1. Competitive Dynamics Latest Revision

2. The Strategic ManagementProcess ManagementProcess Strategic Intent External Environment Internal Environment Strategic Mission Strategy Formulation Strategy Implementation Strategic Inputs Feedback Strategic Outcomes StrategicActions Strategic Competitiveness Above Average Returns Business-level Strategy Competitive Dynamics Corporate-Level Strategy International Strategy Corporate Governance Structure & Control

3. Definitions CompetitorsCompetitors –firms operating in the same market, offering similar products and targeting similar customers Competitive rivalryCompetitive rivalry –the ongoing set of competitive actions and responses occurring between competitors –competitive rivalry influences an individual firm’s ability to gain and sustain competitive advantages Competitive dynamicsCompetitive dynamics –the total set of actions and responses taken by all firms competing within a market

4. Declining emphasis on single, domestic markets and increasing emphasis on global markets Advances in communication technology make coordination easier across multiple markets Increased competitiveness of small and medium sized firms National barriers are falling due to the number and scope of trade agreements (GATT, NAFTA, EEC) Factors Leading to More Complex Rivalry

5. From Competitors to Competitive Dynamics Competitors Competitive actionsCompetitive actions Competitive responsesCompetitive responses (Competitive Behavior) To gain an advantageousTo gain an advantageous market position Competitive Dynamics Competitiverivalry What results? Why? How? Engage in

6. Competitive Rivalry Firms are mutually interdependentFirms are mutually interdependent –one firm’s competitive actions have noticeable effects on competitors –one firm’s competitive actions elicit competitive responses from competitors –competitors feel each other’s actions and responses Marketplace successMarketplace success –is a function of both individual strategies and the consequences of their use

7. Effect of Competitive Rivalry on a Firm’s Strategies Success of a strategy is determined by:Success of a strategy is determined by: –the firm’s initial competitive actions –how well it anticipates competitors’ responses to them –how well the firm anticipates and responds to its competitors’ initial actions Competitive rivalryCompetitive rivalry –affects all types of strategies –most dominant influence is on the firm’s business- level strategy or strategies.

8. A Model of Competitive Rivalry Competitive Analysis Market commonalityMarket commonality Resource similarityResource similarity Drivers of Competitive Actions or Responses AwarenessAwareness MotivationMotivation AbilityAbility Interim 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 Outcomes Market positionMarket position Financial performanceFinancial performance feedback

9. Competitive Analysis Competitor analysisCompetitor analysis –a technique firms use to understand their competitive environment. Along with the general and industry environments, the competitive environment comprises the firm’s external environment –a technique used to help the firm understand its competitors –the first step to being able to predict competitors’ behavior in the form of its competitive actions and responses

10. A Framework of Competitor Analysis MarketCommonality High Low LowHigh ResourceSimilarity The shaded area represents degree of market commonality between two firms Resource endowment B Resource endowment A KEY III IIIIV

11. Resource Similarity Resource similarityResource similarity –the extent to which the firm’s tangible and intangible resources are comparable to a competitor’s in terms of both type and amount Assessing resource similarityAssessing resource similarity –can be difficult if critical resources are intangible rather than tangible Resourcesimilarity

12. Market Commonality Market Commonality is concerned withMarket 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 Multimarket competitionMultimarket competition –Firms competing in several markets Marketcommonality

13. Market Commonality & Resource Similarity Affect the Drivers of Competitive Actions and Responses: AwarenessAwareness is the extent to which competitors recognize the degree of their mutual interdependence resulting in industry over capacity or excessive competition. MotivationMotivation Motivation concerns the firm’s incentiveMotivation concerns the firm’s incentive –to take action –or to respond to a competitor’s attack –and relates to perceived gains and losses AbilityAbility Ability relatesAbility relates –to each firm’s resources –the flexibility these resources provide

14. Competitive Actions and Responses (Competitive Behavior) Competitive actionCompetitive action –a strategic or tactical action the firm takes to build or defend its competitive advantages or improve its market position Competitive responseCompetitive response –a strategic or tactical action the firm takes to counter the effects of a competitor’s competitive action

15. Strategic action or a strategic responseStrategic action or a strategic response –a market-based move that involves a significant commitment of organizational resources and is difficult to implement and reverse Tactical action or a tactical responseTactical action or a tactical response –market-based move that is taken to fine-tune a strategy; it involves fewer resources and is relatively easy to implement and reverse Competitive Actions and Responses (Competitive Behavior)

16. Factors Affecting Likelihood of Attack: First movers can gain the loyalty of customers who may become committed to the firm’s goods or servicesthe loyalty of customers who may become committed to the firm’s goods or services market share that can be difficult for competitors to take during future competitive rivalrymarket share that can be difficult for competitors to take during future competitive rivalry First mover incentives First Mover Incentives

17. Size Factors Affecting Likelihood of Attack: Large organizations commonly have the slack resources required to launch a larger number of total competitive actions. However, smaller firms have the flexibility needed to launch a greater variety of competitive actions.Large organizations commonly have the slack resources required to launch a larger number of total competitive actions. However, smaller firms have the flexibility needed to launch a greater variety of competitive actions. Thus, the competitive actions a firm will likely encounter from larger competitors will be different than the competitive actions it will encounter from smaller competitors.Thus, the competitive actions a firm will likely encounter from larger competitors will be different than the competitive actions it will encounter from smaller competitors. First mover incentives Size

18. Quality Factors Affecting Likelihood of Attack: Quality exists when the firm’s goods or services meet or exceed customers’ expectationsQuality exists when the firm’s goods or services meet or exceed customers’ expectations Product quality is no longer a competitive issue but a necessary or mandatory product attributeProduct quality is no longer a competitive issue but a necessary or mandatory product attribute While quality is necessary, it is not a sufficient product attribute for firms to achieve strategic competitivenessWhile quality is necessary, it is not a sufficient product attribute for firms to achieve strategic competitiveness First mover incentives Size Quality

19. Quality Factors Affecting Likelihood of Attack: First mover incentives Size Quality Product quality dimensions includeProduct quality dimensions include –Performance & Conformance –Features, Aesthetics, Perceived quality –Reliability, Durability, Serviceability Service quality dimensions include Service quality dimensions include –Timeliness, Courtesy, Convenience –Accuracy, Completeness, Consistency

20. Factors Affecting Likelihood of Response: Strategic actions receive strategic responsesStrategic actions receive strategic responses Tactical responses are taken to counter the effects of tactical actionsTactical responses are taken to counter the effects of tactical actions Strategic actions elicit fewer total competitive responsesStrategic actions elicit fewer total competitive responses A competitor likely will respond quickly to a tactical actionA competitor likely will respond quickly to a tactical action The time needed to assess and implement a strategic action delays competitors’ responsesThe time needed to assess and implement a strategic action delays competitors’ responses Type of competitiveaction Type of Competitive Action

21. Reputation Factors Affecting Likelihood of Response: Reputation is the positive or negative attribute ascribed by one rival to another based on past competitive behaviorReputation is the positive or negative attribute ascribed by one rival to another based on past competitive behavior The firm studies responses that a competitor has taken previously when attacked to predict likely responsesThe firm studies responses that a competitor has taken previously when attacked to predict likely responses Type of competitiveaction Reputation

22. Marketdependence Factors Affecting Likelihood of Response: Market dependence isMarket 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 positionIn general, firms can predict that competitors with high market dependence are likely to respond strongly to attacks threatening their market position Type of competitiveaction Reputation Market Dependence

23. Firm B Firm A Strategic Conduct is Dynamic A firm’s strategic conduct is dynamic in nature Actions taken by one firm elicits responses from competitors Competitive responses lead to additional actions from the firm that acted originally Actions Response New Actions New Response

24. Actions and responses shape the competitive positions of each firm’s business level strategy Actions taken by one firm elicit responses from competitors A firm’s strategic conduct is dynamic in nature Competitive responses lead to additional actions from the firm that acted originally Competitive Dynamics

25. Competitive Dynamics: Slow-cycle marketsSlow-cycle markets –the firm’s competitive advantages are shielded imitation for long of time –the firm’s competitive advantages are shielded from imitation for long periods of time –imitation is costly Competitive advantages are sustainable in slow-cycle marketsCompetitive advantages are sustainable in slow-cycle markets A proprietary, one-of-a-kind competitive advantage leads to competitive success in a slow-cycle marketA proprietary, one-of-a-kind competitive advantage leads to competitive success in a slow-cycle market Slow-cyclemarkets Slow-Cycle Markets

26. Gradual Erosion of a Sustainable Competitive Advantage Returns from a Sustainable Competitive Advantage Time (Years) 0 510Launch Exploitation Counterattack

27. Fast-cyclemarkets Competitive Dynamics: Fast-cycle marketsFast-cycle markets –the firm’s competitive advantages aren’t shielded from imitation –imitation happens quickly and somewhat inexpensively Competitive advantages aren’t sustainableCompetitive advantages aren’t sustainable Competitors use reverse engineering to quickly imitate or improve on the firm’s productsCompetitors use reverse engineering to quickly imitate or improve on the firm’s products Non-proprietary technology is diffused rapidlyNon-proprietary technology is diffused rapidly Slow-cyclemarkets Fast-Cycle Markets

28. Obtaining Temporary Advantages to Create Sustained Advantage Returns from a Series of Replicable Actions Time (Years) 0 5 1015Launch Exploitation Counterattack Firm has already moved to next advantage

29. Competitive Dynamics: Standard-cycle marketsStandard-cycle markets –the firm’s competitive advantages may be shielded from imitation –imitation is moderately costly Competitive advantages are partially sustainable if the firm is able to continuously upgrade the significance of its competitive advantagesCompetitive advantages are partially sustainable if the firm is able to continuously upgrade the significance of its competitive advantages FirmsFirms –seek large market shares –gain customer loyalty through brand names –carefully control operations Slow-cyclemarkets Fast-cyclemarkets Standard-cyclemarkets Standard-Cycle Markets

30. An Action-Based Model of the Industry Life Cycle Key Task Exploiting Open Niches (Blind Spots) and Competitive Uncertainty Entrepreneurial Actions Key Task Growth-OrientedActions Exploiting Factors of Production Key Task Market-PowerActions Exploiting Market Position Firm Resource & Market Strength Market Strength Emerging Stage Growth Stage Mature Stage Time