Several years ago, two American astronomers, Marcus Wolf and Leo Biederman, working on a mountain top in Arizona, saw something in the night sky that caused them great concern.
But the comet was, well… There was a remote possibility that the comet was on a path that could bring it into direct contact with the Earth.
Now we get hit all the time by rocks and meteors, some of them the size of cars, some no bigger than your hand.
But the comet we discovered is the size of New York City.
If this comet continues on its path around the sun and keeps its present course, sometime in August, roughly a year from now, there’s a chance that we might have impact. – President Beck (Morgan Freeman), Deep Impact
I realize this is a sci-fi movie, but think about it as analogy for looking at your competition. Someone in your organization spots a potential competitor, maybe it’s a rumor of a new product, or a press release about a successful clinical trial, or perhaps it’s a rival’s quarterly finical report that hints at expansion. Just like comets, we see these “potential threats” come and go every day, but every once in a while, one comes along that is the size of New York City. The threat is huge, and if it hits your business it could have enormous consequences. It could, in fact, have a Deep Impact.
Impact and Probability, two of the key measurements we use to determine threat level.
In highly competitive markets it is important to be able to rank various threats, whether they are competitors or market activities. Once the threat has been identified through Threat Indicator Analysis (TIA) , it is beneficial to then examine how that threat, or threats, rank in terms of impact and probability.
The Threat Matrix (TM) is a strategic analytical tool used to help assess the threat of a potential or impending competitor action or market event. The TM plots multiple threats based on Impact & Probability. The TM enables the CI practitioner to prioritize specific tactical & strategic responses to competitive threats likely to be faced. The size, shape & color of the plotted points can be used to denote a number of other variables.
The TM tool is one that we have used for a number of years as an independent analytical tool; however, we have found that it also works exceptionally well as part of a larger framework for identifying and evaluating threats and determining subsequent responses.
Through their Early Warning Program, an analyst identifies a new competitor threat using Threat Indicator Analysis. Further research on the competitor identifies the following potential competitor activities:
- Expansion of product distribution into North America
- Significant increase in advertising spend in US markets (~25%)
- Partnerships with several leading national distributors
- Price discounts to help secure market entry
- New product feature that addresses unmet market need
The analyst plots each point on the TM based on the intelligence available. The X axis is a qualitative measure of the impact that each activity would have of the company. The Y axis is a qualitative measure of the likelihood, or probability, that the action will occur, based on the intelligence available. Probability is an important measurement as not all potential activities will actually occur.
Based on how the analyst has plotted the various competitor activities, it is clear that the two highest threats are 1 and 2, as these have both High Impact and High Probability. Competitor Activity 5 would be categorized as Medium since, although it has the potential for very high impact, the probability of it occurring is minimal. Competitor Activity 3 would also be considered a Medium Threat since, although it would not have a significant impact, it is very likely to occur. Competitor Activity 3 would be considered Low; it has neither high potential Impact or High Probability.
High Threats should be considered the priority in terms of planning and resources. These are likely to occur and could represent significant threats to your company. These represent ‘New York’ size threats. A strategy to mitigate the Impact or Probability of these threats should be developed in the next phase: Threat Response Analysis.
The medium threats demand less attention at the moment; however, it is a good idea to keep these on your radar. Monitoring medium threats frequently will prevent you from being surprised in the event that either the Impact or Probability of these activities increases.