05[2] strategy competitors, competitive rivalry, competitive behavior, and competitive dynamics...

©© 2007 Thomson/South2007 Thomson/South--Western.Western.All rights reserved.All rights reserved.

PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie CookThe University of West AlabamaThe University of West Alabama

Strategic ManagementStrategic ManagementCompetitiveness and Globalization:Competitiveness and Globalization:Concepts and CasesConcepts and Cases

Michael A. Hitt •R. Duane Ireland •Robert E. Hoskisson

Seventh edition

STRATEGIC

ACTIONS:

STRATEGY

FORMULATION

STRATEGIC

ACTIONS:

STRATEGY

FORMULATION

CHAPTER 5CHAPTER 5

StrategyStrategy competitors, competitivecompetitors, competitiverivalry, competitive behavior, andrivalry, competitive behavior, andcompetitive dynamicscompetitive dynamics

Management of StrategyManagement of StrategyConcepts and CasesConcepts and Cases

© 2007 Thomson/South-Western. All rights reserved. 5–2

KKNOWLEDGENOWLEDGE OOBJECTIVESBJECTIVES

1.1. Define competitors, competitive rivalry, competitive behavior, aDefine competitors, competitive rivalry, competitive behavior, andndcompetitive dynamics.competitive dynamics.

2.2. Describe market commonality and resource similarity as theDescribe market commonality and resource similarity as thebuilding blocks of a competitor analysis.building blocks of a competitor analysis.

3.3. Explain awareness, motivation, and ability as drivers of competiExplain awareness, motivation, and ability as drivers of competitivetivebehavior.behavior.

4.4. Discuss factors affecting the likelihood a competitor will takeDiscuss factors affecting the likelihood a competitor will takecompetitive actions.competitive actions.

5.5. Discuss factors affecting the likelihood a competitor will respoDiscuss factors affecting the likelihood a competitor will respond tond toactions taken against it.actions taken against it.

6.6. Explain competitive dynamics in slowExplain competitive dynamics in slow--cycle, fastcycle, fast--cycle, andcycle, andstandardstandard--cycle markets.cycle markets.

Studying this chapter should provide you with the strategicmanagement knowledge needed to:


DefinitionsDefinitions

••CompetitorsCompetitors

Firms operating in the same market, offering similarFirms operating in the same market, offering similarproducts and targeting similar customers.products and targeting similar customers.

••Competitive RivalryCompetitive Rivalry

The ongoing set of competitive actions and responsesThe ongoing set of competitive actions and responsesoccurring between competitors.occurring between competitors.

Competitive rivalry influences an individual firmCompetitive rivalry influences an individual firm’’ssability to gain and sustain competitive advantages.ability to gain and sustain competitive advantages.


DefinitionsDefinitions

••Competitive BehaviorCompetitive BehaviorThe set of competitive actions and competitiveThe set of competitive actions and competitive

responses the firm takes to build or defend itsresponses the firm takes to build or defend itscompetitive advantages and to improve its marketcompetitive advantages and to improve its marketposition.position.

••MultimarketMultimarket CompetitionCompetitionFirms competing against each other in severalFirms competing against each other in several

product or geographic markets.product or geographic markets.

••Competitive DynamicsCompetitive DynamicsThe total set of actions and responses taken by allThe total set of actions and responses taken by all

firms competing within a market.firms competing within a market.


From Competitors to Competitive DynamicsFrom Competitors to Competitive Dynamics

CompetitorsCompetitors ••To gain an advantageousTo gain an advantageousmarket positionmarket position

••Competitive BehaviorCompetitive Behavior••Competitive actionsCompetitive actions••Competitive responsesCompetitive responses

Competitive DynamicsCompetitive DynamicsCompetitive actions and responses takenCompetitive actions and responses taken

by all firms competing in a marketby all firms competing in a market

Engagein

Why?

How?What Results?

What Results?

CompetitiveCompetitiveRivalryRivalry


FigureFigure 5.15.1 From Competitors to Competitive DynamicsFrom Competitors to Competitive Dynamics

Source: Adapted from M.-J. Chen, 1996, Competitor analysis and interfirm rivalry: Towarda theoretical integration, Academy of Management Review, 21: 100–134.


Competitive RivalryCompetitive Rivalry’’s Effect on Strategys Effect on Strategy

••Success of a strategy is determined by:Success of a strategy is determined by:The firmThe firm’’s initial competitive actions.s initial competitive actions.How well it anticipates competitorsHow well it anticipates competitors’’responses toresponses to

them.them.How well the firm anticipates and responds to itsHow well the firm anticipates and responds to its

competitorscompetitors’’initial actions.initial actions.

••Competitive rivalry:Competitive rivalry:Affects all types of strategies.Affects all types of strategies.Has the strongest influence on the firmHas the strongest influence on the firm’’s businesss business--

level strategy or strategies.level strategy or strategies.


A Model of Competitive RivalryA Model of Competitive Rivalry

••Firms are mutually interdependentFirms are mutually interdependentA firmA firm’’s competitive actions have noticeable effectss competitive actions have noticeable effects

on its competitors.on its competitors.

A firmA firm’’s competitive actions elicit competitives competitive actions elicit competitiveresponses from its competitors.responses from its competitors.

Competitors feel each otherCompetitors feel each other’’s actions and responses.s actions and responses.

••Marketplace success is a function of bothMarketplace success is a function of bothindividual strategies and the consequences ofindividual strategies and the consequences oftheir use.their use.


A Model of Competitive RivalryA Model of Competitive Rivalry

Competitive AnalysisCompetitive Analysis••Market commonalityMarket commonality••Resource similarityResource similarity

Drivers of CompetitiveDrivers of CompetitiveBehaviorBehavior••AwarenessAwareness••MotivationMotivation••AbilityAbility

InterfirmInterfirm RivalryRivalry••Likelihood of AttackLikelihood of Attack

••FirstFirst--mover incentivesmover incentives••Organizational sizeOrganizational size••QualityQuality

••Likelihood of ResponseLikelihood of Response••Type of competitive actionType of competitive action••ReputationReputation••Market dependenceMarket dependence

OutcomesOutcomes••Market positionMarket position••FinancialFinancial

performanceperformance

FeedbackFeedback


FIGUREFIGURE 5.25.2 A Model of Competitive RivalryA 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.


Competitor AnalysisCompetitor Analysis

••Competitor analysis is used to help a firmCompetitor analysis is used to help a firmunderstand its competitors.understand its competitors.

••The firm studies competitorsThe firm studies competitors’’future objectives,future objectives,current strategies, assumptions, and capabilities.current strategies, assumptions, and capabilities.

••With the analysis, a firm is better able to predictWith the analysis, a firm is better able to predictcompetitorscompetitors’’behaviors when forming itsbehaviors when forming itscompetitive actions and responses.competitive actions and responses.


Market CommonalityMarket Commonality

••Market commonality is concerned with:Market commonality is concerned with:The number of markets with which a firm and aThe number of markets with which a firm and a

competitor are jointly involved.competitor are jointly involved.The degree of importance of the individual markets toThe degree of importance of the individual markets to

each competitor.each competitor.

••Firms competing against one another in severalFirms competing against one another in severalor many markets engage in multimarketor many markets engage in multimarketcompetition.competition.A firm with greater multimarket contact is less likely toA firm with greater multimarket contact is less likely to

initiate an attack, but more likely to more respondinitiate an attack, but more likely to more respondaggressively when attacked.aggressively when attacked.


Resource SimilarityResource Similarity••Resource SimilarityResource SimilarityHow comparable the firmHow comparable the firm’’s tangible and intangibles tangible and intangible

resources are to a competitorresources are to a competitor’’s in terms of both typess in terms of both typesand amounts.and amounts.

••Firms with similar types and amounts ofFirms with similar types and amounts ofresources are likely to:resources are likely to:Have similar strengths and weaknesses.Have similar strengths and weaknesses.Use similar strategies.Use similar strategies.

••Assessing resource similarity can be difficult ifAssessing resource similarity can be difficult ifcritical resources are intangible rather thancritical resources are intangible rather thantangible.tangible.


FIGUREFIGURE 5.35.3 A Framework of Competitor AnalysisA 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.


Drivers of Competitive BehaviorDrivers of Competitive Behavior

••Awareness isAwareness isthe extent to whichthe extent to which

competitors recognize thecompetitors recognize thedegree of their mutualdegree of their mutualinterdependence thatinterdependence thatresults from:results from:••Market commonalityMarket commonality••Resource similarityResource similarity

AwarenessAwareness


Drivers of Competitive Behavior (contDrivers of Competitive Behavior (cont’’d)d)

••Motivation concernsMotivation concerns the firmthe firm’’s incentive to takes incentive to take

actionactionor to respond to aor to respond to a

competitorcompetitor’’s attacks attackand relates to perceivedand relates to perceived

gains and lossesgains and losses

AwarenessAwareness

MotivationMotivation



••Ability relates toAbility relates toeach firmeach firm’’s resourcess resources the flexibility thesethe flexibility these

resources provideresources provide

••Without availableWithout availableresources the firm lacksresources the firm lacksthe ability tothe ability toattack a competitorattack a competitor respond to the competitorrespond to the competitor’’ss

actionsactions

AwarenessAwareness


AbilityAbility



••A firm is more likely to attackA firm is more likely to attackthe rival with whom it has lowthe rival with whom it has lowmarket commonality than themarket commonality than theone with whom it competes inone with whom it competes inmultiple markets.multiple markets.

••Given the strong competitionGiven the strong competitionunder market commonality, it isunder market commonality, it islikely that the attacked firm willlikely that the attacked firm willrespond to its competitorrespond to its competitor’’ssaction in an effort to protect itsaction in an effort to protect itsposition in one or moreposition in one or moremarkets.markets.

AwarenessAwareness


MarketMarketCommonalityCommonality

AbilityAbility



••The greater the resourceThe greater the resourceimbalance between the acting firmimbalance between the acting firmand competitors or potentialand competitors or potentialresponders, the greater will be theresponders, the greater will be thedelay in response by the firm with adelay in response by the firm with aresource disadvantage.resource disadvantage.

••When facing competitors withWhen facing competitors withgreater resources or moregreater resources or moreattractive market positions, firmsattractive market positions, firmsshould eventually respond, noshould eventually respond, nomatter how challenging thematter how challenging theresponse.response.

AwarenessAwareness


ResourceResourceDissimilarityDissimilarity

AbilityAbility

MarketMarketCommonalityCommonality


Competitive RivalryCompetitive Rivalry

••Competitive ActionCompetitive ActionA strategic or tactical action the firm takes to build orA strategic or tactical action the firm takes to build or

defend its competitive advantages or improve itsdefend its competitive advantages or improve itsmarket position.market position.

••Competitive ResponseCompetitive ResponseA strategic or tactical action the firm takes to counterA strategic or tactical action the firm takes to counter

the effects of a competitorthe effects of a competitor’’s competitive action.s competitive action.


Strategic and Tactical ActionsStrategic and Tactical Actions

••Strategic Action (or Response)Strategic Action (or Response)

A marketA market--based move that involves a significantbased move that involves a significantcommitment of organizational resources and iscommitment of organizational resources and isdifficult to implement and reverse.difficult to implement and reverse.

••Tactical Action (or Response)Tactical Action (or Response)

A marketA market--based move that is taken to finebased move that is taken to fine--tune atune astrategy:strategy:

••Usually involves fewer resources.Usually involves fewer resources.

••Is relatively easy to implement and reverse.Is relatively easy to implement and reverse.


Factors Affecting Likelihood of AttackFactors Affecting Likelihood of Attack

••First movers allocate funds for:First movers allocate funds for:

Product innovation andProduct innovation anddevelopmentdevelopment

Aggressive advertisingAggressive advertising

Advanced research andAdvanced research anddevelopmentdevelopment

••First movers can gain:First movers can gain:

The loyalty of customers who mayThe loyalty of customers who maybecome committed to the firmbecome committed to the firm’’ssgoods or services.goods or services.

Market share that can be difficultMarket share that can be difficultfor competitors to take duringfor competitors to take duringfuture competitive rivalry.future competitive rivalry.

FirstFirst--MoverMoverIncentivesIncentives

First MoverA firm that takes an

initial competitive actionin order to build ordefend its competitiveadvantages or toimprove its marketposition.


Factors Affecting Likelihood of Attack (contFactors Affecting Likelihood of Attack (cont’’d)d)

••Second mover responds to the firstSecond mover responds to the firstmovermover’’s competitive action, typicallys competitive action, typicallythrough imitation:through imitation:

Studies customersStudies customers’’reactions toreactions toproduct innovations.product innovations.

Tries to find any mistakes the firstTries to find any mistakes the firstmover made, and avoid them.mover made, and avoid them.

Can avoid both the mistakes andCan avoid both the mistakes andthe huge spending of the firstthe huge spending of the first--movers.movers.

May develop more efficientMay develop more efficientprocesses and technologies.processes and technologies.

First MoverFirst Mover

Second MoverSecond MoverIncentivesIncentives



•• Late mover responds to aLate mover responds to acompetitive action only aftercompetitive action only afterconsiderable time has elapsed.considerable time has elapsed.

••Any success achieved will be slowAny success achieved will be slowin coming and much less than thatin coming and much less than thatachieved by first and secondachieved by first and secondmovers.movers.

•• Late moverLate mover’’s competitive actions competitive actionallows it to earn only averageallows it to earn only averagereturns and delays itsreturns and delays itsunderstanding of how to createunderstanding of how to createvalue for customers.value for customers.


Second MoverSecond Mover

Late MoverLate Mover



••Small firms are more likely:Small firms are more likely: To launch competitive actions.To launch competitive actions.

To be quicker in doing so.To be quicker in doing so.

••Small firms are perceived as:Small firms are perceived as: Nimble and flexible competitorsNimble and flexible competitors

Relying on speed and surprise toRelying on speed and surprise todefend competitive advantages ordefend competitive advantages ordevelop new ones while engaged indevelop new ones while engaged incompetitive rivalry.competitive rivalry.

Having the flexibility needed toHaving the flexibility needed tolaunch a greater variety oflaunch a greater variety ofcompetitive actions.competitive actions.



OrganizationalOrganizationalSizeSize-- SmallSmall




•• Large firms are likely to initiateLarge firms are likely to initiatemore competitive actions as well asmore competitive actions as well asstrategic actions during a given timestrategic actions during a given timeperiodperiod

•• Large organizations commonlyLarge organizations commonlyhave the slack resources requiredhave the slack resources requiredto launch a larger number of totalto launch a larger number of totalcompetitive actionscompetitive actions

••Think and act big and weThink and act big and we’’ll getll getsmaller. Think and act small andsmaller. Think and act small andwewe’’ll get bigger.ll get bigger.

Herb KelleherHerb KelleherFormer CEO, Southwest AirlinesFormer CEO, Southwest Airlines



OrganizationalOrganizationalSizeSize --LargeLarge




••Quality exists when the firmQuality exists when the firm’’ssgoods or services meet orgoods or services meet orexceed customersexceed customers’’expectationsexpectations

••Product quality dimensionsProduct quality dimensionsinclude:include:



QualityQuality(Product)(Product)


OrganizationalOrganizationalSizeSize

PerformancePerformance

FeaturesFeatures

FlexibilityFlexibility

DurabilityDurability

ConformanceConformance

ServiceabilityServiceability

AestheticsAesthetics

PerceivedPerceivedqualityquality


TableTable 5.15.1 Quality Dimensions of Goods and ServicesQuality Dimensions of Goods and Services

Product Quality Dimensions1. Performance—Operating characteristics

2. Features—Important special characteristics

3. Flexibility—Meeting operating specifications over someperiod of time

4. Durability—Amount of use before performance deteriorates

5. Conformance—Match with preestablished standards

6. Serviceability—Ease and speed of repair

7. Aesthetics—How a product looks and feels

8. Perceived quality—Subjective assessment of characteristics(product image)

SOURCES: Adapted from J.W. Dean, Jr., & J. R. Evans, 1994, Total Quality: Management, Organization and Society, St.Paul, MN:West Publishing Company; H.V. Roberts & B. F. Sergesketter, 1993, Quality Is Personal, New York:The FreePress; D. Garvin, 1988, Managed Quality: The Strategic and Competitive Edge, New York:The Free Press.



••Service quality dimensionsService quality dimensionsinclude:include:TimelinessTimeliness

CourtesyCourtesy

ConsistencyConsistency

ConvenienceConvenience

CompletenessCompleteness

AccuracyAccuracy



QualityQuality(Service)(Service)


OrganizationalOrganizationalSizeSize


TableTable 5.15.1 Quality Dimensions of Goods and Services (contQuality Dimensions of Goods and Services (cont’’d)d)

SOURCES: Adapted from J.W. Dean, Jr., & J. R. Evans, 1994, Total Quality: Management, Organization and Society, St.Paul, MN:West Publishing Company; H.V. Roberts & B. F. Sergesketter, 1993, Quality Is Personal, New York:The FreePress; D. Garvin, 1988, Managed Quality: The Strategic and Competitive Edge, New York:The Free Press.

Service Quality Dimensions1. Timeliness—Performed in the promised period of time

2. Courtesy—Performed cheerfully

3. Consistency—Giving all customers similar experiences each time

4. Convenience—Accessibility to customers

5. Completeness—Fully serviced, as required

6. Accuracy—Performed correctly each time


Likelihood of ResponseLikelihood of Response

••Responses to a competitorResponses to a competitor’’s action are takens action are takenwhen the action:when the action:

Leads to better use of the competitorLeads to better use of the competitor’’s capabilities tos capabilities togain or produce stronger competitive advantages orgain or produce stronger competitive advantages oran improvement in its market position.an improvement in its market position.

Damages the firmDamages the firm’’s ability to use its capabilities tos ability to use its capabilities tocreate or maintain an advantage.create or maintain an advantage.

Makes the firmMakes the firm’’s market position becomes lesss market position becomes lessdefensible.defensible.


Factors Affecting Likelihood of ResponseFactors Affecting Likelihood of Response

••Firms study three other factors to predict how aFirms study three other factors to predict how acompetitor is likely to respond to competitivecompetitor is likely to respond to competitiveactions:actions:

Type of competitive actionType of competitive action

ReputationReputation

Market dependenceMarket dependence


Factors Affecting Strategic ResponseFactors Affecting Strategic Response

••Strategic actions receiveStrategic actions receivestrategic responsesstrategic responsesStrategic actions elicit fewer totalStrategic actions elicit fewer total

competitive responses.competitive responses.

The time needed to implement andThe time needed to implement andassess a strategic action delaysassess a strategic action delayscompetitorcompetitor’’s responses.s responses.

••Tactical responses are taken toTactical responses are taken tocounter the effects of tacticalcounter the effects of tacticalactionsactionsA competitor likely will respondA competitor likely will respond

quickly to a tactical actionsquickly to a tactical actions

Type ofType ofCompetitiveCompetitive

ActionAction


Factors Affecting Strategic Response (contFactors Affecting Strategic Response (cont’’d)d)

••An actor is the firm taking anAn actor is the firm taking anaction or responseaction or response

••Reputation is the positive orReputation is the positive ornegative attribute ascribed bynegative attribute ascribed byone rival to another based onone rival to another based onpast competitive behavior.past competitive behavior.

••The firm studies responses thatThe firm studies responses thata competitor has takena competitor has takenpreviously when attacked topreviously when attacked topredict likely responses.predict likely responses.


ActionAction

ActorActor’’ssReputationReputation


Factors Affecting Strategic Response (contFactors Affecting Strategic Response (cont’’d)d)

••Market dependence is theMarket dependence is theextent to which a firmextent to which a firm’’ssrevenues or profits are derivedrevenues or profits are derivedfrom a particular market.from a particular market.

••In general, firms can predict thatIn general, firms can predict thatcompetitors with high marketcompetitors with high marketdependence are likely todependence are likely torespond strongly to attacksrespond strongly to attacksthreatening their marketthreatening their marketposition.position.


ActionAction

ActorActor’’ssReputationReputation

DependenceDependenceon the marketon the market


Competitive Dynamics versus RivalryCompetitive Dynamics versus Rivalry

••Competitive DynamicsCompetitive DynamicsOngoing actions and responses taking placeOngoing actions and responses taking place

betweenbetween all firmsall firms competing within a marketcompeting within a marketfor advantageous positions.for advantageous positions.

••Competitive RivalryCompetitive RivalryOngoing actions and responses taking placeOngoing actions and responses taking place

betweenbetween an individual firman individual firm and itsand itscompetitorscompetitors for advantageous marketfor advantageous marketposition.position.


Competitive Dynamics versus Rivalry (contCompetitive Dynamics versus Rivalry (cont’’d)d)

••Competitive RivalryCompetitive Rivalry((Individual firmsIndividual firms))

Market commonalityMarket commonalityand resource similarityand resource similarity

Awareness, motivationAwareness, motivationand abilityand ability

First mover incentives,First mover incentives,size and qualitysize and quality

••Competitive DynamicsCompetitive Dynamics((All firmsAll firms))

Market speed (slowMarket speed (slow--cycle, fastcycle, fast--cycle, andcycle, andstandardstandard--cyclecycle

Effects of marketEffects of marketspeed on actions andspeed on actions andresponses of allresponses of allcompetitors in thecompetitors in themarketmarket


Competitive DynamicsCompetitive Dynamics

••Competitive advantages areCompetitive advantages areshielded from imitation for longshielded from imitation for longperiods of time and imitation isperiods of time and imitation iscostly.costly.

••Competitive advantages areCompetitive advantages aresustainable in slowsustainable in slow--cycle markets.cycle markets.

••All firms concentrate onAll firms concentrate oncompetitive actions andcompetitive actions andresponses to protect, maintainresponses to protect, maintainand extend proprietaryand extend proprietarycompetitive advantage.competitive advantage.

SlowSlow--CycleCycleMarketsMarkets


FIGUREFIGURE 5.45.4 Gradual Erosion of a Sustained Competitive AdvantageGradual Erosion of a Sustained Competitive Advantage

SOURCE: Adapted from I. C. MacMillan, 1988, Controlling competitive dynamicsby taking strategic initiative, Academy of Management Executive, 11(2): 111–118.


Competitive Dynamics (contCompetitive Dynamics (cont’’d)d)

••The firmThe firm’’s competitives competitiveadvantages arenadvantages aren’’t shielded fromt shielded fromimitation.imitation.

••Imitation happens quickly andImitation happens quickly andsomewhat expensivelysomewhat expensively

••Competitive advantages arenCompetitive advantages aren’’ttsustainable.sustainable.Competitors use reverse engineeringCompetitors use reverse engineering

to quickly imitate or improve on theto quickly imitate or improve on thefirmfirm’’s productss products

••NonNon--proprietary technology isproprietary technology isdiffused rapidlydiffused rapidly


FastFast--CycleCycleMarketsMarkets


FIGUREFIGURE 5.55.5 Developing Temporary Advantages to Create SustainedDeveloping Temporary Advantages to Create SustainedAdvantageAdvantage

Source: Adapted from I. C. MacMillan, 1988, Controlling competitive dynamics bytaking strategic initiative, Academy of Management Executive, 11(2): 111–118.


Competitive Dynamics (contCompetitive Dynamics (cont’’d)d)

••Moderate cost of imitation mayModerate cost of imitation mayshield competitive advantages.shield competitive advantages.

••Competitive advantages areCompetitive advantages arepartially sustainable if their qualitypartially sustainable if their qualityis continuously upgraded.is continuously upgraded.

••FirmsFirmsSeek large market sharesSeek large market shares

Gain customer loyalty through brandGain customer loyalty through brandnamesnames

Carefully control operationsCarefully control operations


FastFast--CycleCycleMarketsMarkets

StandardStandard--CycleCycleMarketsMarkets

05[2] strategy competitors, competitive rivalry, competitive behavior, and competitive dynamics...

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