Sun Tzu once wrote, "It is said that if you know your enemies and know yourself, you will not be imperiled in a hundred battles; if you do not know your enemies but do know yourself, you will win one and lose one; if you do not know your enemies nor yourself, you will be imperiled in every single battle." Understanding your competitors is crucial to success in business. Firms rightfully spend a great deal of time analyzing the competition. In many cases, though, they assume that the competition is completely "rational" i.e. that the firm is purely pursuing profit maximization as its objective. That's a mistake. Organizations are not black boxes. They are made up of people, and those people have a range of motives. They are not simply motivated by profits. You have to ask yourself: Who is the chief executive? Who are the owners of the firm? Is a family involved? How do these people find satisfaction? What are their goals and aspirations? In short, you have to probe so as to understand the full range of motivations that may be shaping their behavior. In so doing, you can better understand how your competition is acting in the marketplace.
I am reminded of the importance of understanding non-economic motives because my students and I spent the day studying the wine industry. We discussed my case on Robert Mondavi and the Wine Industry this morning, and then we visited Chateau La Coste here in Provence this afternoon. In the wine industry, many vineyard owners are clearly motivated by factors beyond profit maximization. Think about the wealthy people with success in other fields who have entered the wine business (Francis Ford Coppola, Greg Norman, etc.)
Tadao Ando, and Jean Nouvel to create an incredible new venue at the vineyard. He's brought in an amazing art collection. Is McMillen simply interested in profits? Perhaps, but it sure seems that he has aspirations of creating something quite special in Provence, with an interest in something other than purely maximizing return on investment. Other industries exhibit these types of dynamics as well, but wine certainly is a good example. Wineries can be tough economic propositions, as it takes years to yield a return on your investment in land, vines, equipment, etc. Yet, people do invest in vineyards and wineries for a variety of reasons. Know thy enemy - that's the key lesson. However, knowing your enemy means not just treating that organization as a black box interested in optimizing its bottom line. Think about the humans leading the enterprise and seek to understand their goals and aspirations.