The importance of properly identifying the strategies, and anticipating the actions, of rivals.
Competitive cognition is the framework with which a manager organizes, categorizes and retains knowledge about competitors. In this research brief, the authors review the literature on competitive cognition and its effect on both corporate and individual performance. For example, it is shown that top managers at the best-performing companies develop simpler classification schemes with fewer categories but include a larger number of rivals within each category and have a richer, deeper view of category dynamics.
Research also shows that high-performing individuals tend to be those who develop competitive plans customized to each rival and each situation rather than taking a more generic approach to the competition. The authors discuss how blind spots in competitive cognition and outmoded mental models can explain empirically observable phenomena such as industry overcapacity, the failure of new entries and acquisition overpayment.
The authors conclude by citing several works that recommend various types of competitor analysis, including top-down assessment of supply-side considerations and bottom-up analysis of demand-side considerations. This encompasses the entire competitive field, including direct, potential and indirect competitors.