ch06 discussion blue

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2004 by South-Western/Thomson Learning 1

Competitive Rivalry andCompetitive Rivalry and

Competitive DynamicsCompetitive Dynamics

Robert E. Hoskisson

Michael A. Hitt

R. Duane Ireland

Chapter 6Chapter 6


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Chapter 2Chapter 2

Strategic LeadershipStrategic Leadership

Chapter 4Chapter 4

The InternalThe Internal

OrganizationOrganization

Chapter 6Chapter 6



Chapter 9Chapter 9

International StrategyInternational Strategy

Chapter 1Chapter 1

Introduction toIntroduction to

Strategic ManagementStrategic Management

Chapter 3Chapter 3

The ExternalThe External

EnvironmentEnvironment

Chapter 5Chapter 5

Business-LevelBusiness-Level

StrategyStrategy

Chapter 8Chapter 8Acquisition andAcquisition and

Restructuring StrategiesRestructuring Strategies

Chapter 11Chapter 11

Corporate GovernanceCorporate Governance

Strategic IntentStrategic Intent

Strategic MissionStrategic Mission

Chapter 7Chapter 7

Corporate-Level StrategyCorporate-Level Strategy


Cooperative StrategyCooperative Strategy


Strategic EntrepreneurshipStrategic Entrepreneurship

Strategic

Analysis

Strategic

Thinking

Creating

Competitive

Advantage

Monitoring

And Creating

EntrepreneurialOpportunities

The Strategic Management ProcessThe Strategic Management Process

Chapter 5Chapter 5

Business-LevelBusiness-Level

StrategyStrategy

Chapter 6Chapter 6



Chapter 7Chapter 7

Corporate-Level StrategyCorporate-Level Strategy


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Discussion QuestionsDiscussion Questions

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1. What is competitive dynamics and why

is it important?

2.What are the reasons why rivalryincreases or decreases between

firms?

3. What factors drive awareness of the

potential for increased rivalry andcompetitive attack and response?


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Discussion Questions (cont.)Discussion Questions (cont.)Click

Here

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4. What factors lead to motivation and

ability for competitive attack and

response?

5. Besides market commonality and

resource similarity, what additional

factors might lead a firm to attack?

6. Once competitive action is taken,what factors increase the likelihood of

competitive response?Click

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Discussion Questions (cont.)Discussion Questions (cont.)

7. What strategic approach is necessary

to compete in slow versus fast cycle

or hyper-competitive markets?


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Discussion Question 1Discussion Question 1

What is competitive dynamics andwhy is it important?


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DefinitionsDefinitions

CompetitorsCompetitors

firms operating in the same market, offeringfirms operating in the same market, offering

similar products and targeting similarsimilar products and targeting similar

customerscustomers

Competitive rivalryCompetitive rivalry

the ongoing set of competitive actions andthe ongoing set of competitive actions and

responses occurring between competitorsresponses occurring between competitors

competitive rivalry influences an individualcompetitive rivalry influences an individual

firms ability to gain and sustain competitivefirms ability to gain and sustain competitive

advantagesadvantages


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DefinitionsDefinitions

Competitive behaviorCompetitive behavior

the set of competitive actions and competitivethe set of competitive actions and competitive

responses the firm takes to build or defend itsresponses the firm takes to build or defend its

competitive advantages and to improve itscompetitive advantages and to improve itsmarket positionmarket position

Competitive dynamicsCompetitive dynamics

the total set of actions and responses taken bythe total set of actions and responses taken by

all firms competing within a marketall firms competing within a market


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From Competitors toFrom Competitors to

Competitive DynamicsCompetitive DynamicsCompetitorsCompetitors

Through competitiveThrough competitive

behaviorbehavior Competitive actionsCompetitive actions Competitive responsesCompetitive responses

To gain an advantageousTo gain an advantageous

market positionmarket position

Competitive DynamicsCompetitive Dynamics Competitive actions and responses taken by allCompetitive actions and responses taken by all

firms competing in a marketfirms competing in a market

CompetitiveCompetitive

rivalryrivalry

Engage inEngage in

What results?What results?

What results?What results?

Why?Why?

How?How?


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Effect of Competitive Rivalry onEffect of Competitive Rivalry on

a Firms Strategiesa Firms Strategies Success of a strategy is determined by:Success of a strategy is determined by:

the firms initial competitive actionsthe firms initial competitive actions

how well it anticipates competitors responseshow well it anticipates competitors responses

to themto them

how well the firm anticipates and responds to itshow well the firm anticipates and responds to its

competitors initial actionscompetitors initial actions

Competitive rivalryCompetitive rivalry

affects all types of strategiesaffects all types of strategies

most dominant influence is on the firmsmost dominant influence is on the firms

business-level strategy or strategies.business-level strategy or strategies.Click

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What are the reasons why rivalry

increases or decreases betweenfirms?


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A Model of CompetitiveA Model of Competitive

RivalryRivalryCompetitive AnalysisCompetitive Analysis Market commonalityMarket commonality Resource similarityResource similarity

Drivers of CompetitiveDrivers of Competitive

BehaviorBehavior AwarenessAwareness MotivationMotivation AbilityAbility

Interfirm RivalryInterfirm Rivalry Likelihood of AttackLikelihood of Attack

First mover incentivesFirst mover incentives Organizational sizeOrganizational size

QualityQuality Likelihood of ResponseLikelihood of Response

Type of competitive actionType of competitive action ReputationReputation

Market dependenceMarket dependence

OutcomesOutcomes Market positionMarket position Financial performanceFinancial performance

feedbackfeedback


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Competitive RivalryCompetitive Rivalry

Firms are mutually interdependentFirms are mutually interdependent

one firms competitive actions have noticeableone firms competitive actions have noticeable

effects on competitorseffects on competitors

one firms competitive actions elicitone firms competitive actions elicit

competitive responses from competitorscompetitive responses from competitors

competitors feel each others actions andcompetitors feel each others actions and

responsesresponses

Marketplace success is a function of bothMarketplace success is a function of both

individual strategies and theindividual strategies and the

consequences of their useconsequences of their use


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Click


Competitor AnalysisCompetitor Analysis

Competitor analysisCompetitor analysis

a technique firms use to understand theira technique firms use to understand their

competitive environment. Along with the generalcompetitive environment. Along with the general

and industry environments, the competitiveand industry environments, the competitiveenvironment comprises the firms externalenvironment comprises the firms external

environmentenvironment

a technique used to help the firma technique used to help the firm understandunderstand itsits

competitorscompetitors the first step to being able tothe first step to being able to predictpredict

competitors behavior in the form of itscompetitors behavior in the form of its

competitive actions and responsescompetitive actions and responses


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What factors drive awareness of the

potential for increased rivalry and

competitive attack and response?


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Market CommonalityMarket Commonality

Market Commonality is concerned withMarket Commonality is concerned with

the number of markets with which a firm and athe number of markets with which a firm and a

competitor are jointly involvedcompetitor are jointly involved

the degree of importance of the individual markets tothe degree of importance of the individual markets toeach competitoreach competitor

Most industries markets are somewhat related inMost industries markets are somewhat related in

terms ofterms of

technologiestechnologies

core competenciescore competencies

Multimarket competitionMultimarket competition

Firms competing in several marketsFirms competing in several markets


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A Framework of CompetitorA Framework of Competitor

AnalysisAnalysis

MarketMarket

CommonalityCommonality

HighHigh

LowLow

LowLow HighHigh

ResourceResourceSimilaritySimilarity

The shaded area representsThe shaded area represents

degree of market commonalitydegree of market commonalitybetween two firmsbetween two firms

Resource endowment BResource endowment B

Resource endowment AResource endowment A

KEYKEY

IIIIII

IIIIII IVIV


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Drivers of Competitive ActionsDrivers of Competitive Actions

and Responses:and Responses: Awareness is the extent to whichAwareness is the extent to which

competitors recognize the degree ofcompetitors recognize the degree of

their mutual interdependencetheir mutual interdependence mutual interdependence resultsmutual interdependence results

fromfrom

market commonalitymarket commonality

resource similarityresource similarity

AwarenessAwareness

AwarenessAwareness

Drivers of competitive behaviorDrivers of competitive behavior

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What factors lead to motivation

and ability for competitive attackand response?


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MotivationMotivation


and Responses:and Responses: Motivation concerns the firmsMotivation concerns the firms

incentiveincentive

to take actionto take action or to respond to a competitorsor to respond to a competitors

attackattack

and relates to perceived gains andand relates to perceived gains and

losseslosses

AwarenessAwareness




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AbilityAbility


and Responses:and Responses:

Ability relatesAbility relates

to each firms resourcesto each firms resources

the flexibility these resourcesthe flexibility these resourcesprovideprovide

Without available resources the firmWithout available resources the firm

lacks the abilitylacks the ability

to attack a competitorto attack a competitor to respond to the competitorsto respond to the competitors

actionsactions

AwarenessAwareness



AbilityAbility


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AbilityAbility



Dissimilarity refers to the resourceDissimilarity refers to the resource

imblance between the acting firm andimblance between the acting firm and

competitorscompetitors potential responderspotential responders

The greater the imbalance, theThe greater the imbalance, the

greater will be the delay ingreater will be the delay in

response by the firm with theresponse by the firm with theresource disadvantageresource disadvantage

AwarenessAwareness



DissimilarityDissimilarity

DissimilarityDissimilarity


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A firm is more likely to attack theA firm is more likely to attack the

rival with whom it has low marketrival with whom it has low market

commonality than the one with whomcommonality than the one with whomit competes in multiple marketsit competes in multiple markets

Because of the high stakes ofBecause of the high stakes of

competition under the condition ofcompetition under the condition of

market commonality, there is a highmarket commonality, there is a high

probability that the attacked firm willprobability that the attacked firm will

respond to its competitors action inrespond to its competitors action in

an effort to protect its position in onean effort to protect its position in one

or more marketsor more markets

MarketMarket

commonalitycommonality

Drivers of competitive behavior influenced byDrivers of competitive behavior influenced by

Market CommonalityMarket Commonality


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ResourceResource

similaritysimilarity



The greater the resource imbalanceThe greater the resource imbalance

between the acting firm andbetween the acting firm and

competitors or potential responders,competitors or potential responders,the greater will be the delay inthe greater will be the delay in

response by the firm with a resourceresponse by the firm with a resource

disadvantagedisadvantage

When facing competitors with greaterWhen facing competitors with greater

resources or more attractive marketresources or more attractive market

positions, firms should eventuallypositions, firms should eventually

respond, no matter how challengingrespond, no matter how challenging

the responsethe response

Drivers of competitive behavior influenced byDrivers of competitive behavior influenced by

MarketMarket

commonalitycommonality

Resource SimilarityResource Similarity

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Discussion

Questions


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Besides market commonality and

resource similarity, what additionalfactors might lead a firm to attack?


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Factors Affecting Likelihood ofFactors Affecting Likelihood of

Attack:Attack:

First movers allocate funds forFirst movers allocate funds for

product innovation and developmentproduct innovation and development

aggressive advertisingaggressive advertising

advanced research and developmentadvanced research and development

First movers can gainFirst movers can gain the loyalty of customers who maythe loyalty of customers who may

become committed to the firms goodsbecome committed to the firms goods

or servicesor services

market share that can be difficult formarket share that can be difficult for

competitors to take during futurecompetitors to take during futurecompetitive rivalrycompetitive rivalry

First moverFirst mover

incentivesincentives

First Mover IncentivesFirst Mover Incentives


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SizeSize


Attack:Attack:

Small firms are more likelySmall firms are more likely to launch competitive actionsto launch competitive actions to be quicker in doing soto be quicker in doing so

Small firms are perceived asSmall firms are perceived as nimble and flexible competitorsnimble and flexible competitors relying on speed and surprise torelying on speed and surprise to

defend their competitive advantagesdefend their competitive advantages

or develop new ones while engagedor develop new ones while engaged

in competitive rivalryin competitive rivalry Small firms have the flexibility neededSmall firms have the flexibility needed

to launch a greater variety ofto launch a greater variety of

competitive actionscompetitive actions



SizeSize


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Attack:Attack:

Large firms are likely to initiate moreLarge firms are likely to initiate more

competitive actions as well ascompetitive actions as well as

strategic actions during a given timestrategic actions during a given time

periodperiod Large organizations commonly haveLarge organizations commonly have

the slack resources required tothe slack resources required to

launch a larger number of totallaunch a larger number of total




SizeSize

SizeSize

Think and act big and well get smaller. Think andThink and act big and well get smaller. Think andact small and well get bigger.act small and well get bigger.

- Herb Kelleher,Former CEO, Southwest Airlines

- Herb Kelleher,Former CEO, Southwest Airlines


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Click


QualityQuality


Attack:Attack:

Quality exists when the firms goodsQuality exists when the firms goods

or services meet or exceedor services meet or exceed

customers expectationscustomers expectations



SizeSize

QualityQuality

Service quality dimensions includeService quality dimensions include TimelinessTimeliness

CourtesyCourtesy

ConsistencyConsistency

ConvenienceConvenience

CompletenessCompleteness AccuracyAccuracy


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Once competitive action is taken,

what factors increase thelikelihood of competitive

response?


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ResponseResponse Firms study three factors to predict how aFirms study three factors to predict how a

competitor is likely to respond tocompetitor is likely to respond to


type of competitive actiontype of competitive action reputationreputation market dependencemarket dependence


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Strategic and Tactical ActionsStrategic and Tactical Actions

Strategic action or a strategic responseStrategic action or a strategic response

a market-based move that involves aa market-based move that involves a

significant commitment of organizationalsignificant commitment of organizational

resources and is difficult to implement andresources and is difficult to implement andreversereverse

Tactical action or a tactical responseTactical action or a tactical response

a market-based move that is taken to fine-tunea market-based move that is taken to fine-tune

a strategy; it involves fewer resources and isa strategy; it involves fewer resources and isrelatively easy to implement and reverserelatively easy to implement and reverse


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Response:Response: Strategic actions receive strategicStrategic actions receive strategic

responsesresponses Tactical responses are taken toTactical responses are taken to

counter the effects of tactical actionscounter the effects of tactical actions Strategic actions elicit fewer totalStrategic actions elicit fewer total

competitive responsescompetitive responses A competitor likely will respondA competitor likely will respond

quickly to a tactical actionquickly to a tactical action The time needed to implement andThe time needed to implement and

assess a strategic action delaysassess a strategic action delays

competitors responsescompetitors responses

Type ofType of

competitivecompetitive

actionaction

Type of Competitive ActionType of Competitive Action


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ReputationReputation


Response:Response: An actor is the firm taking an actionAn actor is the firm taking an action

or responseor response

Reputation is the positive or negativeReputation is the positive or negative

attribute ascribed by one rival toattribute ascribed by one rival toanother based on past competitiveanother based on past competitive

behaviorbehavior

The firm studies responses that aThe firm studies responses that a

competitor has taken previously whencompetitor has taken previously whenattacked to predict likely responsesattacked to predict likely responses

Type ofType of


actionaction



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MarketMarket

dependencedependence


Response:Response: Market dependence isMarket dependence is

the extent to which a firmsthe extent to which a firms

revenues or profits are derivedrevenues or profits are derived

from a particular marketfrom a particular market In general, firms can predict thatIn general, firms can predict that

competitors with high marketcompetitors with high market

dependence are likely to responddependence are likely to respond

strongly to attacks threatening theirstrongly to attacks threatening theirmarket positionmarket position

Type ofType of


actionaction


Market DependenceMarket Dependence

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What strategic approach is

necessary to compete in slowversus fast cycle or hyper-

competitive markets?


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Competitive Dynamics:Competitive Dynamics:

Slow-cycle marketsSlow-cycle markets the firms competitive advantagesthe firms competitive advantages

are shielded from imitation for longare shielded from imitation for long

periods of timeperiods of time imitation is costlyimitation is costly Competitive advantages areCompetitive advantages are

sustainable in slow-cycle marketssustainable in slow-cycle markets A proprietary, one-of-a-kindA proprietary, one-of-a-kind

competitive advantage leads tocompetitive advantage leads tocompetitive success in a slow-cyclecompetitive success in a slow-cycle

marketmarket

Slow-cycleSlow-cycle

marketsmarkets

Slow-Cycle MarketsSlow-Cycle Markets


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Gradual Erosion of a SustainableGradual Erosion of a Sustainable

Competitive AdvantageCompetitive Advantage

Retu

rnsfrom

aSustaina

ble

Returnsfrom

aSustaina

ble

Com

petitiveAdv

antage

Com

petitiveAdv

antage

Time (Years)Time (Years)

00 55 1010

LaunchLaunch

ExploitationExploitation

CounterattackCounterattack


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Fast-cycleFast-cycle

marketsmarkets


Fast-cycle marketsFast-cycle markets the firms competitive advantagesthe firms competitive advantages

arent shielded from imitationarent shielded from imitation

imitation happens quickly andimitation happens quickly andsomewhat inexpensivelysomewhat inexpensively Competitive advantages arentCompetitive advantages arent

sustainablesustainable Competitors use reverse engineeringCompetitors use reverse engineering

to quickly imitate or improve on theto quickly imitate or improve on thefirms productsfirms products

Non-proprietary technology isNon-proprietary technology is

diffused rapidlydiffused rapidly


marketsmarkets

Fast-Cycle MarketsFast-Cycle Markets


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Obtaining Temporary Advantages toObtaining Temporary Advantages to

Create Sustained AdvantageCreate Sustained Advantage

Return

sfroma

Se

ries

Return

sfrom

a

Series

of

Replicabl eA

cti

ons

ofReplicabl eA

cti

ons

Time (Years)Time (Years)

00 55 1010 1515

LaunchLaunch

ExploitationExploitation

CounterattackCounterattack

Firm has already movedFirm has already moved

to next advantageto next advantage


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Standard-cycle marketsStandard-cycle markets

the firms competitive advantages maythe firms competitive advantages may

be shielded from imitationbe shielded from imitation

imitation is moderately costlyimitation is moderately costly

Competitive advantages are partiallyCompetitive advantages are partiallysustainable if the firm is able tosustainable if the firm is able to

continuously upgrade the quality of itscontinuously upgrade the quality of its

competitive advantagescompetitive advantages FirmsFirms

seek large market sharesseek large market shares gain customer loyalty through brandgain customer loyalty through brand

namesnames

carefully control operationscarefully control operations


marketsmarkets

Fast-cycleFast-cycle

marketsmarkets

Standard-cycleStandard-cycle

marketsmarkets

Standard-Cycle MarketsStandard-Cycle Markets

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