Competing with multinationals can be considered a big game of chess, with each engagement with a competitor broken into an opening, a middle game, and an endgame. In this excerpt, the authors set out best moves for an effective opening. –Ed.
Competition among multinationals these days is likely to be a three-dimensional game of global chess: the moves an organization makes in one market are designed to achieve goals in another market in ways that aren't immediately apparent to rivals. We call this approach "competing under strategic interdependence," or CSI. And where this strategic interdependence exists, the complexity of the competitive situation can quickly overwhelm ordinary analysis. As strategists have learned from game theory, the results of any move a player makes stem in large part from the choices his opponent makes. Often those results are nonlinear—that is, out of proportion to the events that provoke them. Furthermore, they might happen far away from the apparent sphere of competition, like the proverbial butterfly that flaps its wings in New York and causes a tsunami in Japan. Most business strategists are terrible at anticipating the consequences of interdependent choices, and they're even worse at using interdependency to their advantage.
With the following mapping tools and techniques, you can learn to see the whole chessboard—that is, you can anticipate how the moves you make in one market can influence competitive interactions not only in that market but in others far afield.
The opening
To uncover—and ultimately exploit—the interdependencies between you and your competitors, you need a clear understanding of your own product categories and the geographic arenas you operate in. So the first step in the CSI process is to set up a table that reflects all your assets and all the territories you compete in. For an example of this, let's consider Unilever, a European consumer-goods manufacturer. The company's well-known brands include Knorr soups, Dove soap, and Snuggle fabric softener.
Unilever competes in three principal product categories—foods, personal care, and fabric care—and in three major global geographic arenas—Europe, the Americas, and the Asia-Pacific-Africa region. In most of those categories and in all of those territories, Unilever's principal rival is U.S.-based Procter & Gamble, makers of Folgers coffee, Pampers diapers, and Tide laundry detergent. Unilever's CSI table, shown below, indicates that the company competes in nine different product and geographic arenas (each represented by a cell in the table).
Unilever's executives could then drill down further and draw up CSI tables for each product group, for specific types of products within those groups, and for different geographic arenas. For instance, if the company's personal-care group were thinking through its global positioning prospects, a manager in that unit might look at the competition more narrowly, by product type. The personal-care group is responsible for products in the following categories: oral care, grooming, infant hygiene, feminine hygiene, and senior hygiene. So if we continue analyzing Unilever's business opportunities in the same three geographic regions (for simplicity's sake), we see that the personal-care group competes in fifteen different arenas, as shown below.
Once you've created your tables, the second step in the CSI process is to take a rigorous look at where you stand relative to your main competitor in each arena. The best way to do that is to analyze three important factors: your competitor's potential reactiveness to increased pressure in that arena; the arena's attractiveness to you; and the relative clout each of you brings to the table.
Reactiveness measures how much incentive your competitor has to counter your move. It is based on several subfactors, including your competitor's market share in a particular business arena (the larger the share, the greater the arena's importance to your competitor) and the arena's profitability (the more profitable the arena, the more incentive your rival has to defend it). The final subfactor, your competitor's emotional attachment to the arena, is more difficult to ascertain, but it can be as critical a consideration as share and profitability. Essentially, you should be looking for any noneconomic factor that would make your competitor more likely to want to protect the arena—for instance, national or corporate pride, the historical significance of the arena, and any significant sunk costs.
| The ultimate purpose of this mapping technique is to help managers plan competitive campaigns in multiple markets, but it is useful for other reasons. |
Attractiveness, in this scheme, is the mirror image of reactiveness. It's the measure of how important the arena is to you and is based on the same subfactors as reactiveness: How much market share do you have in the arena? How profitable is it? How emotionally attached to it are you?
Relative clout, the third factor, measures who's in a better position to launch, or defend against, a strategic move in the arena. Clout can be determined by looking at the relative sales of a company and its competitor, then adjusting for other factors such as each party's distribution dominance or technology advantages. (Clout measures the ability to fight back, while reactiveness measures the propensity to fight back.)
We've set up a Web site that offers our methodology and formulas for measuring reactiveness, attractiveness, and relative clout based on publicly available information—things like a company's individual product sales, a product division's performance compared with that of the rest of the organization, the company's sales in a particular region of the country or the world, and so on. The end result will be numerical ratings for reactiveness, attractiveness, and clout—numbers you can use in the third step of the CSI process, mapping the competitive terrain on a bubble chart. To do this, first plot your competitor's reactiveness along the horizontal axis. Reactiveness increases from left to right, so bubbles further to the right indicate arenas that are more important to that competitor, also known as the defender. Then plot the arena's attractiveness to you along the vertical axis. The higher the bubble, the more attractive the arena is to you. The size of a bubble indicates the defender's market clout—the bigger the bubble, the stronger the competitor. The chart may end up looking something like this:
The bubble chart is useful because it quickly conveys a great deal of information about two competitors' relative positions. For instance, bubble b in the upper left appears to be the most appealing arena for the instigator, the company that wants to make an opening move. The size and position of the bubble indicate that this arena is highly attractive to the instigator and that any strategic ploy it launches in this arena would prompt relatively little reaction from the defender. Conversely, the least appealing arena for the instigator is represented by bubble e, because it reflects low attractiveness to the instigator and the highest reactiveness score on the chart for the competitor—a promise of much pain for little gain.
Choices get more difficult when comparing bubbles like d and e. Bubble d suggests that this arena would prompt less of a reaction by the defender than bubble e would, but the defender has more clout in this product or geographic arena. The instigator would have to make a judgment call about which arena, d or e, it would best be able to defend from a competitor's retaliation.
The ultimate purpose of this mapping technique is to help managers plan competitive campaigns in multiple markets, but it is useful for other reasons. First, it allows a company to look at its world through its competitor's eyes. Second, the mapping technique can be employed at several levels of granularity to expose competitive opportunities and weaknesses that might not otherwise be evident.
Companies can build charts that focus on smaller geographic areas, such as states or even cities, if the data are available. Even in highly concentrated industries such as consumer soft drinks, where Coca-Cola and Pepsi control 76 percent of the U.S. market, competitive battles are planned down to the level of individual supermarkets in individual cities; the price of a twelve-pack in a suburb of Oakland on Superbowl Sunday is of genuine importance to the outcome of the competitive battle. For companies with less global reach than Unilever, P&G, Coca-Cola, and Pepsi, charting will likely start at a national or regional level.
It's also possible to plot several competitors in each arena to fully understand the dimensions of the competitive landscape. The vertical axis would continue to measure only the instigator's attractiveness scores. The reactiveness scores would then be used to place different competitors along the horizontal axis of the chart, using different colors to identify each competitor. Bubble size would indicate each competitor's clout relative to the instigator—not relative to the other competitors. 