By Dr. Ben Gilad, ACI Faculty
A typical company analyzes each competitor as a “stand-alone.” Competitor X is doing this and that. Competitor Y is planning on launching this or that. Competitor Z is gaining share here or there, and so on. Management, already overburdened with data (most of which is noise), tends to look at competitors as discrete: We need a plan against competitor X. Yet, strategic insight often comes from looking at competitors as a set.
The technique is called strategic clusters mapping. Each cluster contains companies employing similar business models or strategic logic, but simultaneously retaining some strategic distance from other clusters.
Strategic clusters afford a company some breathing space. It’s not a “blue ocean” (the concept of no competition), but a less-bloody ocean to be sure. When clusters’ borders dissolve, the industry is in competitive convergence: ROI on average declines, and only large players remain to offer everything to everyone and compete on scale, cost and narrower margins. (Think about the early days of smartphones versus today).
There are analytical techniques which, when deployed on “big data” (like financial results), can point to distinct clusters. Companies’ focus on different metrics will typically show up in different clusters. But even if one lacks enough data to run a sophisticated statistical analysis to see how clusters are formed and merge, it can be just as easy to see an industry make dynamic change via qualitative intelligence analysis.
A fascinating (at least to me) example of this at work is right in front of our eyes in the real estate industry.
Competitive Intelligence in the Real Estate Industry
The traditional real estate business hasn’t changed in decades. A real estate agent charges a high commission (6%) to the seller, and in return assumes responsibility to all aspects of selling the house (including paperwork, finding potential buyers, showing the property, and at times finding financing sources). The only distinction between real estate companies is therefore local coverage and cultivating personal relationships with sellers. Try and draw a strategic map of this industry, and until very recently, you’d have one big blob of a cluster. The Internet has changed that.
- First to pop up were sites that connected sellers and buyers directly (similar to Airbnb or Uber). They mostly failed.
- Aggregators – like Zillow.com – that posted multiple listings in a certain area but referred visitors to agents for the actual showing, had better success. Agents paid fees to the website to show their ads.
- A new model attempting to bypass the middlemen (or more likely middle-woman) is auction.com. The site auctions properties to potential buyers. The Economist reports that the site is confident this will become a norm for property sellers around the world. I am much less confident, but what do I know?
- A different model is proposed by a startup in Silicon Valley. It will buy properties outright for cash and sell them on its website. Good luck to them.
- An even more interesting one is Redfin, a hybrid of agents and technology: Properties are shown on 3D viewing tours and buyers can then schedule a real tour, and most intriguingly, agents are paid salaries with bonuses for good reviews from customers. The agency charges buyers half the fee compared with traditional agents.
So a strategic map today will have some new clusters based on a few strategic choices: price, selling process and range of services (product breaths focus).
Competitive Intelligence Implication: No Reason to Panic
What should traditional real estate companies learn from the new clusters?
First, not to panic. Some convergence on technology is desirable in this staid industry. Agents today are adopting virtual tours on their websites (or even combining forces to create their own portal in the UK). This is easy learning, and it goes to improving operational effectiveness, not changing strategy.
Second, they should realize why none of these efforts overall have displaced the old model. Selling or buying a house is the biggest transaction most people will experience in a lifetime. It is scary. It is complicated. The higher the value of the home, the less price sensitive the seller. What real needs are addressed by the salaried agents? Knowing my agent gets a commission means I trust her to try and get the highest price for my home. Service is not a big issue – this isn’t the airline industry.
Cross competitor analysis- looking at the competitive set as a whole and asking what the different clusters are focusing on – allows one to make better strategic judgments.
Of course, it is wholly possible I’ll have to eat my hat in 10 years and write a post about how wrong I was and how traditional Real Estate houses fell apart. Intelligence analysis is not a crystal ball. Yet the strategic analysis points to signposts and early warning signals that real-estate companies must watch. It might be a good time for the real estate agent to get a certification in CI.