No substitute for sound strategic analysis of the competitive environment

Last week’s article in New York Times about Carrefour (Carrefour Rethinks Its ‘Bigger Is Better’ Strategy) is the perfect argument in favor of the view that there is no substitute for a sound strategic analysis of the competitive environment.

The gist of the story is that Carrefour bet heavily during the last decade in expanding the average store size from 8,927 square meters in 2000 to 9,647 square meters in 2010, going against the trend of more compact hypermarkets that its competitors preferred. Carrefour judged that online commerce is too small in total size to be of any serious threat to its business. But, as usual, the devil is in the details: the added capacity was primarily used to offer non-food items that represent infrequent consumer purchases, exactly the type that is increasingly being sold online. Predictably (in retrospect), the extra capital investment was nowhere near as productive as Carrefour would have hoped, costing the company in market capitalization and probably costing the CEO his job.

Those of us that think and do research about Information Systems Strategy, should never forget that as important as network economics and IT-enabled strategic resources are,  a proper analysis of the competitive environment, including substitute products and services, is the one step we can never afford to miss.

Photo by Kees van Mansom (flickr) Attribution-NonCommercial licence

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