When Competitors Merge: What 3 Things Should A Product Manager Do?

by drjim on August 12, 2013

When two competitors become one, a product manager must take action

When two competitors become one, a product manager must take action
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Sometimes as product managers we wish that our lives could become better if only one of our competitors would just go away. It’s events that like this that would make developing your product development definition just a bit easier. Somewhat amazingly this does happen. However, all too often, the reason that they went away was because they were bought by one of our other competitors. This means that we now have a new much larger competitor to deal with. What’s a product manager to do?

What You Should Probably Not Do

When two of your competitors combine to create a new single larger competitor, almost every product manager has the same initial reaction: “we need to do that”. The thinking is that by acquiring another firm, your company will be able to match your new competitor.

However, Thomas Keil and Tomi Laamanen are researchers who have studied such events caution us that all too often reacting that way is not in our long-term best interests. What they found is that companies who did their own merger after competitors merged seemed to end up doing more poorly than everyone else and that’s not going to look good on your product manager resume.

There were three reasons for this. The first is that any decision made under pressure is often going to be the wrong decision. The next is that the cost of any remaining firms will go up after the first merger is announced. Finally, the first firm got the pick of the litter and the firms that are left may not be as good.

Alternative Responses Product Managers Should Consider

So if your gut reaction is wrong, then what course of action is a product manager to suggest when your CEO comes to you and asks you what the company should do after your competitors have merged? The good news is that there are three different courses of action that you can take that just might put your product in a more competitive position:

  • Retreat!: If all of this merging is happening in a non-primary market for your product, consider pulling out. Since it is now going to take more time and effort to compete with a larger competitor, it might be in your best interest to pull back and focus on only those markets where you know that you can dominate and be successful.
  • Take A Step To The Left: Instead of responding to the merger of rivals with a merger of your own, instead focus on growing your product by both innovation and organic growth. Let’s face it, no merger goes smoothly. Both of your competitors who merged are going to be distracted by the effort of trying to combine two different companies for some time. Use this time to find ways to make your product even better and you’ll come out ahead over time.
  • Start Small: Instead of recommending that your company go out and buy a company of equal size to the one that your competition bought, instead take a “smaller is better” approach. Identify a series of smaller companies that if purchased by your company will eventually yield the same result as if you had paid much more to buy a single larger company.

What All Of This Means For You

Managing a product means living in a dynamic environment even if this was never spelled out that way in your product manager job description. Sometimes our competition makes our lives more difficult by merging and then presenting us with fewer, but stronger, competitors.

When this happens product managers need to resist the gut instinct that makes them want to recommend that their company merge with another company. Instead, alternate responses such as retreating, maneuvering, or alternate acquisitions may be the right response.

When changes happen the worst thing that you can do is to react too quickly. Instead, take the time and think about your end game: what do you really want to happen. Once you know what that is, take the time to do the right thing to make it happen. Product managers who know how to correctly react to a merger of competitors will end up being the most successful.

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Product Management Skills™

Question For You: How quickly do you think that a product manager needs to react when competitors merge?

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What We’ll Be Talking About Next Time

As you slave away at your product management job, you probably dream of how great it would be to work at some progressive company where (finally!) your skills as a product manager would be truly appreciated. Some company that understood the important role that we product managers play and who would give us the authority to make things happen. A company like, oh say, Google. How great would that look on your product manager resume? Well, not to burst your bubble or anything, but the recent release of the new Moto X cell phone by Motorola seems to indicate that even these guys haven’t got the product management thing straight yet…

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