1. Competitive Dynamics Latest Revision1

2. The Strategic Management Process Strategy Formulation
Strategic Intent
External
Environment
Internal Environment
Strategic Mission
The Strategic
Management
Process
Strategic
Outcomes
Actions
Strategic
Inputs
Strategy Formulation
Strategy Implementation
Corporate Governance
Structure & Control
Business-level Strategy
Competitive Dynamics
Corporate-Level Strategy
International Strategy
Strategic
Competitiveness
Above Average
Returns
Feedback 10

3. Factors Leading to More Complex Rivalry
Declining emphasis on single, domestic markets and increasing emphasis on global markets
Advances in communication technology make coordination easier across multiple markets
Advances in technology and innovation have increased competitiveness of small and medium sized firms
The competitive landscape of the 21st century will be characterized by increasing globalization, advanced technological development, and other factors that will lead to an environment that is more dynamic and charged with rivalry. Firms will act and react in a dance of sorts, but one involving very high stakes—even survival.
National barriers are falling due to the number and scope of trade agreements (GATT, NAFTA, EEC) 6

4. Definitions Competitors Competitive rivalry
firms operating in the same market, offering similar products and targeting similar customers
Competitive 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 dynamics
the total set of actions and responses taken by all firms competing within a market

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

6. Competitive Rivalry Firms 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 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:
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 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
Outcomes
Market position
Financial performance
Competitive Analysis
Market commonality
Resource similarity
feedback
Interim Rivalry
Likelihood of Attack
First mover incentives
Organizational size
Quality
Likelihood of Response
Type of competitive action
Reputation
Market dependence
Drivers of Competitive
Actions or Responses
Awareness
Motivation
Ability
Teaching Note: Competitive rivalry exists because of competitive asymmetry, which describes the fact that firms differ from one another in terms of their resources, capabilities, core competencies, and the opportunities and threats in their competitive environments and industries. It also is important that firms recognize that competition results in mutual interdependence among firms in the industry (example is the retail industry) as each firm tries to establish a sustainable competitive advantage.
·     As firms strive to achieve strategic competitiveness and earn above-average returns, they must recognize that strategies are not implemented in isolation from competitors’ actions and responses.
The strategic management process represents firms taking a series of actions, fending off counter-actions or responses and developing responses of their own.

9. Competitive Analysis Competitor 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
High
Market
Commonality II I
III IV
Low
KEY
Low
High
The shaded area represents degree of market commonality between two firms
The results of the firm’s competitor analyses can be mapped for visual comparisons. Figure above shows different hypothetical intersections between the firm and individual competitors in terms of market commonality and resource similarity. These intersections indicate the extent to which the firm and those to which it has compared itself are competitors. For example, the firm and its competitor displayed in quadrant I of the Figure have similar types and amounts of resources and use them to compete against each other in many markets that are important to each. These conditions lead to the conclusion that the firms modeled in quadrant I are direct and mutually acknowledged competitors. In contrast, the firm and its competitor shown in quadrant III share few markets and have little similarity in their resources, indicating that they aren’t direct and mutually acknowledged competitors. The firm’s mapping of its competitive relationship with rivals is fluid as firms enter and exit markets and as companies’ resources change in type and amount. Thus, those with whom the firm is a direct competitor change across time.
Resource
Similarity
Resource endowment A
Resource endowment B

11. Resource Similarity Resource 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
Firms with similar types and amounts of resources are likely to
have similar strengths and weaknesses
use similar strategies
Assessing resource similarity
can be difficult if critical resources are intangible rather than tangible

12. Resource Similarity Resource similarity
In most cases, dissimilar resources may increase the likelihood of an attack while firms with similar resources (overlap between their resource portfolios) will be less likely to attack because resource similarity increases the likelihood of retaliation.
The greater the resource imbalance between the acting firm and competitors or potential responders, 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

13. 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
Most industries’ markets are somewhat related in terms of
technologies
core competencies
Multimarket competition
Firms competing in several markets

14. Market Commonality Market commonality
A firm is more likely to attack the rival with whom it has low market commonality than the one with whom it competes in multiple markets
Because of the high stakes of competition under the condition of 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 in one or more markets

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

16. Competitive Actions and Responses (Competitive Behavior)
Strategic 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 response
market-based move that is taken to fine-tune a strategy; it involves fewer resources and is relatively easy to implement and reverse

17. Drivers of Competitive Actions and Responses:
Awareness
Drivers of competitive behavior
Awareness
Awareness refers to whether or not the attacking or responding firm is aware of the competitive market characteristics such as the market commonality and the resource similarity of a potential attacker or respondent;
i.e., is the extent to which competitors recognize the degree of their mutual interdependence resulting from
market commonality
resource similarity
When managers are not aware of these factors or assess them inaccurately, industry over capacity or excessive competition may result.

18. Drivers of Competitive Actions and Responses:
Motivation
Drivers of competitive behavior
Awareness
Motivation concerns the firm’s incentive
to take action
or to respond to a competitor’s attack
and relates to perceived gains and losses
Motivation

19. Drivers of Competitive Actions and Responses:
Ability
Drivers of competitive behavior
Awareness
Ability relates
to each firm’s resources
the flexibility these resources provide
Without available resources the firm lacks the ability
to attack a competitor
to respond to the competitor’s actions
Motivation
Ability

20. Factors Affecting Likelihood of Attack:
First Mover Incentives
First movers can gain
the 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 rivalry
First mover
incentives
First movers allocate funds for:
product innovation and development
aggressive advertising
advanced research and development

21. Factors Affecting Likelihood of Attack:
Size
First mover
incentives
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.
Size
“Think and act big and we’ll get smaller. Think and act small and we’ll get bigger.”
- Herb Kelleher,
Former CEO, Southwest Airlines

22. Factors Affecting Likelihood of Attack:
Quality
First mover
incentives
Quality 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 attribute
While quality is necessary, it is not a sufficient product attribute for firms to achieve strategic competitiveness
Size
Quality

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

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

25. Factors Affecting Likelihood of Response:
Reputation
Type of
competitive
action
Reputation 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 responses
Reputation

26. Factors Affecting Likelihood of Response:
Market Dependence
Type of
competitive
action
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
Reputation
Market
dependence

27. Strategic Conduct is Dynamic
A firm’s strategic conduct is dynamic in nature
Actions and responses shape the competitive positions of each firm’s business level strategy
Firm B
Firm A

28. Strategic Conduct is Dynamic
Actions taken by one firm elicits responses from competitors
Competitive responses lead to additional actions from the firm that acted originally
Firm A
Firm B
New Actions
Actions
New Response
Response

29. strategic conduct is dynamic in nature
A firm’s
strategic conduct is dynamic in nature
Actions taken by one firm elicit responses from competitors
Competitive responses lead to additional actions from the firm that acted originally
Competitive Dynamics
Actions and responses shape the competitive positions of each firm’s business level strategy 12

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

31. Gradual Erosion of a Sustainable Competitive Advantage
Exploitation
Returns from a Sustainable Competitive Advantage
Launch
Counterattack 5 10
Time (Years)

32. Competitive Dynamics:
Fast-Cycle Markets
Slow-cycle
markets
Fast-cycle markets
the firm’s competitive advantages aren’t shielded from imitation
imitation happens quickly and somewhat inexpensively
Competitive advantages aren’t sustainable
Competitors use reverse engineering to quickly imitate or improve on the firm’s products
Non-proprietary technology is diffused rapidly
Fast-cycle
markets
Examples of firms in this Fast-cycle market: Palm-size cellular phones (Mototola), Sony Walkman – Sony has introduced 160 models of the walkman over the past decade to sustain its identity against an onslaught of Walkman clones.

33. Obtaining Temporary Advantages to Create Sustained Advantage
Firm has already moved to next advantage
Exploitation
Returns from a Series of Replicable Actions
Launch
Counterattack 5 10 15
Time (Years)

34. Competitive Dynamics:
Standard-Cycle Markets
Slow-cycle
markets
Standard-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 quality of its competitive advantages
Firms
seek large market shares
gain customer loyalty through brand names
carefully control operations
Fast-cycle
markets
Standard-cycle
markets
Examples: Automobile, appliances

35. An Action-Based Model of the
Industry Life Cycle
Key Task
Exploiting Open Niches (Blind Spots) and Competitive Uncertainty
Entrepreneurial Actions
Key Task
Growth-Oriented
Actions
Exploiting Factors of Production
Key Task
Market-Power
Actions
Exploiting Market Position
Firm Resource
&
Market Strength
Emerging Stage
Growth Stage
Mature Stage
Time 75