Strategic groups and Common mistakes in identifying competitors.

 

Even though an industry may include a large number of companies, not all of them are competitors. We need to know about strategic groups in order to figure out who may be my immediate rivals in a certain business. Companies in the same strategic group compete against one another. Firms that will adopt or are pursuing similar strategies will be grouped together under the same strategic umbrella. Those that are part of the same strategic group will have similar strategic goals and plans. This implies we may combine those companies into a strategic group with whom we have common strategies and strategic dimensions. The rivalry will be fiercer among companies in the same strategic group than among firms in other strategic groups. In addition, among the enterprises in the same strategic group, there will be a wide range of performance. There are five different strategic dimensions to consider. Extent of technological leadership, product quality, pricing policies, distribution channels, and customer service are the five strategic dimensions. This means that organizations who want to use technology extensively will be placed in a comparable strategic category. Companies with similar product quality will be placed in the same strategic group. Companies with identical pricing policies will be placed in the same strategic group. Companies with identical distribution channels will be included in the same strategic group. Finally, companies that provide similar customer service will be placed in the same strategic group. Whether these companies think like me or not, being in a similar strategic group has strategic significance. Those that think strategically in the same way will be part of the same strategic group, and they will compete against each other.

The most typical error in identifying direct rivals is that companies look at only a few competitors that have comparable business models to them, that competitor analysis is done only once and only evaluated quarterly, and that indirect competitors are ignored.

Executives utilize Competitor Intelligence tools to help them analyze direct rivals. For example, there are ten firms in the same strategic group as me, and there are nine companies without me. Now the question is who are my immediate rivals among these nine firms. If executives wish to learn more about their direct competitors, they must do a competitor analysis utilizing a competitor intelligence tool, in which they must assess their competitors using four criteria. If these four criteria match some of their competitors in the same strategic group, they will be called direct competitors. One is whose long-term goals are similar to their long-term goals. Then, which has a current strategy that is similar to theirs. Third, which firm’s industry assumption is identical to theirs. Last but not least, whose capabilities are comparable to theirs. If all four of these criteria are met, they are direct competitors.