What You Should Know About the Competitors

Instead of starting with a conventional business definition, such as a product or the output from different parts of your organization, thinking about competitive segments lobs you straight at the most important way to split and think about your business. At the instrumentation company referred to earlier, managers just could not agree among themselves how to analyze the business. Some thought that products were the key dimension. The view of others was that the most important split was whether the customers were in the pipeline business or in continuous process industries (such as food manufacturers).

A third faction held that the US business was very different from the export business. Since they started from different assumptions, all of which were to some degree valid, it was very difficult to make progress either in organizing the business or in communicating with each other. Dividing the business into competitive segments demolished these arguments. The rule is simple: if you don’t face different competitors, or different relative competitive positions, it’s not a separate segment. We quickly arrived at a rather inelegant, but very clear, set of segments that everyone could understand. For a start, it was clear that the competitors were very different in most, but not all, products. Where the competitors were the same, with similar relative competitive positions, we lumped the products together. In most other cases we kept the products apart. Then we asked whether the competitive positions were different for pipeline customers as distinct from process customers. In all but one product, the answer was no. But in that one product, liquid density machines, the largest competitors were different. We therefore settled for two segments here: liquid density pipeline and liquid density process.

Finally, we asked whether the competitors or competitive positions were different in each segment in the US and in international business. In most cases the answer was yes. If the international business was significant enough, we asked the same question for different countries: was it the same competitor in the UK as in France or Asia? Where the competitors were different, we subdivided the business into separate segments. We ended up with a patchwork quilt of 15 large segments usually defined by product and geographic region, but in one case by product and customer type (this was liquid density, where the segments were liquid density pipeline worldwide and liquid density process worldwide). Each segment had a different competitor or different competitive positions.