Nowadays, analysing competition is crucial for managers in order to understand the environment in which the business evolves, its competitors (their goals, plans etc) as well as implement strategies and position their companies. They can use a wide variety of techniques, each having its strengths and weaknesses. According to Prescott and Grant (1988), to select the appropriate techniques, managers have to know the different techniques available, how they are related to each other, the focus and scope of the area and the constraints limiting the extent of analysis. To analyse competition efficiently, they have to combine some of the different techniques available as they all have a specific aim. However, there are limitations that managers have to take into consideration in order to provide a clear and effective work.
This essay outlines and evaluates the main weaknesses when understanding the business environment. They vary by nature. They can come from the interpretation of the managers and from the models themselves.
However, they are in relation to each other, one flaw leading to another one.
When analysing competition, the starting point is to precisely define the industry the firm belongs to and its boundaries. Managers may focus on the market of their company, narrowing their definition of the industry. They then forget or less consider other segments that can change quickly and have impact on the whole industry. According to Zahra and Chaples( 1993) "an effective definition of industry boundaries requires consideration of four interrelated issues: domain (where does the industry begin and end), customer group (sector to be served and their specific needs), customer functions (customer need and specific patterns) and critical technology (production, marketing and administrative system)". Each point enables to define the competition more and more precisely. In addition to these issues, managers have to take time into...