Can Your Competitor be Your Partner?

managers resource handbook

A Case Study in Competitor Analysis and Strategy

Note to Reader: Competitor names are changes for privacy reasons.

 

Last month, I was invited by a client to participate in a visit to some of their customers. The purpose of the trip was to meet with some key customers as part of a regular visit. In addition, the client, Acme Electric Co., wanted to meet with some of their smaller customers in the area, with the hopes of creating more business. Acme’s sales team believed that some of these smaller customers had a false impression of the full capabilities of Acme. Thus, part of the intent of meeting with these smaller customers was to a bit of a show-and-tell for future business.

The Products

Acme Electric Co. produces a variety of products used in wiring harnesses for the automobile industry.   For those who don’t know, a wiring harness is essentially like the power cord for your computer – an extension cord with various connectors on the ends to mate up with other electrical components in the car. Like its parent firm, Acme was quite diversified in its offering. Acme factories produce the wires, connectors, pins and other pieces contained within the final product.

The Company and its Customers

Acme is a subsidiary of a much larger industrial manufacturing company, but operated essentially as its own business unit. Acme was a large player in the market and sold its products to a variety of customers, including the big Original Equipment Manufacturers (OEMs) like Ford, BMW and Fiat. In addition, Acme would often sell some of its smaller component products (pins, connectors, etc.) to its competitors, who would in turn assemble them into their own final product to be sold to an OEM.

Acme, by all accounts, was set up for large scale production, both financially and systematically. Further, Acme has a strong product development group. For this reason, Acme’s true value proposition was that customer could outsource the entire design and fabrication of the entire wire harness and its piece parts to Acme, allowing customers to concentrate resources elsewhere. It was well understood from customer feedback that Acme won projects based on these engineering and design skills, and less based on speed or cost.

While its deep pockets, product quality and financial stability made Acme an all-around good supplier to its customers, Acme’s operation was reflective of its large company setup: it was big and slow. The slow pace and long lead times the firm offered were due in part to its limited vertical integration of processes. Specifically, while Acme was able to build piece parts internally as well as assemble the larger end product, the company had to outsource all production of tooling and jigs to outside firms. Every final assembly wire harness required a jig to ensure the product was assembled correctly and was identical to the other assemblies. Thus, Acme’s product design and fabrication know-how was offset by its speed and dependency on suppliers to manufacturing the jigs needed to make the parts.

The Competitor

Physically situated just a short drive away from a Fiat assembly plant, Mason Manufacturing produced similar products to Acme, and actually sourced some of its piece parts from Acme. Because of its location, Mason was a major supplier to Fiat such that it was almost an exclusive provider of fully-assembled wire harnesses to the OEM. Mason’s relationship with Fiat had largely limited Acme’s ability to supply fully assembled products to Fiat. Consequently, Acme’s sales to both Fiat and Mason was generally limited to small piece parts, nothing more.

In terms of its strengths, Mason was small and more vertically integrated – Mason was able to produce the tooling and jigs needed to assemble it’s products internally that Acme could not. As a result, Mason excelled at low volume production runs, quick turn-around projects in addition to normal high rate production.

In contrast to Acme, however, Mason was considerably smaller than Acme and was limited in its abilities to meet especially high volume production needs expressed by Fiat. Further, Mason focused more on its manufacturing abilities, and lacked a strong product development organization. So while it’s production abilities were in fact highly capable and reliable, Mason did minimal product development and design. For this reason, Mason typically fabricated and assembled product as designed by Fiat’s engineers.

The Meeting with Mason Manufacturing

When it came time for us to meet with Mason, we were curious how we would be received. It was the first such visit to Mason in a long time and because both Acme and Mason played in the same market space, we were expecting a cold shoulder.  The two companies had generally stayed out of each other’s way in terms of customers and business pursuits.

The meeting, while fairly high level, yielded some good information and insight into Mason’s view of Acme and their respective places in the market. While Acme was expecting a more hostile conversation, as it turned out, Mason executives openly stated they did not really see Acme as a competitor. Because both companies had historically avoided one in other and rarely competed for each other’s business, Mason did not see Acme as a tremendous threat. Further, Mason executives believed that their close relationship and near exclusive focus on Fiat would not change in the future.

Evaluating the Options

At dinner following the meeting with Mason, I talked with my travel companions to gather their thoughts. Most of them were rather optimistic, saying that since Mason’s executives did not necessarily see Acme as a competitor, Acme might be able to increase its business. They concluded that Mason was uniquely poised to continue to gain Fiat production work, and that Acme had something to offer. Further, since Acme had little history providing fully assembled harnesses to Fiat, they viewed Mason as a potential strategic customer, as an avenue to Fiat’s lucrative production needs.

Then, one of Acme’s older sales reps, Roger, sat at the end of the table and offered a different take. Roger had been around a long time and had a reputation for being very conservative and somewhat old-fashioned in his view points.

Roger expressed concern getting too close to Mason. At one point, he even suggested that Acme should focus on pursuing business directly with Fiat, and minimize contact with Mason. “They make similar products to us. They’re a competitor in the market, despite what they claim” he said. “We should keep our business with them where it stands, but really not pursue anything else.”

Roger continued by expressing his concerns for losing intellectual property. Further, he pointed out that if Acme stumbled at all in shipments to Mason, or demonstrated any weakness or tarnishing behavior, Mason may gain sensitive information about Acme’s state of health such that Mason could exploit them with its own competitive moves.  Roger’s points were fundamentally valid – by limiting interaction with a competitor, you can restrict the competitor’s knowledge of changes within one’s own business.

Competitors as Partners?

By the time the question came to me, the table was in full debate regarding how much or little to interact with Mason. But I offered a third alternative to the group. “How about you try to partner with them?” I asked. I effectively silenced the table. Roger, the uber-conservative salesman looked dumbfounded. I pounced on the next question before they asked it. “When looking at competitors, you really need to avoid the tendency of looking at the players in your market as equals, who offer the same value.” I said.   “Don’t look at the products; look at capabilities.”

I offered the group, who by this point thought I was out of my mind, a few scenarios:

  1. Because of its size, Acme has the ability to support high rate production and large volume activities. In contrast, Mason was significantly smaller and while able to support production, carried some risk in supporting major increases or changes in production levels at Fiat. From a partnership point of view, Acme could use some its large-scale production abilities to offset the volume that Mason struggled to meet during peak times. Mason’s production would stabilize, and Acme could gain some sales it did not have previously.

 

  1. The reverse was also true. Mason was known for its ability to produce parts in a very short timeframe. This quick-turn ability of Mason was only a dream within Acme, who cringed when customer’s sought shorter lead times for product. Acme had a history of losing out on business due to it’s lead time commitments. Thus, I suggested that Mason could be a strategic source for Acme when shorter lead times or low volumes were necessary.

 

  1. I then pointed out that Mason’s lack of product development expertise opened the door to Acme’s ability to gain business through it’s ‘one-stop-shop’ value proposition that customers. Could Acme’s design skills be of use to Mason such that both firms could share production revenue?

 

  1. Finally, I offered up the possibility that a strategic partnership between the two companies could help Acme become a sole-provider of piece parts – pins, connectors, etc – to Mason, and thereby Fiat.

 

Analyzing Competitors

When it comes to analyzing competitors, I took the viewpoint with the client that they needed to look less at the individual products and look more at the skills and capabilities of the two companies. It can of course be argued that Mason could develop product design skills in-house, and that Acme could grow it’s short term production capabilities through some strategic investment, thereby lacking a need to engage with the other party. However, both scenarios represent organic growth decisions, which historically take a long time and often come with growing pains along the way. For this reason, many companies pursue growth through inorganic means (mergers and acquisitions) as well as partnerships that bolt on additional capabilities.

So what do you think? Can you competitor become your partner?  Leave a comment and share!

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