1. The Strategic Management Process
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Figure 1.1
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2. Chapter 5: Competitive Rivalry
Multi-market (“multi-point”) competition
Competitive dynamics
Factors that increase the likelihood of competitive response (or attack)
First movers; second movers; late movers
Strategic actions; tactical actions
Fast cycle; slow cycle; standard cycle markets
Offensive moves; defensive moves
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3. Effective Strategies . . . . address external trends
pursue concrete opportunities
acknowledge external threats
rely on core capabilities
do not rely on weaknesses
are conscientiously implemented
are continually fine-tuned
outsmart rivals
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4. Competitive Rivalry = the ongoing set of competitive actions
and competitive responses
occurring between competitors.
One interesting result is that
competing firms are mutually interdependent,
especially when
“multi-market competition”
is present.
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5. Multi-market Competition =
firms competing against each other in several product areas, and/or
several geographic markets.
Multi-market competition creates
a more complex form of rivalry,
which can actually reduce aggressive competitive attacks between the rivals.
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6. From Competitors to Competitive Dynamics
SOURCE: Adapted from M.-J. Chen, 1996, Competitor analysis and interfirm rivalry: Toward a theoretical integration, Academy of Management Review, 21: 100–134.
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Figure 5.1

7. Competitive Dynamics . . .
Actions taken by one firm elicit responses from competitors.
Competitive responses lead to additional actions from the firm that acted originally.
Actions and responses shape the competitive positions of each firm’s business-level strategy.
Strategies are not fully pre-planned, but are dynamic and evolving in response to competition and other factors.
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8. 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
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9. A Model of Competitive Rivalry
SOURCE: Adapted from M.-J. Chen, 1996, Competitor analysis and interfirm rivalry:Toward a theoretical integration, Academy of Management Review, 21: 100–134.
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Figure 5.2

10. Competitor Analysis (= )
Competitor analysis is used to help a firm understand its competitors
The firm studies competitors’ future objectives, current strategies, assumptions, and capabilities
With the analysis, a firm is better able to predict competitors’ behaviors when forming its competitive actions and responses
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11. 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
Firms competing against one another in several or many markets engage in multimarket competition
A firm with greater multimarket contact is less likely to initiate an attack, but more likely to more respond aggressively when attacked
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12. Resource Similarity Resource Similarity
How comparable the firm’s tangible and intangible resources are to a competitor’s in terms of both types and amounts
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
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13. A Framework of Competitor Analysis
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Figure 5.3

14. Market Commonality and Resource Similarity – So what? Who cares?
Rivals with market commonality
and resource similarity are
highly likely to respond to the competitive
actions of each other.
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15. A Model of Competitive Rivalry
SOURCE: Adapted from M.-J. Chen, 1996, Competitor analysis and interfirm rivalry:Toward a theoretical integration, Academy of Management Review, 21: 100–134.
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Figure 5.2

16. Drivers of Competitive Behavior
Awareness
Awareness is
the extent to which organizations recognize the degree of their mutual interdependence and the potential threat from their competitive rivalry
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17. Drivers of Competitive Behavior (cont’d)
Awareness
Motivation
the intensity of a firm’s inclination to take action or to respond to a competitor’s attack
relates to perceived gains and losses
may involve egos
Motivation
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18. Drivers of Competitive Behavior (cont’d)
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
respond to the competitor’s actions
Motivation
Ability
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19. Drivers of Competitive Behavior (cont’d)
Awareness
A firm is more likely to attack the rival with whom it has low market commonality
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 an effort to protect its position
Motivation
Ability
Market Commonality
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20. Drivers of Competitive Behavior (cont’d)
Awareness
The greater the resource imbalance between the firms, 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
Motivation
Ability
Market Commonality
Resource Dissimilarity
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21. Drivers of Competitive Behavior – So what? Who cares?
Organizations are highly likely to respond to competitive actions when the following conditions are present:
Market commonality
Resource similarity
Awareness of the competitive threat
Motivation to respond
High ego involvement in the rivalry
Available resources to respond
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22. A Model of Competitive Rivalry
SOURCE: Adapted from M.-J. Chen, 1996, Competitor analysis and interfirm rivalry:Toward a theoretical integration, Academy of Management Review, 21: 100–134.
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Figure 5.2

23. Factors Affecting Likelihood of Attack
First Mover
First movers allocate funds for:
Product innovation and development, aggressive advertising, advanced research and development
First mover incentives = ?
First mover hazards =
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24. Factors Affecting Likelihood of Attack (cont’d)
First Mover
Second mover responds to the first mover’s competitive action, typically through imitation:
Studies customers’ reactions to product innovations
Tries to find and avoid any mistakes the first mover made
Also avoids the huge product/market development spending of the first-movers
May develop more efficient processes and technologies
Second Mover
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25. Factors Affecting Likelihood of Attack (cont’d)
First Mover
Late mover responds to a 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
Late mover’s competitive action allows it to earn only average returns and delays its understanding of how to create value for customers
Second Mover
Late Mover
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26. Factors Affecting Likelihood of Attack (cont’d)
First Mover
Small firms are more likely:
To launch offensive competitive actions
To be quicker in doing so
Small firms are perceived as:
Nimble and flexible competitors
Relying on speed and surprise
Having the flexibility needed to launch a greater variety of competitive actions
Second Mover
Late Mover
Organizational Size
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27. Factors Affecting Likelihood of Attack (cont’d)
First Mover
Large organizations commonly have the slack resources required to launch a larger number of total competitive actions
“Think and act big and we’ll get smaller. Think and act small and we’ll get bigger.” Herb Kelleher Former CEO, Southwest Airlines
Second Mover
Late Mover
Organizational Size
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28. Factors Affecting Likelihood of Attack (cont’d)
First Mover
Firms with higher quality are more likely to attack
Product quality can involve performance, features, durability, consistency,image, etc.
Service quality can involve timeliness, courtesy, convenience, accuracy, completeness, etc.
Second Mover
Late Mover
Organizational Size
Quality (Product)
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29. Summary – Factors that Increase the Likelihood of Competitive Attack
first mover incentives
active first movers
small firms
firms with high “quality”
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30. A Model of Competitive Rivalry
SOURCE: Adapted from M.-J. Chen, 1996, Competitor analysis and interfirm rivalry:Toward a theoretical integration, Academy of Management Review, 21: 100–134.
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Figure 5.2

31. Strategic and Tactical Actions
Strategic action or a strategic response =
Tactical action or a tactical response =
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32. Likelihood of Response
Type of Competitive Action
Strategic actions generally require strategic responses
The time and resources needed to assess and implement a strategic action delays or even reduces potential response
Tactical responses are taken to counter the effects of tactical actions
Competitor likely will respond quickly to a tactical actions
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33. Factors Affecting Strategic Response (cont’d)
Type of Competitive Action
An actor is the firm taking an action or response
Reputable firms are more likely to elicit a response
Market leaders are more likely to be copied
Firms that are not well regarded, or price-predators, are less likely to be copied or elicit a response
Actor’s Reputation
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34. Factors Affecting Strategic Response (cont’d)
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
Actor’s Reputation
Dependence on the market
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35. Summary – Factors that Increase the Likelihood of Competitive Response
Actions that are tactical rather than strategic
The organization initiating the original competitive action is reputable
High dependency on the market involved
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36. A Model of Competitive Rivalry
SOURCE: Adapted from M.-J. Chen, 1996, Competitor analysis and interfirm rivalry:Toward a theoretical integration, Academy of Management Review, 21: 100–134.
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Figure 5.2

37. Competitive Dynamics
Slow-Cycle Markets
Competitive advantages are shielded from imitation for long periods of time and imitation is costly
Competitive advantages are sustainable in slow-cycle markets
Firms concentrate on competitive actions and responses to protect, maintain and extend proprietary competitive advantage
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38. Gradual Erosion of a Sustained Competitive Advantage
SOURCE: Adapted from I. C. MacMillan, 1988, Controlling competitive dynamics by taking strategic initiative, Academy of Management Executive, 11(2): 111–118.
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Figure 5.4

39. Competitive Dynamics (cont’d)
Slow-Cycle Markets
“Hypercompetition”
The firm’s competitive advantages are not sustainable
Non-proprietary technology is diffused rapidly, reverse engineering is used to duplicate proprietary technology
Competitive “one-upsmanship” is rampant
Firms may need to practice product cannibalism in self-defense
Fast-Cycle Markets
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40. Obtaining Temporary Advantages to Create Sustained Advantage
SOURCE: Adapted from I. C. MacMillan, 1988, Controlling competitive dynamics by taking strategic initiative, Academy of Management Executive, 11(2): 111–118.
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Figure 5.5

41. Competitive Dynamics (cont’d)
Slow-Cycle Markets
Moderate cost of imitation may shield competitive advantages.
Competitive advantages are partially sustainable if their quality is continuously upgraded
Firms
Seek large market shares
Gain customer loyalty through brand names
Carefully control operations
Fast-Cycle Markets
Standard-Cycle Markets
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42. Competitive Rivalry = continuous “play” of offensive and defensive moves
Offensive Moves
To establish a position
To reposition
Less frequent than defensive moves
Attacking rivals’ weaknesses is usually more successful
Attacking rival’s strengths – especially head-on – carries more risk and takes more resources and capabilities
Defensive Moves
To protect an existing position
Common approaches =
Increase structural barriers (fill positioning gaps, increase switching costs, increase scale economies, block supplies or channel . .)
Increase expected retaliation
Lower inducements for attack
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