copyright © 2004 south-western. all rights reserved.5–1 figure 1.1 copyright © 2004...

Copyright © 2004 South-Western. All rights reserved. 5–1

Figure 1.1Figure 1.1

Copyright © 2004 South-Western. All rights reserved.

The Strategic

Management Process


Chapter 5: Competitive Rivalry

• Competitive rivalry• Multi-market (“multi-point”) competition• Competitive dynamics• Factors that increase the likelihood of

competitive response (or attack)• First movers; second movers; late movers• Strategic actions; tactical actions• Fast cycle; slow cycle; standard cycle

markets• Offensive moves; defensive moves


Effective Strategies . . . .

• address external trends• pursue concrete opportunities• acknowledge external threats• rely on core capabilities• do not rely on weaknesses• are conscientiously implemented • are continually fine-tuned• outsmart rivals


Competitive Rivalry =

the ongoing set of competitive actions

and competitive responses

occurring between competitors.

One interesting result is that

competing firms are mutually interdependent,

especially when

“multi-market competition”

is present.


Multi-market Competition =

firms competing against each other in several product areas, and/or

several geographic markets.

Multi-market competition creates

a more complex form of rivalry,

which can actually reduce aggressive competitive attacks between the rivals.


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: 100–134. Figure 5.1Figure 5.1


Competitive Dynamics . . .

• Actions taken by one firm elicit responses from competitors.

• Competitive responses lead to additional actions from the firm that acted originally.

• Actions and responses shape the competitive positions of each firm’s business-level strategy.

• Strategies are not fully pre-planned, but are dynamic and evolving in response to competition and other factors.


Success of a strategy is determined by:The firm’s initial competitive actionsHow well it anticipates competitors’ responses to

themHow well the firm anticipates and responds to its

competitors’ initial actions


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: 100–134. Figure 5.2Figure 5.2


Competitor Analysis (= ) • Competitor analysis is used to help a firm

understand its competitors

• The firm studies competitors’ future objectives, current strategies, assumptions, and capabilities

• With the analysis, a firm is better able to predict competitors’ behaviors when forming its competitive actions and responses


Market Commonality

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

competitor are jointly involvedThe degree of importance of the individual

markets to each competitor

• Firms competing against one another in several or many markets engage in multimarket competitionA firm with greater multimarket contact is less

likely to initiate an attack, but more likely to more respond aggressively when attacked


Resource Similarity

• Resource SimilarityHow comparable the firm’s tangible and

intangible resources are to a competitor’s in terms of both types and amounts

• Firms with similar types and amounts of resources are likely to: Have similar strengths and weaknessesUse similar strategies

• Assessing resource similarity can be difficult if critical resources are intangible rather than tangible


A Framework of Competitor Analysis

Figure 5.3Figure 5.3


Market Commonality and Resource Similarity –

So what? Who cares?

Rivals with market commonality

and resource similarity are

highly likely to respond to the competitive

actions of each other.


Drivers of Competitive Behavior

• Awareness is the extent to which

organizations recognize the degree of their mutual interdependence and the potential threat from their competitive rivalry

AwarenessAwareness


Drivers of Competitive Behavior (cont’d)

• Motivation the intensity of a

firm’s inclination to take action or to respond to a competitor’s attack

relates to perceived gains and losses

may involve egos

AwarenessAwareness

MotivationMotivation



• Ability relates toeach firm’s resources the flexibility these

resources provide

• Without available resources the firm lacks the ability toattack a competitor respond to the

competitor’s actions

AwarenessAwareness


AbilityAbility



• A firm is more likely to attack the rival with whom it has low market commonality

• Given the high stakes of competition under market commonality, there is a high probability that the attacked firm will respond to its competitor’s action in an effort to protect its position

AwarenessAwareness


Market Market CommonaliCommonali

tyty

AbilityAbility



• The greater the resource imbalance between the firms, the greater will be the delay in response by the firm with a resource disadvantage

• When facing competitors with greater resources or more attractive market positions, firms should eventually respond, no matter how challenging the response

Resource Resource DissimilaritDissimilarit

yy

AwarenessAwareness


Market Market CommonaliCommonali

tyty

AbilityAbility


Drivers of Competitive Behavior – So what? Who cares?

Organizations are highly likely to respond to competitive actions when the following conditions are present:

• Market commonality• Resource similarity• Awareness of the competitive threat• Motivation to respond• High ego involvement in the rivalry • Available resources to respond


Factors Affecting Likelihood of Attack

• First movers allocate funds for:

Product innovation and development, aggressive advertising, advanced research and development

• First mover incentives = ? ?• First mover hazards = ? ?

First MoverFirst Mover


Factors Affecting Likelihood of Attack (cont’d)

• Second mover responds to the first mover’s competitive action, typically through imitation: Studies customers’ reactions to

product innovations Tries to find and avoid any

mistakes the first mover made Also avoids the huge

product/market development spending of the first-movers

May develop more efficient processes and technologies


Second Second MoverMover



• Late mover responds to a competitive action only after considerable time has elapsed

• Any success achieved will be slow in coming and much less than that achieved by first and second movers

• Late mover’s competitive action allows it to earn only average returns and delays its understanding of how to create value for customers



Late MoverLate Mover



• Small firms are more likely: To launch offensive competitive

actions

To be quicker in doing so

• Small firms are perceived as: Nimble and flexible competitors

Relying on speed and surprise

Having the flexibility needed to launch a greater variety of competitive actions




OrganizationOrganizational Sizeal Size



• Large organizations commonly have the slack resources required to launch a larger number of total competitive actions

• “Think and act big and we’ll get smaller. Think and act small and we’ll get bigger.”

Herb KelleherFormer CEO, Southwest

Airlines







• Firms with higher quality are more likely to attack

• Product quality can involve performance, features, durability, consistency,image, etc.

• Service quality can involve timeliness, courtesy, convenience, accuracy, completeness, etc.



QualityQuality(Product)(Product)




Summary – Factors that Increase the Likelihood of Competitive Attack

• first mover incentives

• active first movers

• small firms

• firms with high “quality”


Strategic and Tactical Actions

• Strategic action or a strategic response =

• Tactical action or a tactical response =


Likelihood of Response

• Strategic actions generally require strategic responses The time and resources needed

to assess and implement a strategic action delays or even reduces potential response

• Tactical responses are taken to counter the effects of tactical actions Competitor likely will respond

quickly to a tactical actions

Type of Type of Competitive Competitive

ActionAction


Factors Affecting Strategic Response (cont’d)

• An actor is the firm taking an action or response

• Reputable firms are more likely to elicit a response

• Market leaders are more likely to be copied

• Firms that are not well regarded, or price-predators, are less likely to be copied or elicit a response


ActionAction

Actor’s Actor’s ReputationReputation


Factors Affecting Strategic Response (cont’d)

• Market dependence is the extent to which a firm’s revenues or profits are derived from a particular market

• In general, firms can predict that competitors with high market dependence are likely to respond strongly to attacks threatening their market position


ActionAction

Actor’s Actor’s ReputationReputation

Dependence Dependence on the on the marketmarket


Summary – Factors that Increase the Likelihood of Competitive Response

• Actions that are tactical rather than strategic

• The organization initiating the original competitive action is reputable

• High dependency on the market involved


Competitive Dynamics

• Competitive advantages are shielded from imitation for long periods of time and imitation is costly

• Competitive advantages are sustainable in slow-cycle markets

• Firms concentrate on competitive actions and responses to protect, maintain and extend proprietary competitive advantage

Slow-Cycle Slow-Cycle MarketsMarkets


Gradual Erosion of a Sustained Competitive Advantage

Figure 5.4Figure 5.4SOURCE: Adapted from I. C. MacMillan, 1988, Controlling competitive dynamics by taking strategic initiative, Academy of Management Executive, 11(2): 111–118.


Competitive Dynamics (cont’d)

“Hypercompetition”

• The firm’s competitive advantages are not sustainable

• Non-proprietary technology is diffused rapidly, reverse engineering is used to duplicate proprietary technology

• Competitive “one-upsmanship” is rampant

• Firms may need to practice product cannibalism in self-defense


Fast-Cycle Fast-Cycle MarketsMarkets


Obtaining Temporary Advantages to Create Sustained Advantage

SOURCE: Adapted from I. C. MacMillan, 1988, Controlling competitive dynamics by taking strategic initiative, Academy of Management Executive, 11(2): 111–118. Figure 5.5Figure 5.5


Competitive Dynamics (cont’d)

• Moderate cost of imitation may shield competitive advantages.

• Competitive advantages are partially sustainable if their quality is continuously upgraded

• Firms Seek large market shares

Gain customer loyalty through brand names

Carefully control operations


Fast-Cycle Fast-Cycle MarketsMarkets

Standard-Standard-Cycle Cycle

MarketsMarkets


Competitive Rivalry = continuous “play” of offensive and defensive

movesOffensive Moves• To establish a position• To reposition

• Less frequent than defensive moves

• Attacking rivals’ weaknesses is usually more successful

• Attacking rival’s strengths – especially head-on – carries more risk and takes more resources and capabilities

Defensive Moves• To protect an existing

position

Common approaches =• Increase structural barriers

(fill positioning gaps, increase switching costs, increase scale economies, block supplies or channel . .)

• Increase expected retaliation• Lower inducements for

attack

copyright © 2004 south-western. all rights reserved.5–1 figure 1.1 copyright © 2004...

Documents

competitive responses

competitive positions

competitors responses

competitive dynamics

competitors initial

aggressive competitive

multimarket competition

additional actions