Balanced Scorecard Report the execution source Article Reprint No. B1007B

Mirror, Mirror: How to Enhance the Execution Premium Process with Competitive Intelligence By Leonard Fuld and Mark Chodnowsky

This document is authorized for use only in PGP 1st Year 0109 by Mr. Rahul Mishra, Mr. Dinesh Kumar at IILM from January 2013 to July 2013.

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The XPP framework offers four oppor- Mirror, Mirror: How to Enhance the tunities to examine competitive and Execution Premium Process with market activity on both the strategic and operational levels. To illustrate, we’ll Competitive Intelligence compare two very different companies apparently competing for the same By Leonard Fuld, Founder and President, and Mark Chodnowsky, market: , with its front-running Vice President, Fuld & Company Kindle, and Apple, with its recently In the July–August 2008 BSR, Frigo and Barrows introduced the released iPad. Amazon wants to maintain idea of using strategy mapping for . Just as its preeminence in electronic books. Its product has a black-and-white, paper-like your strategy map provides a high-level view of your strategy, screen and buttons for downloading and initiatives, and operational processes, your competitor’s strategy turning pages. Apple’s iPad, with a color map reveals a holistic view of its strategy and how it is organized screen and touch screen commands, to achieve it. Fuld and Chodnowsky, leading experts in competitive can also download music, videos, and intelligence, take the concept one step further: they propose that Internet content. the entire Kaplan-Norton Execution Premium Process (XPP) frame- 1. External Analysis at the Strate- work can be used to analyze any competitor’s strategy in a holistic gic Level: The 30,000-foot View way. Creating a “mirror image XPP” for your competitors will yield Before focusing on a competitor’s plans rich insights to help your organization sharpen its strategy and and activities, Amazon, like any other compete more effectively over the long term. organization, must first conduct external analysis (XPP stage 1, strategy develop- Although much of our firm’s competitive proceed through the XPP to capture a ment) to gain vital strategic information intelligence work focuses on operational coherent picture of the drivers, goals, and a more far-reaching picture of the benchmarking to help clients compare and activities of your competitors. (See competitive horizon. Various tools are their operational performance to that Figure 1, next page.) By overlaying your available to help formulate and adjust of competitors, our findings are often plans on the competitor’s assumed the strategy, each filtering different predictive of the competitor’s strategic goals and initiatives. For instance, one benchmarking study we performed for As the late journalist Sidney J. Harris once noted, “The whole a medical supply client revealed that purpose of education”—we’d say “intelligence”—“is to turn several of its competitors had essentially mirrors into windows.” outsourced shipping and warehousing to third-party logistics firms, allowing them to provide same-day delivery to plans, you can highlight the differ- types and levels of information about drugstores—a key market differentiator. ences between the two organizations. the market and the company’s place in it. Our client recognized that it could not Would you like to deduce your rival’s Through scenario, or PESTEL (political, match the competition’s performance, strategic themes and initiatives and economic, social, technological, envi- despite owning one of the industry’s their corresponding funding? Or how the ronmental, and legal), analysis, you can largest distribution networks. competitor’s underlying operations and study a market landscape five to 10 processes (e.g., marketing, R&D) differ This kind of insight is just the tip of the years in the future. For example, in 2000, from your organization’s? Juxtapose the competitive intelligence iceberg. The Amazon’s PESTEL analysis might have outputs (XPP stages 1 strategy map’s ability to link strategy signaled demand for a portable elec- and 2) and the operational plans (stages and operations can be exploited to gain tronic reader that could also download 3 and 4) against a competitor’s XPP, intelligence on competitors. You start by books. This kind of future market picture and you have a mechanism for robust creating a competitor strategy map—a will influence the direction your com- competitor analysis. mirror of your organization’s map—and petitors take today. PESTEL forces are,

This document is authorized for use only in PGP 1st Year 0109 by Mr. Rahul Mishra, Mr. Dinesh Kumar at IILM from January 2013 to July 2013. Market analysis between the drivers, assumptions, Scenario planning War games current strategy, and capabilities of the Competitor intelligence two competitors.

A well-designed literature search should Knowledge yield more than half the strategic infor- Operational benchmarking Internal mation you seek, but we recommend Competitor intelligence strategy mapping networks interviewing market analysts, key sup- Financial Early warning pliers, and customers to corroborate and forensics systems update your research. You may require third-party help to gain access to sources of more sensitive information.

FIGURE 1: CREATE A MIRROR IMAGE XPP 2. External Analysis at the Opera- Juxtaposing your strategic planning outputs and operational plans against a com- tional Benchmarking Level petitor’s XPP produces robust competitor analysis. At the operational level, the view can get confusing. Dozens of tools are avail- of course, always at work, allowing new the “fuel” for all e-readers. Such findings able for learning about the operational rivals to enter your market and the more would inform Amazon how a competitor aspects of a competitor’s strategy, nimble ones to quickly adapt to change. such as Apple approaches the e-reader including and supply chain Amazon’s management might ponder the market with a different set of assump- benchmarking, win-loss analysis, cus- publishing market altogether and how tions, motivations, and capabilities. From tomer acquisition tactics studies, tech- people will need or want to use informa- this information, a competitor strategy nology scouting, and HR benchmarking. tion. Amazon must try to anticipate this map can be developed (XPP stage 2)—a In fact, it’s easy to be overwhelmed by future, as its competitors surely will. more granular analysis to refine the the endless stream of available informa- initial strategy analysis. To gauge near-term market threats tion. You must become selective in the (those one to two years out), Porter’s five As Amazon sets out to build a strategy questions you ask, narrowing them to forces model1 provides the means to map for Apple, it might ask: How is specific targets that will reflect strategic examine customer and supplier pres- Apple’s strategy different from ours? objectives and, in the aggregate, provide sures, imminent substitutes, and current What are its financial and market goals? a clearer picture of the competitor’s rivals. At this level of analysis, Amazon Does it have different assumptions strategy and supporting operations needs to know which companies other about customers and trends? Does it (stage 4, Plan Operations). than Apple have chosen to compete on have many funded initiatives? Underpinning the XPP framework is the its turf. Will they be suppliers or publish- An ocean of published information, Balanced Scorecard, with its associated ers? Will the Nokias of the world, seeing from stock analysts’ reports to articles, strategic measures. Having already their handset revenue threatened, apply offers answers. From interviews with hypothesized your competitor’s strategy their core competencies to producing a Steve Jobs and his lieutenants, Amazon map and extrapolated its strategic Kindle-killer? To analyze and anticipate a could deduce Apple’s drivers. These same themes and objectives, you can now zero competitor’s strategic plans, a company information sources often publish a in on the key performance indicators can use such tools as war games and the management’s views of its company and (KPIs) underlying the strategic objectives. four corners model.2 assumptions about the market. Annual An important goal of external bench- Building a Mirror Strategy Map SEC 10-K filings (including the footnotes) marking is locating the critical areas that Developing external analysis of a reveal a company’s infrastructure, ability explain the differences between your competitor generally requires in-depth to generate adequate cash flow, and company’s operations and a rival’s; KPIs external research in specific critical plant or service capacity, among other signal those areas. details. Companies, Apple included, areas. Amazon might examine Apple’s in- Amazon’s KPI for product often attempt to obscure such details, novations in user interfaces, or monitor might have been “volume of book but there are always data proxies, such how Apple’s phones have begun to set downloads.” By examining Apple’s “book as information on iPad shipments or ad- certain functionality standards, in the downloads” KPI, Amazon will discover vertising expenditures. Even at this high process changing attitudes from the that Apple has taken an entirely different level, marked differences will emerge content or media providers that supply view of its iPad-cum-iTunes platform:

1 Five forces, developed by , is described in his book Competitive Strategy: Techniques for Analyzing Industries and Competitors (Free Press, 1980).

2 Porter also created the four corners model, in which one examines a company’s future strategy based on four factors: drivers, assumptions, current strategy, and capabilities. The authors run war games based on this model. This document is authorized for use only in PGP 1st Year 0109 by Mr. Rahul Mishra, Mr. Dinesh Kumar at IILM from January 2013 to July 2013. 24 Balanced Scorecard Report that multimedia advertising sales, not tactics or strategy. You might then test drugs. So monitoring the opening of just e-book sales, are more critical. the validity of your assessment with a retail pharmacies might be an important Imagine a simple graph with two sets war game. trip wire for the healthcare market in of lines; one tracking Amazon’s and China. Finally, operational benchmarking con- Apple’s book downloads, and the other, ducted at the department or functional For Amazon, the strategic early-warning multimedia purchases. Apple’s likely level can, through the use of the competi- trip wire might be new screen technolo- inflection point for multimedia would tor strategy map, offer a more detailed, gies or new Internet media platforms. At spike early, indicating that Apple has more contextual view of your competi- the individual-competitor level, you can a very different set of objectives. For tor’s business processes and activities monitor a competitor’s strategic initia- argument’s sake, you can imagine that and how they interconnect. tives and how these are manifested in, Amazon would demonstrate a growth in say, initiative funding levels, positioning e-books, while Apple’s iPad would show 3. Monitoring for Strategic Risks statements, or financial or market goals. revenue growth coming from music The strategy map is designed to be a Such information may find its way into and video downloads. This benchmark living, breathing planning tool, modi- public filings or news reports on invest- assessment tells Amazon it must decide fied as conditions within your company ments fed to wire services via press whether it should modify its strategy for change. What about when market condi- releases or word on the street in the Kindle somewhat—or considerably—to tions change? Monitoring the external venture capital or banking communities. compete with this nimble new entrant. environment is part and parcel of the By using the XPP framework to create XPP, intended to give an early warning 4. Monitoring for a competitor strategy map and help of strategic as well as operational risks. Operational Risks focus your operational benchmarking, This, however, doesn’t mean scanning the Similarly, operational risks need to be you can accomplish several critical intel- entire market and every competitor or monitored. This can be done through ligence goals. The strategy map identifies new entrant; there isn’t enough time for established key risk indicators (KRIs)— strategic objectives, which then help such an effort. Just as selected KPIs help metrics that indicate a threshold where pinpoint the competitor’s strategy- focus operational benchmarking, triggers the market or competitors can put you critical processes. These, in turn, indicate (or “trip wires”) can help you monitor and your product in jeopardy. A KRI for the relevant operational benchmarks risks. These risk indicators, it turns out, Amazon might be a new (and cheaper) to study. These KPIs can yield significant are also your KPIs, because they identify screen technology that delivers greater insights about your competitor’s strat- the strategy-critical actions. clarity, multimedia capability, or lower cost. Another might be locking up a key egy. This information is more valuable At the macro (market) level, you may have screen technology partner to control than it first appears, because, as the an early-warning system that tracks key the e-book market. Once these risks are Amazon/Apple example suggests, so- drivers as identified by a scenario plan- identified, you can assess both your com- called competitors often have inherently ning exercise (stage 6). For healthcare pany’s and your competitors’ possible different business models. In addition, companies wanting to expand in China, responses through a war game exercise actual values for a competitor’s process the five forces model may be an appropri- to guide you in adjusting your current KPIs may reflect—or predict—the ate early-warning process because of the strategy and operational plan. competitor’s outperformance at the macro view it provides of the key factors customer and financial levels. affecting competition. However, in any The concepts discussed here offer a Companies analyze their operational market, in any country, the five forces are practical approach to incorporating performance data to help them monitor never perfectly balanced; invariably, one competitive and progress toward strategic goals (stage or two forces dominate. These become, into the XPP. In the same way that your 5), assessing it alongside their external in effect, strategic early-warning trip strategy map can become the foundation environmental analysis. You can apply wires. In China, for example, nearly all for the transparent execution of competitors’ operational benchmarking questions center around the force of new strategy throughout your company, a data in the same way. The data provides entrants, because government plays a competitor strategy map can serve as a a feedback loop, offering insights on role in granting or denying market access mirror of the competitive landscape— the competitive environment that may to new entrants. Until 10 years ago, only and a mechanism for assessing a rapidly suggest the need to adjust your own hospitals were permitted to dispense changing market. Business is all about

This document is authorized for use only in PGP 1st Year 0109 by Mr. Rahul Mishra, Mr. Dinesh Kumar at IILM from January 2013 to July 2013. July–August 2010 : VOLume 12, number 4 35 managing change. Let the XPP help you towards this goal.

Leonard Fuld founded Fuld & Company, a leading interna- tional research and consulting firm specializing in business and competitive intelligence. His latest book is The Secret Language of Competitive Intelligence (Crown Publishing Group, 2006).

Mark Chodnowsky leads the In- dustrial and Consumer Goods practice at Fuld & Company. He has 20 years’ experience in competitive intelligence and strategy consulting.

To learn more See E. Barrows Jr., and M. Frigo, “Using the Strategy Map for Competitor Analysis,” BSR July–August 2008 (Reprint #B0807E).

This document is authorized for use only in PGP 1st Year 0109 by Mr. Rahul Mishra, Mr. Dinesh Kumar at IILM from January 2013 to July 2013. 64 Balanced Scorecard Report