ch05 hitt lecture

7/30/2019 Ch05 Hitt Lecture

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PowerPoint slides by:

R. Dennis MiddlemistColorado State University

Copyright 2004 South-Western

All rights reserved.

Chapter 5

Competitive

Rivalry andCompetitiveDynamics


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Copyright 2004 South-Western. All rights reserved. 52

Knowledge Objectives

Studying this chapter should provide you with thestrategic management knowledge needed to:

Define competitors, competitive rivalry, competitivebehavior, and competitive dynamics.

Describe market commonality and resource similarity asthe building blocks of a competitor analysis.

Explain awareness, motivation, and ability as drivers ofcompetitive behavior.

Discuss factors affecting the likelihood a competitor willtake competitive actions.


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Knowledge Objectives (contd)

Studying this chapter should provide you with thestrategic management knowledge needed to:

Discuss factors affecting the likelihood a competitor willrespond to actions taken against it.

Explain competitive dynamics in slow-cycle, fast-cycle, andstandard-cycle markets.


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Figure 1.1

Copyright 2004 South-Western. All rights reserved.

The StrategicManagement

Process


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Definitions

CompetitorsFirms operating in the same market, offering

similar products and targeting similar customers

Competitive rivalry

The ongoing set of competitive actions andresponses occurring between competitors

Competitive rivalry influences an individualfirms ability to gain and sustain competitive

advantages


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Definitions

Competitive behaviorThe set of competitive actions and competitive

responses the firm takes to build or defend itscompetitive advantages and to improve itsmarket position

Competitive dynamicsThe total set of actions and responses taken by

all firms competing within a market

Multimarket competitionFirms competing against each other in severalproduct or geographic markets


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From Competitors to Competitive Dynamics

SOURCE: Adapted from M.-J. Chen, 1996, Competitor analysis and interfirm rivalry:Toward a theoretical integration, Academy of Management Review, 21: 100134. Figure 5.1


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Competitive Rivalrys Effect on Strategy

Success of a strategy is determined by:The firms initial competitive actions

How well it anticipates competitors responses to

them

How well the firm anticipates and responds to itscompetitors initial actions

Competitive rivalry:

Affects all types of strategiesHas the strongest influence on the firms

business-level strategy or strategies


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A Model of Competitive Rivalry

Firms are mutually interdependentA firms competitive actions have noticeable

effects on its competitors

A firms competitive actions elicit competitiveresponses from its competitors

Competitors feel each others actions and

responses

Marketplace success is a function of bothindividual strategies and the consequencesof their use


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A Model of Competitive Rivalry

SOURCE: Adapted from M.-J. Chen, 1996, Competitor

analysis and interfirm rivalry:Toward a theoretical integration,

Academy of Management Review, 21: 100134. Figure 5.2


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Competitor Analysis

Competitor analysis is used to help a firmunderstand its competitors

The firm studies competitors future

objectives, current strategies, assumptions,and capabilities

With the analysis, a firm is better able topredict competitors behaviors when

forming its competitive actions andresponses


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Market Commonality

Market commonality is concerned with:The number of markets with which a firm and a

competitor are jointly involved

The degree of importance of the individual

markets to each competitor Firms competing against one another in

several or many markets engage inmultimarket competition

A firm with greater multimarket contact is lesslikely to initiate an attack, but more likely to morerespond aggressively when attacked


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Resource Similarity

Resource SimilarityHow comparable the firms tangible and

intangible resources are to a competitors interms of both types and amounts

Firms with similar types and amounts ofresources are likely to:

Have similar strengths and weaknesses

Use similar strategies

Assessing resource similarity can bedifficult if critical resources are intangiblerather than tangible


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A Framework of Competitor Analysis

Figure 5.3


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Drivers of Competitive Behavior

Awareness is the extent to which

competitors recognizethe degree of their

mutual interdependencethat results from:

Market commonality

Resource similarity

Awareness


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Drivers of Competitive Behavior (contd)

Motivation concerns

the firms incentive to

take action

or to respond to acompetitors attack

and relates toperceived gains and

losses

Awareness

Motivation


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Ability relates to

each firms resources

the flexibility theseresources provide

Without availableresources the firmlacks the ability to

attack a competitor respond to the

competitors actions

Awareness

Motivation

Ability


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A firm is more likely to attackthe rival with whom it haslow market commonalitythan the one with whom itcompetes in multiple

markets Given the high stakes of

competition under marketcommonality, there is a highprobability that the attacked

firm will respond to itscompetitors action in an

effort to protect its positionin one or more markets

Awareness

Motivation

Market

Commonality

Ability


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The greater the resourceimbalance between the actingfirm and competitors orpotential responders, the

greater will be the delay inresponse by the firm with aresource disadvantage

When facing competitors withgreater resources or more

attractive market positions,firms should eventuallyrespond, no matter howchallenging the response

ResourceDissimilarity

Awareness

Motivation

Market

Commonality

Ability


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Competitive Rivalry

Competitive actionA strategic or tactical action the firm takes to

build or defend its competitive advantages orimprove its market position

Competitive responseA strategic or tactical action the firm takes to

counter the effects of a competitors competitive

action


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Strategic and Tactical Actions

Strategic action or a strategic responseA market-based move that involves a significant

commitment of organizational resources and isdifficult to implement and reverse

Tactical action or a tactical responseA market-based move that is taken to fine-tune a

strategy:

Usually involves fewer resources

Is relatively easy to implement and reverse


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Factors Affecting Likelihood of Attack

First movers allocate funds for: Product innovation and

development

Aggressive advertising

Advanced research and

development First movers can gain:

The loyalty of customers whomay become committed to thefirms goods or services

Market share that can bedifficult for competitors to takeduring future competitive rivalry

First Mover


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Factors Affecting Likelihood of Attack (contd)

Second mover responds to thefirst movers competitive action,

typically through imitation:

Studies customers reactions to

product innovations

Tries to find any mistakes thefirst mover made, and avoidthem

Can avoid both the mistakes andthe huge spending of the first-

movers May develop more efficient

processes and technologies

First Mover

Second Mover


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Late mover responds to acompetitive action only afterconsiderable time has elapsed

Any success achieved will beslow in coming and much lessthan that achieved by first andsecond movers

Late movers competitive action

allows it to earn only averagereturns and delays itsunderstanding of how to createvalue for customers

First Mover

Second Mover

Late Mover


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Small firms are more likely:

To launch competitive actions

To be quicker in doing so

Small firms are perceived as:

Nimble and flexible competitors

Relying on speed and surprise todefend competitive advantagesor develop new ones whileengaged in competitive rivalry

Having the flexibility needed tolaunch a greater variety ofcompetitive actions

First Mover

Second Mover

Late Mover

Organizational

Size


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Large firms are likely to initiatemore competitive actions as wellas strategic actions during agiven time period

Large organizations commonlyhave the slack resourcesrequired to launch a largernumber of total competitiveactions

Think and act big and well getsmaller. Think and act small andwell get bigger.

Herb Kelleher

Former CEO, Southwest Airlines

First Mover

Second Mover

Late Mover

Organizational

Size


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Quality exists when thefirms goods or services

meet or exceed customers

expectations

Product quality dimensionsinclude:

Performance

Features Flexibility

Durability

Conformance

Serviceability Aesthetics

Perceivedquality

First Mover

Second Mover

Quality(Product)

Late Mover

Organizational

Size


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Quality Dimensions of Goods

Product Quality Dimensions1. PerformanceOperating characteristics

2. FeaturesImportant special characteristics

3. FlexibilityMeeting operating specifications over some

period of time4. DurabilityAmount of use before performance deteriorates

5. ConformanceMatch with preestablished standards

6. ServiceabilityEase and speed of repair

7. AestheticsHow a product looks and feels

8. Perceived qualitySubjective assessment of characteristics(product image)

Table 5.1a

SOURCES: Adapted from J.W. Dean, Jr., & J. R. Evans, 1994, Total Quality: Management, Organization and Society, St.Paul, MN:West Publishing Company; H.V. Roberts & B. F. Sergesketter, 1993, Quality Is Personal, New York:The FreePress; D. Garvin, 1988, Managed Quality: The Strategic and Competitive Edge, New York:The Free Press.


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Service quality dimensions

include: Timeliness

Courtesy

Consistency

Convenience Completeness

Accuracy

First Mover

Second Mover

Quality(Product)

Late Mover

Organizational

Size


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Quality Dimensions of Services

Service Quality Dimensions1. TimelinessPerformed in the promised period of time

2. CourtesyPerformed cheerfully

3. ConsistencyGiving all customers similar experiences each time

4. ConvenienceAccessibility to customers

5. CompletenessFully serviced, as required

6. AccuracyPerformed correctly each time

Table 5.1b

SOURCES: Adapted from J.W. Dean, Jr., & J. R. Evans, 1994, Total Quality: Management, Organization and Society, St.Paul, MN:West Publishing Company; H.V. Roberts & B. F. Sergesketter, 1993, Quality Is Personal, New York:The FreePress; D. Garvin, 1988, Managed Quality: The Strategic and Competitive Edge, New York:The Free Press.


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Factors Affecting Likelihood of Response

Firms study three other factors to predicthow a competitor is likely to respond tocompetitive actions:

Type of competitive action

Reputation

Market dependence


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Factors Affecting Strategic Response

Strategic actions receivestrategic responses

Strategic actions elicit fewertotal competitive responses

The time needed to implementand assess a strategic actiondelays competitors responses

Tactical responses are takento counter the effects of

tactical actions

Competitor likely will respondquickly to a tactical actions

Type ofCompetitive

Action


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Factors Affecting Strategic Response (contd)

An actor is the firm taking anaction or response

Reputation is the positive ornegative attribute ascribed by

one rival to another based onpast competitive behavior

The firm studies responsesthat a competitor has taken

previously when attacked topredict likely responses

Type ofCompetitive

Action

ActorsReputation


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Factors Affecting Strategic Response (contd)

Market dependence is theextent to which a firms

revenues or profits arederived from a particular

market In general, firms can predict

that competitors with highmarket dependence are likely

to respond strongly toattacks threatening theirmarket position

Type ofCompetitive

Action

ActorsReputation

Dependenceon the market


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Competitive Dynamics versus Rivalry

CompetitiveDynamics

Ongoing actions andresponses taking

place between allfirmscompetingwithin a market foradvantageous

positions

CompetitiveRivalry

Ongoing actions andresponses taking

place between anindividual firm andits competitorsfor anadvantageous

market position


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Competitive Dynamics Versus Rivalry(contd)

Competitive Rivalry(Individual firms)

Market commonality

and resource similarity Awareness, motivation

and ability

First mover incentives,

size and quality

Competitive Dynamics(All firms)

Market speed (slow-cycle,

fast-cycle, and standard-cycle)

Effects of market speedon actions and responsesof all competitors in the

market


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Competitive Dynamics

Competitive advantages areshielded from imitation forlong periods of time andimitation is costly

Competitive advantages aresustainable in slow-cyclemarkets

All firms concentrate on

competitive actions andresponses to protect, maintainand extend proprietarycompetitive advantage

Slow-CycleMarkets


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Gradual Erosion of a Sustained Competitive Advantage

Figure 5.4SOURCE: Adapted from I. C. MacMillan, 1988, Controlling competitive dynamicsby taking strategic initiative, Academy of Management Executive, 11(2): 111118.


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Competitive Dynamics (contd)

The firms competitiveadvantages arent shielded

from imitation

Imitation happens quickly and

somewhat inexpensively Competitive advantages arent

sustainable

Competitors use reverse

engineering to quickly imitate orimprove on the firms products

Non-proprietary technology isdiffused rapidly

Slow-CycleMarkets

Fast-CycleMarkets


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Obtaining Temporary Advantages to CreateSustained Advantage

SOURCE: Adapted from I. C. MacMillan, 1988, Controlling competitive dynamicsby taking strategic initiative, Academy of Management Executive, 11(2): 111118. Figure 5.5


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C i h 2004 S h W All i h d 5 41

Competitive Dynamics (contd)

Moderate cost of imitation mayshield competitive advantages.

Competitive advantages arepartially sustainable if their

quality is continuouslyupgraded

Firms

Seek large market shares

Gain customer loyalty throughbrand names

Carefully control operations

Slow-CycleMarkets

Fast-CycleMarkets

Standard-CycleMarkets

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