1. 1 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 –rivalry affects a firm’s ability to gain and sustain competitive advantages

2. 2 Definitions Competitive behaviorCompetitive behavior –the actions and responses the firm takes to build or defend its competitive advantages and to increase market power Competitive dynamicsCompetitive dynamics –the total of actions and responses taken by all firms competing within a market

3. 3 From Competitors to Competitive Dynamics Competitors Through competitiveThrough competitivebehavior actionsactions responsesresponses To gain improvedTo gain improved market position/power Competitive Dynamics Competitive actions and responses taken by allCompetitive actions and responses taken by all firms competing in a market Competitiverivalry Engage in What results? Why? How?

4. 4 Effect of Competitive Rivalry on a Firm’s Strategies Success of a competitive move is determined by:Success of a competitive move is determined by: –the firm’s initial competitive actions –how well the firm anticipates competitors’ responses –how well the firm 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. –Is primarily concerned with capabilities/resources

5. 5 Model of Competitive Rivalry Competitive Analysis Market commonalityMarket commonality Resource similarityResource similarity Drivers of Competitive Behavior 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

6. 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 Success depends on individual strategies (deployment of capabilities/resources) and the consequences of their useSuccess depends on individual strategies (deployment of capabilities/resources) and the consequences of their use

7. 7 Competitor Analysis Competitor analysisCompetitor analysis –a technique firms use to understand their competitive environment – think of competitive environment as the industry and general environments in motion. –a technique used to help the firm identigy/understand its competitors –the first step in predicting competitors’ behavior (competitive actions and responses)

8. 8 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 Industries’ markets are related in terms ofIndustries’ markets are related in terms of –technologies –core competencies Multimarket competitionMultimarket competition –Firms competing in several overlapping markets

9. 9 Resource Similarity Resource similarityResource similarity –How comparable are the resources deployed by a firm and the resources deployed by that firm’s competitors (in both type and amount)? Firms with similar types/amounts of resources are likely to:Firms with similar types/amounts of resources are likely to: –have similar strengths and weaknesses –use similar strategies (deploy resources in the same way) Assessing resource similarity can be difficult if critical resources are intangible rather than tangibleAssessing resource similarity can be difficult if critical resources are intangible rather than tangible

10. 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. 11 Source: J. McGill 2005 Tech Knowledge & Alliances Among Competitors, Int’l Journal of Technology Management

12. 12 Drivers of Competitive Behavior Awareness is the extent to which competitors recognize the degree of their mutual interdependenceAwareness is the extent to which competitors recognize the degree of their mutual interdependence –mutual interdependence results from market commonalitymarket commonality resource similarityresource similarity current & future!current & future! Awareness

13. 13 Motivation Drivers of Competitive Behavior 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 Awareness

14. 14 Ability Drivers of Competitive Behavior Ability relatesAbility relates –to each firm’s resources –the flexibility these resources provide Without available resources the firm lacks the abilityWithout available resources the firm lacks the ability –to attack a competitor –to respond to the competitor’s actions Awareness Motivation

15. 15 Drivers of Competitive Behavior 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 marketsA 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 potential loss of market power under market commonality, there is a high probability that the attacked firm will respond to its competitor’s action to protect its positionBecause of the potential loss of market power under market commonality, there is a high probability that the attacked firm will respond to its competitor’s action to protect its position Marketcommonality

16. 16 Resourcesimilarity Drivers of Competitive Behavior The greater the resource imbalance between the acting firm and competitors, the greater the delay in response by the firm with a resource disadvantageThe greater the resource imbalance between the acting firm and competitors, the greater the delay in response by the firm with a resource disadvantage So, when facing competitors with greater resources or more attractive market positions, firms should eventually respond, no matter how challenging the responseSo, when facing competitors with greater resources or more attractive market positions, firms should eventually respond, no matter how challenging the response Marketcommonality

17. 17 Strategic and Tactical Actions 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

18. 18 Likelihood of Attack: First movers’ resourcesFirst movers’ resources –product innovation and development –aggressive advertising –R&D First movers can gainFirst movers can gain –customer loyalty –Network effects market share that can be difficult for competitors to take during future competitive rivalry First mover incentives

19. 19 Size Likelihood of Attack: Small firms are more likelySmall firms are more likely –to launch competitive actions –to be quicker in doing so Small firms -Small firms - –nimble and flexible –use speed and surprise to defend their competitive advantages or develop new ones –Potentially launch a greater variety of competitive actions First mover incentives

20. 20 Likelihood of Attack: Large firms are likely to initiate more strategic & tactical actionsLarge firms are likely to initiate more strategic & tactical actions Large firms often have slack resources required to launch a larger number of total competitive actionsLarge firms often have slack resources required to launch a larger number of total competitive actions First mover incentives 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 - Herb Kelleher, Former CEO, Southwest Airlines

21. 21 Likelihood of Response Firms study three factors to predict how a competitor is likely to respond to competitive actionsFirms study three factors to predict how a competitor is likely to respond to competitive actions –type of competitive action –reputation –market dependence

22. 22 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 implement and assess a strategic action delays competitors’ responsesThe time needed to implement and assess a strategic action delays competitors’ responses Type of competitiveaction

23. 23 Reputation Likelihood of Response: An actor is the firm taking an action or responseAn actor is the firm taking an action or 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

24. 24 Marketdependence Likelihood of Response: Market dependence isMarket dependence is –the extent to which a firm’s revenues or profits are derived from a particular market Firms can assume that competitors with high market dependence are likely to respond strongly to attacks threatening their market positionFirms can assume that competitors with high market dependence are likely to respond strongly to attacks threatening their market position Type of competitiveaction Reputation

25. 25 Competitive Dynamics: Slow-cycle marketsSlow-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 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

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

27. 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

28. 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. 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 quality of its competitive advantagesCompetitive advantages are partially sustainable if the firm is able to continuously upgrade the quality of its competitive advantages FirmsFirms –seek large market shares –gain customer loyalty through brand names –carefully control operations Slow-cyclemarkets Fast-cyclemarkets Standard-cyclemarkets