its about how business had blind spots

1. BLIND SPOTS IN
INDUSTRY AND
COMPETITOR
ANALYSIS

2. GENERAL OVERVIEW
 The article has been penned down by Edward
J.Zajac,Max H.Bazerman Northwestern University.
The article shows that decision makers typically
have specific “BLIND SPOTS” when they consider
the contingent decisions of competitors.
 Competitive analysis has certain flaws. Competitive
analysis is the process through which a company
tries to identify and understand its industry,
competitors, and their strengths and weaknesses in
order to predict their actions. Employee
understanding of the company's competitive
problems will help it implement its plan successfully.

3. INTRODUCTION
 Blind spot in analysis.
 A blind spot analysis is a technique for uncovering
incorrect or outdated assumptions that can
sabotage organizational decision-making. Michael
Porter, an American economist, is the one who
created the phrase "blind spot analysis." Porter
stated that obsolete corporate concepts or methods
had the potential to suffocate new ideas and prevent
them from flourishing. Furthermore, important issues
that were not properly examined by a firm led
initiatives to fail.

4. THE BLIND SPOT UNDERSTANDING
 The blind spot analysis is a method for evaluating decisions in a
systematic way. A blind spot analysis uncovers process flaws
caused by bias or misinterpretation, whereas most decision-
making frameworks favor rational and objective action.
 Areas of understanding are:
 Competitive decision making
 Competitive blind spot
 Non rational escalation of commitment
 Overconfidence in judgment
 Limited perspective and frame to the problem
 Implications of strategic decisions
 Capacity expansion
 New business entry (1-Thru internal development/2-acquisition)
 Conclusion

5. RESEARCH ON BLIND SPOT
 Major areas of research are
 Industry and competitor analysis(Porter,1980)
 Strategic decision
making(e.g.friedrickson,1984;Mintzberg;Schwenk,19
84)
 There is lack of conceptual integration while dealing
in decision making and decision outcome
 Deficiency in not considering the decision makers
leads to variety of JUDGEMENTAL MISTAKES OR
“BLIND SPOTS”.

6. COMPETITIVE DECISION MAKING
 It is a strategic decision making that requires
considering the views in competitive
decisions in more rational manner.
 Important but neglected dimension strategic
decision making.
 Conceptual link between behavioral and
economic based literature.
 Base of discussion can be found in game
theory literature(Myerson,1990;Shubik 1984)

7. GAME THEORY BY MYERSON
AND SHUBIK
 All strategic decisions are interdependent of other
competitors.
 A major potential role of game theory is recognition
of competitors and considers the decisions of other
parties.
 Ideal perspective for understanding and
recommending in competitive environment.
 Rational behavior among all partners in competitive
situation against other fully rational competitors.
 Fully rational competitor do not
exist(kahneman,slovic&tversky.1982)

8. LIMITATIONS OF GAME
THEORY
 Raiffa (1982) argued against assumptions
made on rational behavior by a competitor
after recognizing importance of competitor’s
deviations.
 He proposed decision analytic techniques
based in realistic descriptions.
 Raiffa focussedon blind spots of competitive
firms but on the firm who perform competitor
analysis which may inhibit the making use of
prescriptive advice.

9. PORTER’S PERSPECTIVE
FRAMEWORK
 Realistic competitive decision making perspective framework
 Crucial component is identification of each competitors
assumptions about itself and about other companies in industry
 These assumptions may be influenced by biases or” BLIND
SPOTS”
 Knowing a competitor's blind spots, he claims, will assist the
company in identifying the competitor's vulnerability.
 Approach based on realistic assessment rather than over
simplification
 Important limitation is focus only on competitive blind spots of
competitor not the one who is competitor

10. COMPETITIVE BLIND SPOTS
 Importance of considering the competitor
strategy fundamentally observed to rational
decision making.
 Failing of competitor against the decisions of
opponent(cf.Bazeman&Caroll,1987)

11. BLIND SPOT
MANIFESTATIONS
 Winner’s curse
 Non rational escalation of commitment
 Overconfidence in judgment
 Restricted perspective
 Problem facing
 Asymmetric information

12. MANIFESTATIONS EXPLAINED
 Winner’s curse- Under asymmetric information, competitive
actors systematically fall prey to the winners curse. Some might
argue that competitors will correct their judgments by learning
from feedback regarding past decisions. Infect baseman and
Samuelson (1983) showed that bidders typically fall to
incorporate either the relevance of the adverse selection issue or
factors that exacerbate the problem.
 Non rational escalation of commitment-Escalatory traps is
that are very difficult to disengage. A central reason why
competitive decision maker get trapped is that they fail to
consider the contingent decisions of the competitor. However
research suggests that most actors fail to adequately consider
the other side in competitive situations.

13. MANIFESTATIONS CONTD.
 Overconfidence in judgment- Competitive actors is likely to be
overconfident and should expect similar overconfidence in the
behavior of their opponents. Overconfidence can result from
competitive actors not considering the perspective of opponents.
The problems of overconfidence have also been studied using a
number of types of decisions.
 Limited perspective and frame to the problem- Creativity in
competitive situations requires looking at the problem from new
and different perspectives or frames. Competitors often develop
perspective for understanding a problem in self-centered ways. A
firm that considers the decisions that competitors are facing
enhances the developing ac creative strategic position.
 The influence of group thinking, often known as herd mentality,
occurs when a group chooses a less-than-optimal solution
because it is safe and conservative.

14. IMPLICATIONS FOR
STRATEGIC DECISIONS
 In this section we focus on two specific strategic decisions –
 CAPACITY EXPANSION
 NEW BUSINESS ENTRY
 Both of which have the potential to influence competition and
profitability. No decision is inherently strategic (Mintzberg 1979)
but both are highly intriguingly instrumental in their own right.
 Porter (1980) made descriptive observation very important in
documenting errors that the real world competitors commonly
make simply reveal the frequency with which firms "mistake.
Misread or misjudge" when making capacity expansion
decisions. The present article suggests these judgmental errors
could be better understood if analyzed interims of competitor
blind spots. Its also consistent with the observation noted that
firms facing capacity expansion decision misunderstood each
other intentions

15. CAPACITY EXPANSION-
 Porter (1980) acknowledges capacity expansion
mistakes and that over capacity is “chronic problem”.
 The equilibrium result for capacity expansion would
change substantially if firms made mistakes in
assessing their competitor’s preferences or if they
simply did not analyze rivals sufficiently, porter and
Spencer argue.
 Yoon and Lilien (1989) examined a set off firms that
capacity expansion decisions were largely as a
function of company-specific objectives
 Strategic decision makers considering capacity
expansion will result in industry overcapacity

16. NEW BUSINESS ENTRY
 Porter (1980) used strategic decision to
enter a new business
 Neglecting the possible reactions of existing
firms mainly financial analysis & cost
prevailing during entry decision by real world
competitors
 1) Through Internal Development
 2) External Acquisition.

17. 1) THROUGH INTERNAL
AQUISITION
 Rational assessment need to be done to check for entry barriers
, judgmental errors need to identified interims of blind spots.
probable reactions of existing firms in industry are often
neglected.
 Inadequate attention itself to competitors decision can be
created in limited frame problem.
 Key blind spots emerge from insufficient attention on decision
making of competitors.
 New business failures may emerge if the complete information is
not utilized properly and insufficient by strategic decision makers
 Jacquemin collaborates sequential equilibria in incomplete
information with behaviorist perspective

18. 2) THROUGH EXTERNAL
AQUISITION
 Bidding firms often overestimate or overpay the value for
acquiring the target firms (Porter, 1980; Barney, 1988; Roll, 1986)
 Judgmental errors become frequent and persistent phenomena
of acquiring the target firms.
 Idea is consistent as suggested by the researchers that the value
created by the synergy of two firms goes to seller (sales) not to
the buyer
 Competing bids which is becoming common among business is
another blind spot.
 Overconfidence when trying to acquire the firm because bidders
follow the same pattern overall which leads to excessively high
bids.

19. CONCLUSIONS
 The article revolves around the blind spots in competitive and strategic
decisions among the industry firms.
 Surprisingly real world better not considered because of the blind spots
created by the complexity and ambiguity revolving around capacity expansion,
new business entry and acquisition decisions.
 Organizational decision makes sociopolitical nature (Cyert& March, 1963) adds
on to blind spots.
 Game theoretic perspective is discusses the actual decision process is
irrelevant as in long run firms will act” as if” they are fully rational. It suggests
the use of optimal strategies and prescriptions for top management and
persistence of competitive blind spots with caution
 Competitive decision making approach may have distinct advantage in shaping
future research in competitor analysis.
 As suggested by Schwenk,1984;Tversky& Kahneman,1986) judgmental
mistakes made or learning from them is not easy
 Conceptual framework can be useful in combating with blind spots in strategic
decision making in the light of game theory.
 Sequential equilibrium in incomplete information games acts as indicator of a
firm’s commitment in strategic decision making.
 Decisions making biases or blind spots may be effected by possible
mediators and its premature to try and specify all possible conditions will or
will not apply to strategic decision (Schwenk ,1984;124)

20. CONCLUSIONS
 Calculated management research may help by integrating behavioral or
economic perspective to approach blind spots among industrial organization.
 Fombrun and Zajac (1987) explained how group strategically approach
emphasizes perceptions.
 Barrier understanding will lay emphasis on intellectual or perceptual
difference.
 Realistic approach and assessment can address these issues with variety of
strategic decisions.
 Interfirm perceptions and competitor analysis is crucial to those industrialist
researchers who are sensitive to role of blind spots in competitive decision
making.
 Strategy and organizational research may also be benefitted from economic-
based theories.
 Top manager can play vital role in bridging the gap between descriptive and
normal analysis of principal agent relationships
 Decision outcomes and decision making needs to be integrated concept wise
 The article has laid down that there are potential opportunities to analyze and
avoid blind spots by characterizing strategic decision making and competitor
analysis.
 The article focused on
 Blind spots or biases can be created specifically and elevated by competitive
decisions making
 Blind spots can be persistently explained by linking the competitive strategic decision
related to industry and competitor.

21. Decision
outcome
COMPETITIVE BLIND SPOTS
(ROOT PROBLEMS AND
MANIFESTATIONS)
INSUFFIECIEN
T
CONSIDERATI
ON OF THE
CONTINGENT
DECISIONS
OF THE
COMPETITIVE
OTHERS.
OVERCONFIDENCE
WINNERS
CURSE
LIMITED
FRAME
ESCALATION OF
COMMITMENT
INDUSTRY
OVER
CAPACITY
NEW BUSINESS
FAILURE
ACQUISITION
PREMIUMS
Strategic
decision
making
CAPACITY
EXPANSION
NEW
BUSINESS
ENTRY VIA
INTERNAL
DEVELOPME
NT
FIGURE-THE IMPLICATIONS OF COMPETITIVE BLIND SPOTS FOR
STRATEGIC DECISIONS