Competitive Intelligence: How 7-Factor Profiles Can Predict Future Competitor Actions
Seven-factor profiles are a great tool for competitive intelligence. Simply rate each organization on a scale of one to five in each of the following areas based on the internal view, publications view, and experts view:
Rating sectors and competitors isn’t a one-shot event. To maintain a steady succession of momentary advantages, you need to keep your competitive index and seven-factor assessments up-to-date according to the following guidelines:
Update your seven-factor assessments every 12 months and maintain them as part of your competitive intelligence library.
Update your future competitive index at least once every 12 months. Note: If the velocity of change in an industry sector accelerates, you may need to update the index more frequently.
Now that you have seven-factor ratings for your organization and all the organizations you’ll be competing against in a specific sector, you’re ready to put those ratings to work in the following practical applications:
Maintain a constant awareness of the key aspects of each competitor.
Conduct highly accurate and insightful SWOT analysis.
Predict future competitor initiatives and each competitor’s most probable move when a major event occurs in the sector.
Detect weaknesses in the industry overall that you can possibly take advantage of.
Identify each competitor’s strengths and weaknesses so you can minimize your investment in crafting your strategy to deal with each one.
Predict with reasonable accuracy the winners and the losers.
Target organizations that may be prime acquisitions candidates.
Look at each company’s scores in relation to the sector’s competitive index. Companies that rate –1 below the sector’s competitive index in all or most areas will generally have a difficult time competing in the future. If all or most of an organization’s ratings fall –1.5 below the index, it’s a prime candidate for failure in the future unless it takes steps to improve its numbers.
The examples below show the seven-factor ratings of two companies, Company A and Company B, competing in the same sector. The vertical line labeled Competitive Index represents the benchmark for the sector. Each of the seven factors is rated on a scale of 1 to 5.
Company A is a publicly traded company. Over the years, the firm has been able to develop a few good products. However, with a mere glance at its seven-factor profile, you can quickly see that the company is woefully below the sector’s standard (represented by the competitive index line).
The firm is almost incapable of executing strategy, especially if it involves some level of novel change. Even if the firm were able to develop some new products, the profile reveals that the current organization is incapable of executing those strategies.
Conversely, Company B’s profile is indicative of a very robust organization. It, too, is a publicly traded company, but it’s much more closely aligned with the future competitive index.
When you begin to compare seven-factor profiles in this way, you need little or no imagination to spot the future winners and losers. In this case, you could pretty much ignore Company A (for now) and focus your attention on competing with Company B — a formidable foe.
Don’t dismiss any competitor, regardless of how low its scores happen to be. Situations can change via takeovers, adjustments in personnel, changes in strategy, and so on. Continue to monitor low-scoring competitors so you’re not blindsided by a dramatic turnaround.
Keeping in mind the seven-factor assessment when reading financial reports and considering threats can shed a lot of light on conditions in your sector.
How to read financials with a seven-factor eye to identify the biggest threats
Numbers can be very deceptive when reviewed out of context. For example, if you’re examining only financial reports, Company A could come out on top simply because it has chosen to cut costs to boost current profits.
Company B, on the other hand, may be showing net losses over an extended period of time as it ramps up to introduce and market a whole new line of innovative products. The company that stands to win the future is more likely to come out on top eventually.
To spot emerging threats from a competitor, review its financial statements in the light of its seven-factor assessment. There could be a forward-thinking reason behind the competitor’s financials.
How to predict the most probable competitor thrusts
Seven-factor ratings can help you identify what area a competitor is strongest in and weakest in so you can spot the most and least probable and serious threats that a competitor poses to your organization.
Threats are most likely to arise from a competitor’s area of strength. For example, although Company B is relatively strong in marketing, it’s even stronger in innovation and strategic planning. You can expect the organization to respond to a competitive situation by rolling out more novel products before it engages in upping marketing expenditures. That kind of information can be critically important to your strategic-planning teams.