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Competitive Intelligence Featured

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Abstract

The current competitive business environment demand organizations to invest on market research to gain or maintain competitive advantage. Competition intelligence has been explored as one of the potential fields that will enable managers to remains relevant in the 21st century.  Managers use competitive intelligence to make informed decisions about investments, marketing, research and development and other long-term business strategies. Competitive intelligence is based analytical models that include SWOT analysis, Porter’s Five Forces Model, supply chain analysis, PESTEL analysis, and product lifecycle analysis.  SWOT analysis provides businesses with means to articulate the strategic fit for business between its resources/capabilities and specific demands of its competitive mark. The foremost objective of SWOT analysis is to determine the best way a firm can use its strengths to exploit opportunities whilst it acknowledges threats.  Porter’s Five Forces Analysis is used help managers or entrepreneurs to determine the competitive intensity and attractiveness of the market. PESTEL analysis allows the identification of the environment within which a business operates and provides data and information that enables a company to predict future situations and circumstances.

Introduction

Competitive intelligence has been conceptualized as an activity that is involves analyzing an organizations competitors and the environment of the organization. It is the process of scrutinizing the competitive environment of an organization. Miller (2013) defines competitive intelligence as the methodical and ethical program for assembling, analyzing and managing information that affects a business plans, decision or operations.   The concept is based on governmental intelligence agencies, management studies and market research.  The concept of competitive intelligence emerged as part of market research in 1970s (Lux & Peske, 2000) and received a huge boost after Michael Porter formulated the competitive strategy for analyzing industries and companies.

Managers use competitive intelligence to make informed decisions about investments, marketing, research and development and other long-term business strategies. CI focuses on external events and trends with much attention being on the competitors’ activities and intentions.  The key goal of CI is to provide early warning and timely alerts that allow managers to take precautionary actions to maintain their competitive advantage (Schwarz, J., 2007).  An effective CI cycle is continuo’s and involves planning and direction, collection activities, analysis, dissemination and feedback. It allows managers to detect market changes early to change the strategic position of the company. The key component of CI is analysis that transforms raw data into actionable intelligence. Yap, C., & Rashid, M. (2011) note that the competitive intelligence is commonly used to make strategic decisions relating capacity expansion, new product development, and strategic alliance.  They also noted that there is a positive correlation between an organization CI activities and the performance of the firm. Firms that have formal or informal CI units achieve higher performance as measured by organizational growth and profitability.

This paper explores the main competitive intelligence tools, their advantages and limitations, and the application of competitive intelligence.

Analytical models

Competitive intelligence depends on analytical models. Some of the models used in CI include product life cycles, porter’s five forces model, value net model, four corner analysis, supply chain analysis, customer segmentation analysis, PESTLE analysis,  and SWOT analysis.  The analysis will focus on SWOT analysis, Porter’s Five Forces analysis and PESTLEL analysis.

SWOT analysis

SWOT analysis is one the widely used CI tool and it forms the foundation of CI efforts.  SWOT is an acronym for “strengths, weaknesses, opportunities and threats (Fleisher & Benounassan, 2003).  SWOT was developed by the Harvard Business schools in 1960s (Magid, 2013). SWOT analysis, which has been in use for several decades, provides businesses with means to articulate the strategic fit for business between its resources/capabilities and specific demands of its competitive mark. The most important objective of SWOT analysis is to determine the best way a firm can use its strengths to exploit opportunities whilst it acknowledges threats.  Business strengths are factors that make a business or organization competitive than its competitors.  They are what an organization possesses that available to be utilized in achieving the performance objectives of the organization.   Strengths may be in the form of knowledge, talent and credential of staffs, tangible assets such as equipments and patents and valuable resources.  Weakness in clued those areas within a company that are perceived as limits of performance and they act as obstacles in achieving organization’s goals (Briciu, S., Căpuşneanu, S., & Topor, D., 2012).  Weaknesses make the organization inferior to its competitors. Some weaknesses may include lack of the appropriate expertise, limited resources and lack of technological advancement.  Opportunities include favorable trends such as an increase in demand.  Therefore, the competitive advantage of a company can be enhanced by exploiting these opportunities.   Opportunities may emerge from the  growth in the market. Threats include market trends or situations that have potentially deleterious impact t on the company’s prospects. These may include economic downturn new government regulations or intolerable increase in suppliers’ prices.

 The key consideration is conducting SWOT analysis is the manner in which information is gathered. The process must incorporate all sections of the organization and encourage team work.  SWOT has generally been accepted and used in various industries because of its wide applicability and cost-effectiveness

According to Magid (2013) SWOT analysis has been criticized for its top-down approach to data gathering, separating those who think and those who do, downplaying emergent strategies and neglecting anticipated future situations. In addition, SWOT does not offer explicit strategic recommendations while it simplicity may mask many details.

Porter’s Five Forces

Porter’s Five Forces Model is regarded as the best analytical model for understanding the industry. Michael Porter, an American scholar, identified five forces that determine competitiveness in the market and their influence on firms already in the market.  His model focuses on the risk of entry by potential competitors, the intensity of rivalry among established companies, the bargaining power of buyers and suppliers and the closeness of substitutes (Jones & Hill, 2009). Porter postulates that the stronger each of these forces is, the more restricted is the ability of established businesses to raise prices and earn greater profits.  The task facing executives is to recognize how changes in the five main forces give rise to fresh opportunities and threats and to devise appropriate strategic responses.   According to Bard (2008), the goal of Porter’s Five Forces Analysis is to help managers or entrepreneurs to determine the competitive intensity and attractiveness of the market.  Risk of entry by potential competitors and barriers to entry are vital to any industry.  Potential competitors include companies or businesses that are not in the industry but have the capability to do so if they choose.  Often, firms operating in the industry discourage potential competitors from entering the industry.  Established companies enjoy economies of scale, brand loyalty, and absolute cost advantages that may discourage potential competitors.  Differentiation of inputs in an industry means that different suppliers can provide different inputs. The larger the degree of differentiation among suppliers the greater the bargaining power they have.  However, a large number of substitutes reduce the bargaining power of suppliers.

According to Schermerhom (2010), competitive strategies using Porter’s model are built around differentiation, cost leadership and focus.  A differentiation strategy seeks competitive advantage through uniqueness. Organizations try to develop products and services that are clearly different from those of competitors.  The success of differentiation strategy depends on the perceptions of consumers on product or service quality.  The cost leadership strategy seeks competitive advantage by operating with lower costs than competitors. This allows organizations to make profits while selling products or services at low prices than their competitors.  

There are numerous facets to “political” issues. Politics and politicians shape laws and many organizations see the lobbying of politicians as a key part of their strategy.  Political factors may include government policies, changing governments, international politics and local governments. Economic factors range from interest rates, exchange rates, GDP of the country and taxation and viability of businesses.  Social influences impact consumer decision-making process. In addition, increased mobility, social marketing, international and cultural differences influence he business environment.  Innovations, development time, investment in technology, adoption speed and cost reduction are some of the crucial elements in technological assessment (Neirotti, 2008).

Although Porter’s model is powerful analytical tool, it has some major limitations in current market environment.  One of the denigrations of the model is that it assumes relatively static market structures.  The model is based on the economic situation in   the eighties that was characterized by strong competition and stable market structures. Therefore, it does not accommodate new business models and dynamics of the market.  Another key limitation of the model is that it overstresses the importance of industry structure as the key determinant of a company’s performance.  Therefore, it ignores dynamics within an organization (Bridoux, 2011).  

PESTEL analysis

Environmental analysis is vital in developing a sustainable competitive advantage including identifying opportunities and threats.   PESTEL (political, economic, social, technological, environmental and legal) analysis is also known as STEPE, and PEST. Aguilar conceived PESTEL as ETPS. PESTEL has two main functions for the company.  First, it allows the identification of the environment within which a business operates. Secondly, it provides data and information that enables a company to predict future situations and circumstances.  Therefore, PESTEL is a precondition analysis that is utilized by strategic managers (Kopal, 2010).

Although PESTLE analysis offer important foundation knowledge, it is limited in terms of measurement and evaluation.  First, the process does not adopt a quantitative approach to measurement.  PESTEL factors are qualitative in structure and quantitative measurement cannot be made.  Secondly, although PESTEL is conceptualized as a holistic process, this is not reflected in the measurement dimensions (Yuksel, 2012).  

References

Al-Araki, M. (2013). SWOT analysis revisited through PEAK-framework. Journal of Intelligent & Fuzzy Systems, 25(3), 615-625. Doi:10.3233/IFS-120668

Application of intelligence analysis software in competitive intelligence.  Accessed from http://www.teched.eu/downloads/Application%20of%20intelligence%20analysis%20software%20in%20competitive%20intelligence.pdf on 3/31/2014.

Bard Bard (2008). Opportunity recognition. Tim Bard Multimedia, Michigan.

Briciu, S., Căpuşneanu, S., & Topor, D. (2012). DEVELOPMENTS ON SWOT ANALYSIS FOR COSTING METHODS. International Journal Of Academic Research, 4 (4), 145-153. Doi:10.7813/2075-4124.2012/4-4/B.21

Bridoux F (2011). A resource-based approach to performance and competition. Institute of Administration.

Jones G 7 Hill C (2009). Strategic management theory.  Cengage learning, USA.

Miller S (2013). Competitive intelligence: An overview. Accessed from http://www.ventes-marketing.com/References/Intelligence%20concurrentielle/Articles/CI%20Overview.pdf on 3/31/2014

Neirotti, P., Cantamessa, M., & Paolucci, E. (2008). Do companies with a competitive advantage make better use of IT? Evidence from Italian enterprises. International Journal of Technology Management, 42(1/2), 158-184.

Schermerhom R (2010). Exploring management.  John Wiley & Sons Publisher.

Schwarz, J. (2007). Competitive Intelligence: A Field for Futurists? Futures Research Quarterly, 23(1), 55-65.

Yap, C., & Rashid, M. (2011). Competitive Intelligence Practices and Firm Performance. Libri: International Journal of Libraries & Information Services, 61(3), 175-189. doi:10.1515/libr.2011.015

Yuksel I (2012). Developing a multi-criteria decision making model for PESTEL. International journal of business management. Vol. 7 (24)

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