The Power of Business Analysis Tools for Competitive Intelligence
Wednesday, 5th June 2013
By Andrew Grave
Andrew Grave discusses how the use of strategy tools such as SWOT and PESTEL can help sharpen competitive intelligence analysis and describes how a lesser-known tool, Porter's Five Forces, has come of age and can be used. He concludes by looking at a situation of disruptive innovation where the tools are less useful.
Popular strategy tools help information professionals communicate their knowledge in convincing ways. The ideas and insights that such tools drive can also help elevate their work over reports obtainable from business intelligence databases such as OneSource.
SWOT and PESTEL
SWOT and PESTEL are the strategy tools most favoured by information professionals. SWOT is an audit of an organisation's strategic position using four quadrants: strengths, weaknesses, opportunities and threats.
PESTEL is a popular framework to aid in the understanding of forces that may impact an organisation. PESTEL stands for Political, Economic, Social, Technological, Environmental and Legal. There are other variations of the acronym including PEST, SLEPT and STEEP.
They’re both great tools to capture people’s thoughts in brainstorming meetings, and after weighting and analysis, be incorporated into the final report or presentation.
Good strategy tools require minimal explanation or the message may be blunted. The popularity of these two tools ensures this is not the case.
Porter’s Five Forces
One tool has come of age recently: Porter’s Five Forces, named after its creator Michael Porter of Harvard Business School. This is because:
- It emphasises product substitutes which are becoming a feature of today’s technologically-driven world. For example, think of the ever-growing list for which mobile phones now provide a substitute, such as: landlines, public pay phones, alarm clocks, watches, pocket maps, sat navs, music players, torches, cameras, barcode readers, calculators and computers!
- The tool considers how high fixed costs may act as a barrier to companies exiting a market and how they can result in overcapacity and therefore intense competition. It’s a situation we see in times of economic downturn and is currently being played out by Europe’s steel industry.
The model shows how competitive a service line or product is by taking an economics perspective. It is illustrated in Figure 1.
Figure 1: Porter’s Five Forces
Porter’s Five Forces can form a useful tool when evaluating the effects and success of product launches and can help in the evaluation of service lines. The model itself is intuitive and can be incorporated into company profiles at service/product line level.
If you’ve not used it before, I suggest you test it out yourself then spring it on your colleagues at the right moment!
After advocating their use, it’s only fair to acknowledge that there are some situations where they should not be used.
Disruptive innovations have been a feature of most of the 21st century and I’m often asked about models for such situations. Based on the research I describe below, it’s entirely possible to draw a chart selecting key criteria perhaps including attributes like price, quality, convenience, crowdsourcing and environmental ratings. But by doing this, paraphrasing the cliché, you will be thinking inside the box!
Information professionals should instead be alert to the lessons shared by Clayton Christensen in his book The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail:
- Disruptive innovations often come from new entrants to the industry. We’ve seen this in our own area with the entrance of companies like Google, Wikipedia and Mendeley.
- Major customers are often a barrier to change as they tell the provider what they want to hear.
- Disruptive innovations rarely appeal to the top end of the market at first as their performance is often poorer. They tend to compensate in other ways like convenience. Over time, they improve technically and/or by price, and come to dominate the market.
- Inventors in existing firms face the “innovator’s dilemma”. The innovator has to overcome the cultural bias against the inferior new product and face up to cannibalising existing revenue, knowing that a competitor might do this anyway. Whilst Kodak invented the digital camera in 1975, it was not the first to market as it feared for its photographic film market. It entered Chapter 11 reorganisation in 2012 having failed to make a success of the digital market.
FreePint Subscribers can read more about Porter's Five Forces and other key analytical tools in Andrew's longer article. Log in to view "Competitive Intelligence: Analytical Tools - How to Do More Than Just SWOT!".
- Blog post title: The Power of Business Analysis Tools for Competitive Intelligence
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