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In a free market economy, each company tries to outperform its competitors. A competitor is a rival. A company must know, therefore, how it stands up against each competitor with regard to “arms and ammunition”-skill in maneuvering opportunities, preparedness in reacting to threats, and so on. To obtain adequate knowledge about the competition, a company needs an excellent intelligence network.

Typically, whenever one talks about competition, emphasis is placed on price, quality of product, delivery time, and other marketing variables. For the purposes of strategy development, however, one needs to go far beyond these marketing tactics. Simply knowing that a competitor has been lowering prices, for example, is not sufficient. Over and above that, one must know how much flexibility the competitor has in further reducing the price. Implicit here is the need for information about the competitor’s cost structure.

The term competition defies definition because the view of competition held by different groups (e.g., lawyers, economists, government officials, and businesspeople) varies. Most firms define competition in crude, simplistic, and unrealistic terms. Some firms fail to identify the true sources of competition; others underestimate the capabilities and reactions of their competitors. When the business climate is stable, a shallow outlook toward the competition might work, but in the current environment, business strategies must be competitively oriented.

A useful way to define competition is to differentiate between natural and strategic competition. Natural competition refers to the survival of the fittest in a given environment. It is an evolutionary process that weeds out the weaker of two rivals. Applied to the business world, it means that no two firms doing business across the board the same way in the same market can coexist forever. To survive, each firm must have something uniquely superior to the other.

Natural competition is an extension of the biological phenomenon of Darwinian natural selection. Characteristically, this type of competition-evolution by adaptation-occurs by trial and error; is wildly opportunistic day to day; pursues growth for its own sake; and is very conservative, because growth from successful trials must prevail over death (i.e., bankruptcy) by random mistake.

Strategic competition is the studied deployment of resources based on a high degree of insight into the systematic cause and effect in the business ecological system. It tries to leave nothing to chance. Strategic competition is a new phenomenon in the business world that may well have the same impact upon business productivity that the industrial revolution had upon individual productivity. Strategic competition requires (a) an adequate amount of information about the situation, (b) development of a framework to understand the dynamic interactive system, (c) postponement of current consumption to provide investment capital, (d) commitment to invest major resources to an irreversible outcome, and (e) an ability to predict the output consequences even with incomplete knowledge of inputs. The following are the basic elements of strategic competition:

• The ability to understand competitive interaction as a complete dynamic system that includes the interaction of competitors, customers, money, people, and resources.
• The ability to use this understanding to predict the consequences of a given intervention in the system and how that intervention will result in new patterns of equilibrium.
• The availability of uncommitted resources that can be dedicated to different uses and purposes in the present even though the dedication is permanent and the benefits will be deferred.
• The ability to predict risk and return with sufficient accuracy and confidence to justify the commitment of such resources.
• The willingness to deliberately act to make the commitment.