Monday, June 5, 2017

New Perspectives on Industry Competition

This week’s readings and case focused on the competitive landscape in various industries. In Competitor Analysis, I found the author’s distinction between current and potential business competitors to be particularly interesting. Typically, when management tries to identify competitors, they think firms that sell similar products. However, technological innovations can completely disrupt an established industry and introduce new competition. With the first digital camera, Sony inserted itself if into an industry previously dominated by Nikon, Cannon, and Olympus, and while Kodak and Fuji competed for business in film, this industry would become obsolete.

This example reminded me of the emergence of Uber and other rideshare services. For years, companies like Yellow Cab dominated various local markets. At the time, there seemed to significant barriers to market entry. Firms would have to buy vehicles, hire trained drivers, and establish a distribution network that could reach customers quickly. As Porter outlined in Five Competitive Forces, these barriers limited competition from smaller rivals. However, rideshare apps turned the industry on its head by replacing a capital-intensive industry with software and algorithms. Yellow Cab may have become complacent with so few competitors in mid-sized markets like Pittsburgh. In addition to being unprepared for competition with Uber, Yellow Cab’s service was atrocious without any viable alternatives in the city. Operators refused to give estimated arrival times, and would leave callers waiting for hours to get picked up. Competition forces businesses to innovate and respond to customer demands.

The Competitor Analysis chapter also suggested examining the goals and objectives of firms in your industry to help determine who your closest rivals are.  The authors states “If these objectives are much different from yours, you may not need to worry about them.” Gaining a solid understanding of your rival’s objectives could be difficult. They probably don’t want your firm to have access to that information – particularly if they think your goals overlap. However, for publicly-traded firms release tons of financial data (balance sheets, income statements etc.) to keep their investors, and the SEC informed. These could offer great insight into the short and long-term goals of a company. For example, if a company adds significant long-term debt to their books, this could be part of a major capital investment. Beyond the numbers, firms often include discussion of their strategies in the ‘discussion and analysis’ section of their financial reports. 

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