Preparing The Business Plan – Competitive Analysis

Decisions regarding products and target markets must be made in the context of the competitive and technological environment in which the business is operating.  As a general rule, unless existing competitors are not able to meet demand for specified products, thereby creating an opportunity for new companies to sell identical or similar products, a new entrant must have a competitive advantage that can be translated into customer satisfaction in order to survive.  Studies indicate that successful technology firms are able to develop and introduce new products or processes that offer some significant benefits over existing competition, be it in the areas of cost, functionality and/or performance.

Competitive analysis begins with identification of all principal elements of competition in the company’s marketplace.  There is no standard list that applies in each situation; however, it is not uncommon to find that companies compete on the basis of price, service, product quality and reliability and/or manufacturing efficiencies.  Each of these factors can enhance the value to customer in terms of lower costs or improved product performance.  Marketing, distribution, and acquisition of technical resources are all supporting strategies and can also be an important part of the company’s efforts to create a competitive advantage.

Once the company has identified the principal elements of competition in the relevant market, it must then identify its own distinctive competencies that will allow it to compete effectively.  One method that can be used in order to identify these competencies is to ask a series of questions regarding the manner in which the company completes the tasks necessary for it to develop, produce, and distribute its products and services.  This exercise, which is sometimes referred to as “value-chain analysis,” is designed to establish the basis upon which the company will compete in the future and, to some extent, to identify those areas in which the company’s skills fail to match the expertise of competitors.  In any event, the following questions should be considered:

• Is the company able to compete on the basis of its strengths in procurement, processing or manufacturing?
• Is the company able to compete on the basis of its strengths with respect to sales, distribution, customer service, delivery, promotion, maintenance or field engineering?
• Is the company able to compete on the basis of the characteristics and capabilities of its products and services?
• Is the company able to compete on the basis of its human resources strategies?
• Is the company able to compete on the basis of its strengths in the area of research and development?
• Is the company able to compete on the basis of a unique technological advantage, which is either embodied in its product line or is utilized in the course of its manufacturing?
• Is the company able to compete on the basis of its financial assets or strategic business relationships?

The end product of this analysis should be selection of a strategy that is consistent with the company’s competitive advantage and the needs of the marketplace.  For example, while a given product may be technically “inferior,” it may flourish due to exceptional distribution capabilities.  Some companies may be able to become the lowest cost entry in the marketplace by virtue of its ability to use low-cost production facilities in an offshore location.  A similar result may be achieved if the company is able to exploit its own proprietary technology to reduce production costs.  In other cases, a company’s technology can be used to develop a variety of new tools or applications that can be used to by customers to solve their own engineering or development problems.