The business landscape is littered with leading businesses that lost their competitive edge by failing to keep tabs on their competitors. Sometimes they weren't even sure who was really competing with them for the hearts and minds of customers.

Most upscale department stores failed to pay adequate attention as Wal-Mart grew slowly from a small chain of Arkansas stores to a powerhouse retailer. Apple ignored the growing influence of Microsoft's Windows technology in the business world, preferring to focus on the consumer market to develop a loyal customer base among students. Merrill Lynch put online brokers in a different business category, but their customers didn't.

The following are factors that can lead to extinction:

• Winners become the hunted and can lose the ability to hunt.
• The ability to change is thwarted by the size and complexity of the company created to per-petuate the paradigm that brought success.
• Competitors find it easy to hit a visible target, particularly if it moves slowly or is a straight line.
• Psychologically, the risk of losing what you've won often looms larger than the opportunity for incremental gain.

Competitive Analysis Principles

The most important thing you can do is to explicitly understand your areas of strategic vulnerability. Listen to your customers and channel partners as honestly as possible. Don't just focus on critical success factors -- those things that are most important to your success -- but also focus on critical failure factors as well.

The following are some guidelines that will help discover a company's potential vulnerabilities:

• Don't rely on intuition. Although intuition is powerful, it has limitations because it is based on past experience. Today's competitive marketplace is constantly breaking patterns we've learned from our past.
   
• Never rely solely on experts. Experts have been certified by their profession as holding the correct body of knowledge. However, such expertise is based on past knowledge -- one of the least reliable ways of judging the competitive marketplace.
   
• Don't allow past investments to influence your views. Businesses typically focus on initiatives that enhance the value of prior investments. But loss of competitive advantage often occurs because those investments no longer produce returns for a particular group or individual.

When outlining strategic vulnerabilities, remember to be specific. No one business can anticipate threats on all fronts. Organizations need to have a finite number of critical things to watch.

Clearly, customers are critical to success, but what kind of customers? Children, married women, diabetics, and men over 60 all fall under the category of customers, but they are quite different. Knowing your lead users (or future profitable segments) enables you to focus on them. Of course, knowing what to look for is only half the battle in developing an action plan. Understanding how and where to look is vital.