You’re Probably Overlooking This Source of Competitive Intelligence
Distant competitors can often tell you more than your closest rivals
There is an old saying that only a fool learns from his own mistakes, while the wise learn from the mistakes of others.
The most agile organizations and entrepreneurs understand this well. They closely monitor the innovative moves of competitors to find ways to develop or improve their own offerings and optimize R&D efforts.
But if competitive monitoring is such an important source of learning, why do so many firms go only half way? In effect, that’s what they do when they define their competitive space tightly and limit their intelligence gathering to rivals within the same geographic area, industry, or product category. Instead, why not study and adapt the initiatives of firms on their periphery that offer new insights without threat of retaliation?
Monitoring competitors that don’t monitor each other gives firms more raw material to feed their own R&D department. And it minimizes counterproductive racing that stifles innovation. “Racing” happens when direct rivals innovate in lockstep down one path — the so-called Red Queen effect.
Sruthi Thatchenkery of University College London has researched how competitive monitoring influences firm innovation. She defines three types of “distant” competitors.
One is the non-direct rival that caters to a different customer base. In this case, there’s no zero-sum competition and less chance of a turf-protecting patent fight. And the payoff can be substantial. The knowledge acquired from different-market competitors is unlikely to overlap with what the firm is working on; this makes integrating the knowledge more challenging but also opens the possibility for major innovation to happen. An example would be a database software firm that introduces a product that more efficiently scans and retrieves information from large databases. A security software company monitoring that firm may adapt this technology in its own product offering.
The other type of distant rival is the dark horse — a peripheral competitor that, for whatever reason, flies under the radar. These are firms on the outer edge of competitor networks. Thatchenkery says peripheral competitors can increase product innovation because they’re a source of less frequently used and thus more unique knowledge.
And the final type are disconnected competitors that don’t pay attention to each other and that are “bridged” by a third firm. In effect, this firm acts as a knowledge broker, recombining breakthroughs from the disconnected competitors into its own innovation.
Thatchenkery and colleagues conducted a longitudinal study focused on the actions of 121 public firms in the enterprise infrastructure software industry in the U.S.
In the study sample, the average firm faced 36 direct competitors and monitored around six of them. Around half of the competitors that executives monitored were from outside their firms’ immediate markets. On average, 14 percent of the competitors were peripheral dark horses.
Their key finding is that firms do indeed introduce more new products when they focus on different-market and peripheral competitors. Managers of these firms view non-traditional competitors as a conduit to less-overlapping and less-frequently used knowledge.
The effects were significant, says Thatchenkery. One standard deviation increase in attention to peripheral and disconnected competitors yielded one additional product per year, in an industry where the average firm introduces two to three new products per year.
Clearly, organizational leaders even within the same industry have divergent interpretations of their competitive environment. Those that are willing to identify their rivals more unconventionally can tap into a source of learning — and strategic advantage — that their closest rivals overlook.