31 Mar 2016 19:58 IST

When smart ‘snooping’ can pay rich dividends

Tracking competition strategically is important for a company’s long-term survival

In an increasingly competitive world, common sense dictates that one must keep a close watch on what the competition is up to. One would expect companies to be doing a fantastic job of this as their survival in the long term depends on it. It may come as a surprise that most companies, many of them successful ones, do an inadequate job of tracking the competition in a strategic way.

What gets passed off as competitive information is, by and large, what the salespeople bring in from the bazaar. Some are real happenings and developments at the grass-roots level, and some are just gossip, rumours and hearsay. Even if everything the sales team gathers is true, it is only a fraction of what the competition is up to.

Many CEOs have their executive assistants and secretaries go through the newspapers, cut out items about competitors and file them, to read later at leisure. Some companies have strategic planning and competitor analysis teams go through the information periodically, summarise the material and make presentations to the board. Seldom is there anything ‘strategic’ about these exercises.

Common practices

Companies do a comparative analysis of their financial performance with that of the competitors. Common size and balance sheet analysis are the most prevalent and common practices. In reality, a common size analysis tells you nothing except that your labour cost is a little more than that of a competitor.

This doesn’t tell you anything that you can do something about, unless you find out the reasons for it. This could be because the competitor’s labour is paid less (for example, they might be working in a rural area while you are in an urban space), or because the competitor’s productivity is high, or because they outsource a larger part of their work than you do, or any other such reason. Unless you figure out the answers to these questions, a mere comparison of costs doesn’t take you anywhere. Costs could vary due to scale effect, the learning effect, or capacity utilisation.

While, all three are driven by volume, unless you know the effect each one has on the cost, you will not know which strategic response you should consider. The response to scale effect is different from the response to capacity utilisation.

Gathering insight

Apart from keeping tabs on the competition through the media and analysing their activities from a strategic perspective, one can supplement the same with what is known in terms of their location, investments, number of employees, promotion and marketing costs, and strategies as gathered through the sales force.

Information can also be gathered through vendors, dealers/distributors, market intermediaries and financial institutions and intermediaries. Customers and suppliers are good sources of authentic information about players in the industry as well.

Employees are also a good resource to tap for information on a rival company, and one can often gather valuable insights about competitors by interviewing their employees for job positions — real or contrived.

Dedicated team

While sources are aplenty, a separate team must put together these pieces of information on a real-time basis and cross-verify them with developments in the market-place to confirm their veracity.

This can be evolved to such a fine art that one may even be able to predict a competitor’s next move.