distribution, marketing, research, overall costs and corporate portfolio etc. Putting the four components together makes competitor’s response profile. After analyzing the competitor’s probably offensive and defensive moves, the firm can address the implications of such moves either likely to clash or invite entry. “Finding the market segment or strategy where the competitor is the weakest or the least prepared to defend is the right pick of a battleground.”

Conclusion: From the analysis of the book, “The first three components of the competitor’s analysis will influence the likelihood, nature, and intensity of a competitor’s reaction. Its strengths and weakness will determine its ability to initiate strategic moves. Formal and involved documents are important for competitor intelligence while analyzing competitors is too important to handle haphazardly.”

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