Business planning could be described as part of an on-going continuous activity concerning the direction of the whole organisation. It contains the mission, objectives, strategies, tactics, and policies that will serve as a guide to the organisation in adapting to the environment for a specified period of time. A business plan is thus considered as the back bone of a business unit; an attempt to follow the vision to reach the corporate goal. However, a business planning should be flexible and accommodative so that it could be changed from time to time if need be to become adapted to the general environment not only the business environment. To get an effective business plan, a critical analysis of the industry and competitors’ analysis is inevitable.
Strategy is the determination of the basic long-term goals and objectives of an enterprise, the courses of action to be taken and the allocation of resources that would be needed for carrying out these goals. Thus, strategy is not an end in itself but rather a means to an end. It is this which makes it vital ‘must have’ ingredient in any business. It is normally included in the marketing and business plans of organisations.
It is also a process and normally considered under three broad aspects or stages namely strategy analysis, which is the stage where through analysis the strategist identifies the opportunities, strengths, weakness and threats in the environment; strategy formulation, which is the stage where a choice is made from among numerous and potential ones; and strategy implementation which is when the chosen strategy is translated into organisation action.
Strategy is, therefore, developing and shaping organisation’s goals and objectives providing the needed response to the environment (for competitive advantage) and providing good corporate governance. As had already been pointed out strategy and business planning are somewhat linked.
‘Strategy’ is normally part of the business and marketing planning processes.
Industry and competitive analysis form part of the first stages of business planning and strategy. However, there is some distinction between the two.
Industry analysis is trying to identify the forces which affect the level of competition in an industry. Research has proved that industry analysis is very effective at the strategic business unit level (SBU) because if it is done at a generalised level it reduces its value.
Thus, this analysis would be done at the SBU level still with the industry in mind applying Porter’s five forces – threat of entry, the power of buyers, the power of suppliers, and threat of substitutes and competitive rivalry – to show the effect of the environment on the industry as a whole.
The threat of entry: this is the extent to which other interested parties are able to enter the industry. It is dependent on the barriers or restrictions of entry into the industry. There are quite a number of examples here but few might be explained. Some of the examples are economies of scale, capital required in a business, access to distribution channels, expected retaliation (i.e. if a competitor fears the existing firm’s retaliation), legislation or government action and differentiation. In analysing the barriers, consideration is given to which barriers are prevalent, the extent of prevention, the organisation’s position and any loopholes.
The power of buyers: This analysis the influence buyers wield on the industry in question. Based on the organisation’s supply claim the power intensity is felt. For example in the grocery retailing in the UK where there is a concentration of buyers few retailers particularly the supermarkets dominate the market.
Also when the cost of changing suppliers does not involve high cost, buyers can manipulate the system. There is also the threat of backward integration if prices and quality from suppliers are considered unsatisfactory. It is gainsaying the fact that a good knowledge of such issues is a potential determinant of a firm’s strategy. Also when there is price-war (intense) between competitors, buyers can manipulate the system, e.g. low-cost carriers on Airbus and Boeing.
Relating somewhat to the above is the power of suppliers: when consumers of a particular supplier are scattered, the supplier can wield power in that industry. A brand name image can also assist a supplier to become powerful. In Ghana for example the brand name ”Graphic” has become a household name such that if anyone wants to buy any brand of newspaper, the word ”Graphic” is used. Like Gucci and Coca- Cola as well, most retailers stock these to enable them win over shoppers because of the brand.
A significant benefit to be culled from this in formulating any strategy is to attack the brand name or increase marketing cost based on the knowledge gained here.
The next force is threat of substitutes coming into the industry. These could come in one or more of these product- by-product (e.g. fax for postal service, and email for fax, substitution as need by a new product, generic substitution (i.e. products competing for need) and doing without e.g. beer, tobacco, cannabis.
In planning a business or formulating a strategy, therefore, there is the need to find out how risky is the substitute on the product or service of the organization; can the service or product stand the threat posed by the substitutes? or how easily can consumers switch to these substitutes.
Intensity of rivalry: This concerns the possible entry of competitors into the industry; availability of substitutes and buyers and suppliers control. When this position of the existing organization changes. How can it be affected by the competition? The following must also be considered. Competition is intense where competitors are of equal size e.g. the computer engine search industry until Google emerged. Market growth rates and global customers may increase competition. Also where there is little or no differentiation customers can be easily swayed; acquisition and mergers also enhance a firm’s grip in an industry and thus give it a competitive edge. High fixed cost in an industry through high capital intensity result in competitors cutting prices e.g. Boeing and Airbus.
Like the other analysis a good grasp of the information here is a starting point for successful strategy formulation and business planning.
Whereas industry analysis concerns itself with the issues pertaining in the industry which affects the industry, competitive analysis looks at the marketing and financial indicators, mission statements, R& Ds, and product developments to ascertain where competitors are focusing their priorities and resources.
Some of the marketing aspects to consider under the competitive (competitor) analysis may include finding out how competitors are meeting customer needs in the range of goods or services on offer, affordable pricing, unique features. Consideration must also be sought on the quality and reliability of services and goods provided by competitors. For example Toyota has recently slashed engineering cost for Camry by 30% and was able to launch a new longer wider Sienna Mivan that has a fold-flat rear seat and priced it $1,000 less than its predecessor. Others may include obtaining information either by intelligence or through annual reports, as information are not easily disclosed (for fear of capitalizing on by competitors) over all market share whether that is growing declining or stable, share of specific markets e.g. the UK or US Market; launch of new brands or product – Toyota launched a new brand in the US in 2003; ‘Scion’ aimed at younger buyers, other aspects which might provide relevant marketing information on competitor analysis are changes in promotional tactics, distribution channels and not the least addition of new production or service facilities to improve efficiency and cut cost. A good and recent example is Asda installing radio frequency identification (RFID), a device which would be used to scan bar codes of incoming goods which could save Asda $8.35 billion annually. Fortune, ‘Wal-Mart keeps the change’, November 10,2003 pp 23.
Financial analysis will need to consider the performance of competitors. The competitors’ investment programme in relation to R&D, diversification (mergers and acquisitions as well as staff training and development must also be assessed and analysed. R&D is especially vital in the big companies; it is a key to their survival despite its usually long-term results. Microsoft for example is spending billions to develop its own search engine that will be incorporated in both its online service MSN and its new operating system due in 2006 to combat Google’s dominance in the search engine industry. Fortune, 22 December 2003 pp
To make easier analysis, Porter developed a model, a matrix, which compares the five forces against three levels of intensity, low, medium and high (see fig 1 below). Based on the experience of a well-known retail group in the UK, the illustration portrays one of intense competition from rivals and a high need to maintain its customer base against them. In business planning and strategy, industry analysis helps in the positioning of the business and in the right environment (i.e. getting adapted to the environment and the formulation of strategy. Competitor analysis on the other hand influences business planning and strategy by providing the marketing, financial and other key information about competitors which will help in the business planning and formulating a strategy that will give the organisation the needed competitive advantage.