Wednesday, June 1, 2011

Importance and contribution of Competitor analysis in Strategic decisions.

Tough times call for tough decisions. This is exactly what happened with most of the IT organizations present in India. Indian IT giants like Infosys Technologies Limited, Cognizant Technology Solutions, Wipro Ltd. , Tata Consultancy Services, etc. were among those who had to face the severity of global economic slowdown.  Their revenues, profits and growth plummeted. This forced them to take some really difficult financial decisions. It fired up further an already fierce competition among the competitors for securing and/or retaining clients.
            USA constitutes about two thirds of total revenues of Infosys. This applies to its competitors also – USA being the major contributor in their revenues. However, when the economic recession hit USA, it had a detrimental impact on these organizations resulting in lowering of profits, revenues and growth opportunities. Infosys’s competitors started lowering their profit margins substantially in order to survive the economic meltdown. Infosys also lowered their profit margins to some extent; however its senior management decided not lower their profit margins to the same extent as their competitors. Instead, they started exploring newer opportunities and markets. This strategy paved the way for its increased involvement in Europe, Asia-Pacific and Indian domestic markets.
            While some of its competitors were concentrating on reducing the costs by lowering profit margins and wages; some even suspended upcoming promotions and wage hikes, Infosys invested massive efforts in understanding the market environment and analysing its competitors’.  This in-depth study resulted in their decision to increase their presence in domestic and non-US territories. Since, its competitors hardly had any presence in non – US markets, this strategic shift worked in their favour really well.
            What is important here is that Infosys understood that there already is and will always be severe competition in US market. With the economic meltdown, Infosys believed it will be even harder to get more profitable business in USA. So, instead of getting new business at compromised margins in US, they shifted their focus to non-US markets. By doing this, it benefitted in more than one way. Firstly, its market share increased in non-US markets, thereby resulting in “Globalization” of the firm. The global presence enhanced its reputation and brand value worldwide. One of the crucial triumphs due to this focus shift was better employee relations and satisfaction.
            Infosys expanded its global presence by entering new markets. This expansion helped Infosys in not being forced to take really harsh financial decisions likes suspending wage-hikes. When most of the competitors were laying off its employees as a cost reducing measure, Infosys was intent on retention of them. Though the wages and promotions were halted, the employee laying off was minimum when compared to its competitors. This had a positive impact on their social brand image and earned the tag of one of the most respected IT organization in India. Its employees also felt more secure and less concerned about their jobs. Due to better sense of job security, Infosys employees’ productivity did not get hampered, which was not the case with the employees of its competitors.
            The strategy of not substantially lowering the profit margins was a critical decision with respect to growth of Infosys as an organization. Now as the economy is recovering, Infosys is earning more revenue not only in US but also in Europe and other non-US markets. The in-depth analysis of the competitors played a vital role in the organization’s growth. This example corroborates the massive importance of competitor analysis.

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