Competing For Advantage Part III – Creating Competitive Advantage Chapter 6 – Competitive Rivalry and Competitive Dynamics

The Strategic Management Process

Competitive Rivalry Key Terms Competitors – firms operating in the same market, offering similar products and targeting similar customers Competitive Rivalry – ongoing set of competitive actions and competitive responses occurring between competitors as they contend with each other for an advantageous market position Competitive Behavior – set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position

Competitive Rivalry Key Terms Competitive Dynamics – total set of actions and responses of all firms competing within a market Multimarket Competition – firms competing against one another in several product or geographic markets

From Competitors to Competitive Dynamics

Model of Competitive Rivalry

Intensity of Rivalry The total number of competitors Market characteristics Quality of individual firms' strategies Drivers of competitive behavior

Competitor Determinants Market Commonality Resource Similarity

Market Commonality Key Terms Market Commonality – number of markets with which the firm and a competitor are jointly involved, and degree of importance of the individual markets to each firm

Resource Similarity Key Terms Resource Similarity – extent to which the firm's tangible and intangible resources are comparable to competitors' resources in terms of both type and amount

Framework of Competitive Analysis

Drivers of Competitive Actions and Responses Awareness Motivation Ability Resource Dissimilarity

Strategic and Tactical Actions Key Terms Competitive Action – strategic or tactical action the firm takes to build or defend its competitive advantages or improve its market position Competitive Response – strategic or tactical action the firm takes to counter the effects of a competitor's action Tactical Action (or Response) – market- based the firms takes in order to fine-tune a strategy

Differences Between Strategic and Tactical Actions/Responses Strategic actions/responses – market-based moves (difficult to implement and reverse) that signify a significant commitment of organizational resources to pursue a specific strategy Tactical actions/responses – market-based moves (easy to implement and reverse) that involve fewer resources to fine-tune a strategy that is already in place

Likelihood of Attack First mover incentives Organizational size Quality

Timing of Competitive Behavior Key Terms First Mover – firm that takes an initial competitive action to build or to defend its competitive advantages or to improve its market position Second Mover – firm that responds to first mover's competitive action, typically through imitation Late Mover – firm that responds to competitive action, but only after time has elapsed since first mover's action and second mover's response

Timing of Competitive Behavior Key Terms Slack – buffer or cushion provided by actual or obtainable resources not currently used by an organization, resources in excess of the minimum those needed to produce a given level of output

First Mover – Characteristics Often builds upon a strategic foundation of superior research and development skills Tends to be aggressive and willing to experiment with innovation Tends to take higher, yet reasonable, risks Needs to have liquid resources (slack) that can be quickly allocated to support actions

First Mover – Benefits Above-average returns Customer loyalty An early hold on market share

First Mover – Risks Difficulty in accurately estimating potential returns Substantial costs of product innovation, which reduce slack available for other opportunities Lower likelihood of introducing (or converting to) the product that becomes the industry standard as the market evolves

Second Mover – Characteristics Responds to first mover, typically through imitation Is more cautious than first movers Tends to study customer reactions to product innovations Tends to learn from the mistakes of first movers, reducing its risks Takes advantage of time to develop processes and technologies that are more efficient than first movers, reducing its costs Will not benefit from first mover advantages, lowering potential returns

Late Mover – Characteristics Responds to market opportunities only after considerable time has elapsed since first and second movers have taken action Has substantially reduced risks and returns

Organizational Size Small firms Act as nimble and flexible competitors Rely on speed and surprise to defend their competitive advantage Have greater variety of competitive behavior options available

Organizational Size Large firms Often have greater slack Have greater likelihood to initiate competitive and strategic actions over time Tend to rely on a limited variety of competitive actions, which can ultimately reduce their competitive success

Quality Key Terms Quality – customer perception that the firm's goods or services perform in ways that are important to customers, meeting or exceeding their expectations

Quality

Likelihood of Response Types and effectiveness of the competitive action Reputation of the firm that takes competitive actions Dependence on the market If the action significantly strengthens or weakens the firm's competitive position

Actor’s Reputation Key Terms Actor – firm taking an action or response (in the context of competitive rivalry) Reputation – positive or negative attribute ascribed by one rival to another based on past competitive behavior

Dependence on the Market Key Terms Market Dependence – extent to which a firm's revenues or profits are derived from a particular market

Competitive Dynamics – Three Market Types Slow-cycle markets Fast-cycle markets Standard-cycle markets

Slow-Cycle Markets Key Terms Slow-Cycle Markets – markets in which the firm's competitive advantages are shielded from imitation for long periods of time, and in which imitation is costly

Slow-Cycle Markets Build a one-of-a-kind competitive advantage that is proprietary and difficult for competitors to understand (creating sustainability) Once a proprietary advantage is developed, competitive behavior should be oriented to protecting, maintaining, and extending that advantage Organizational structure should be used to effectively support strategic efforts

Slow-Cycle Markets

Fast-Cycle Markets Key Terms Fast-Cycle Markets – markets in which the firm's capabilities that contribute to competitive advantages are not shielded from imitation and where imitation is often rapid and inexpensive

Fast-Cycle Markets Focus on learning how to rapidly and continuously develop new competitive advantages that are superior to those they replace (creating innovation) Avoid loyalty to any of their products, possibly cannibalizing their own current products to launch new ones before competitors learn how to do so through successful imitation Continually try to move on to another temporary competitive advantage before competitors can respond to the first one

Fast-Cycle Markets

Standard-Cycle Markets Key Terms Standard-Cycle Markets – markets in which the firm's competitive advantages are moderately shielded from imitation and where imitation is moderately costly

Standard-Cycle Markets Have competitive advantages that can be partially sustained when their quality is continuously upgraded Seek to serve many customers and gain a large market share Gain brand loyalty through brand names Carefully control operations to manage a consistent experience for the customer

Ethical Questions When competing against one another, firms jockey for a market position that is advantageous, relative to competitors. In this jockeying, what are the ethical implications associated with the way competitor intelligence is gathered?

Ethical Questions Second movers often respond to a first mover’s competitive actions through imitation. Is there anything unethical about a company imitating a competitor’s good or service as a means of engaging in competition?

Ethical Questions The standards for competitive rivalry differ in countries throughout the world. What should firms do to cope with these differences? What guidance should a firm give to employees as they deal with competitive actions and competitive responses that are ethical in one country but unethical in others?

Ethical Questions In slow-cycle markets, effective competitors are able to shield their competitive advantages from imitation by competitors for long periods of time. But this isn’t the case in fast-cycle markets. Do these conditions have implications in terms of ethical business practices? Can what is considered ethical in slow-cycle markets be different from what is considered ethical in fast-cycle markets?

Ethical Questions A firm competes against another organization in several markets. Is it ethical for the firm to launch a competitive response in a market that differs from the one in which that competitor took a competitive action against the local firm? Why or why not?