1. Chapter 5 – Competitive Rivalry & Competitive Dynamics

2. Competitive Strategy One firm’s actions rarely go unnoticed by rivals
“Know yourself, know your opponents; encounter a hundred battles, win a hundred victories.”
Sun Tzu, “The Art of War”, approx. 500 BC
One firm’s actions rarely go unnoticed by rivals
Therefore, firms not only need to know their own strengths and weaknesses before acting, but also predict the kind of response competitors are likely to make

3. Rivalry’s Effect on Strategy
Success of a strategy is determined by:
The firm’s initial competitive actions
How well it anticipates competitors’ responses
How well the firm anticipates and responds to its competitors’ initial actions
Competitive rivalry:
Affects all types of strategies
Has the strongest influence on the firm’s business-level strategy or strategies

4. A Model of Competitive Rivalry
Firms are mutually interdependent
A firm’s competitive actions have noticeable effects on its competitors
A firm’s competitive actions elicit competitive responses from its competitors
Competitors feel each other’s actions and responses
Marketplace success is a function of both individual strategies and the consequences of their use!

5. Competitive Rivalry vs. Dynamics
Competitive Rivalry (individual firms)
Market commonality and resource similarity
Awareness, motivation, and ability
First mover advantages and firm size
Competitive Dynamics (all firms)
Market speed (slow-cycle, fast-cycle, and standard-cycle)
Effects of market speed on actions and responses of all competitors in the market

6. A Model of Competitive Rivalry
Source: Adapted from Chen, M.-J. (1996): “Competitor analysis and interfirm rivalry: Toward a theoretical integration”, Academy of Management Review, 21: 100–134.

7. Competitor Analysis Market Commonality Resource Similarity
Each industry composed of various markets which can be subdivided into (segments)
I.e., Financial industry
Resource Similarity
How comparable the firm’s tangible and intangible resources are to a competitor’s in terms of both types and amounts.
I.e., FedEx and UPS – both have efficient operations and focus on cost reduction
Firms with similar types and amounts of resources are likely to:
Have similar strengths and weaknesses.
Use similar strategies.
Combination of market commonality & resource similarity indicate a firm’s direct competitors

8. A Framework of Competitor Analysis
Source: Adapted from M.-J. Chen, 1996, Competitor analysis and interfirm rivalry: Toward a theoretical integration, Academy of Management Review, 21: 100–134.

9. Market Commonality Market Commonality
A firm is more likely to attack a rival with whom it has low market commonality than one with whom it competes in multiple markets
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 effort to protect its position in one or more markets
Market Commonality

10. Resource Similarity Resource Similarity
The greater the resource imbalance between the acting firm and competitors, 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 Similarity

11. A Model of Competitive Rivalry
Source: Adapted from Chen, M.-J. (1996): “Competitor analysis and interfirm rivalry: Toward a theoretical integration”, Academy of Management Review, 21: 100–134.

12. Drivers of Competitive Behavior
Awareness is: extent to which competitors recognize degree of their mutual interdependence that results from market commonality and resource similarity
Motivation concerns: the firm’s incentive to take action or to respond to a competitor’s attack and relates to perceived gains and losses
Ability relates to: Firm's resources that allow competitive action and flexibility responsiveness
Awareness
Motivation
Ability

13. A Model of Competitive Rivalry
Source: Adapted from Chen, M.-J. (1996): “Competitor analysis and interfirm rivalry: Toward a theoretical integration”, Academy of Management Review, 21: 100–134.

14. Competitive Timing First Mover First movers can gain:
The loyalty of customers who may become committed to firm’s goods or services
Market share that can be difficult for competitors to take during future competitive rivalry

15. Second Mover First Mover Second Mover
Second mover responds to first mover’s competitive action, typically through imitation:
Studies customers’ reactions to product innovations
Tries to find mistakes first mover made, and avoid them
Can avoid huge spending of first-movers
May develop more efficient processes and technologies
Second Mover

16. Late Mover First Mover Second Mover Late Mover
Late mover responds to 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
Second Mover
Late Mover

17. 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

18. Organizational Size - Small Firms
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
“Think and act big and we’ll get smaller. Think and act small and we’ll get bigger.” (Herb Kelleher, Former CEO of Southwest Airlines)
Organizational Size

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

20. Factors Affecting Response
Type of Competitive Action
Reputation is positive or negative attribute ascribed by one rival to another based on past competitive behavior
Firm studies responses that competitor has taken previously when attacked to predict likely responses
Actor’s Reputation

21. Factors Affecting Response
Type of Competitive Action
Market dependence is extent to which firm’s revenues or profits are derived from particular market
In general, firms can predict that competitors with high market dependence are likely to respond strongly to attacks threatening their market position
Actor’s Reputation
Dependence on the market

22. Slow-cycle markets
Gradual Erosion of a Sustained Competitive Advantage
Markets in which the firm's competitive advantages are shielded from imitation for long periods of time

23. Fast-cycle Markets
Developing Temporary Advantages to Create Sustained Advantage
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