chapter 05r

8/8/2019 Chapter 05r

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Michael A. Hitt

R. Duane Ireland

Robert E. Hoskisson

2003 South-Western Publishing Company1

Competitive Rivalry andCompetitive Dynamics

Chapter 5Chapter 5


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2

Strategy ImplementationStrategy Implementation

Chapter 13Chapter 13

StrategicStrategic

EntrepreneurshipEntrepreneurship


OrganizationalOrganizational

Structure andStructure and

ControlsControls


CorporateCorporate

GovernanceGovernance


StrategicStrategic

LeadershipLeadership

Strategy FormulationStrategy Formulation

StrategicStrategic

CompetitivenessCompetitiveness

Above-AverageAbove-Average

ReturnsReturns

Strategic IntentStrategic Intent

Strategic MissionStrategic Mission

Chapter 2Chapter 2

The ExternalThe External

EnvironmentEnvironment

Chapter 3Chapter 3

The InternalThe Internal

EnvironmentEnvironment

The StrategicThe Strategic

ManagementManagement

ProcessProcess

FeedbackFeedback

Strate

gic

Inputs

Strategic

Inputs

Strategic

Actions

Strategic

Actions

Str

ategicOutcomes

Str

ategicOutcomes

Chapter 5Chapter 5

Competitive RivalryCompetitive Rivalry

and Competitiveand Competitive

DynamicsDynamics

Chapter 4Chapter 4

Business-LevelBusiness-Level

StrategyStrategy


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Definitions

3

CompetitorsCompetitorsfirms operating in the same market, offeringfirms operating in the same market, offering

similar products and targeting similarsimilar products and targeting similar

customerscustomers

Competitive rivalryCompetitive rivalrythe ongoing set of competitive actions andthe ongoing set of competitive actions and

responses occurring between competitorsresponses occurring between competitorscompetitive rivalry influences an individualcompetitive rivalry influences an individual

firms ability to gain and sustain competitivefirms ability to gain and sustain competitive

advantagesadvantages


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Definitions

4

Competitive behaviorCompetitive behaviorthe set of competitive actions andthe set of competitive actions and

competitive responses the firm takes to buildcompetitive responses the firm takes to build

or defend its competitive advantages and toor defend its competitive advantages and to

improve its market positionimprove its market positionCompetitive dynamicsCompetitive dynamicsthe total set of actions and responses takenthe total set of actions and responses taken

by all firms competing within a marketby all firms competing within a market


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From Competitors toCompetitive Dynamics

5

CompetitorsCompetitors

Through competitiveThrough competitive

behaviorbehavior Competitive actionsCompetitive actions Competitive responsesCompetitive responses

To gain an advantageousTo gain an advantageous

market positionmarket position

Competitive DynamicsCompetitive Dynamics Competitive actions and responses taken by allCompetitive actions and responses taken by all

firms competing in a marketfirms competing in a market

CompetitiveCompetitive

rivalryrivalry

Engage inEngage in

What results?What results?

What results?What results?

Why?Why?

How?How?


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Effect of Competitive Rivalry ona Firms Strategies

6

Success of a strategy is determined by:Success of a strategy is determined by:the firms initial competitive actionsthe firms initial competitive actionshow well it anticipates competitorshow well it anticipates competitors

responses to themresponses to themhow well the firm anticipates and responds tohow well the firm anticipates and responds to

its competitors initial actionsits competitors initial actions

Competitive rivalryCompetitive rivalryaffects all types of strategiesaffects all types of strategiesmost dominant influence is on the firmsmost dominant influence is on the firms

business-level strategy or strategies.business-level strategy or strategies.


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A Model of CompetitiveRivalry

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Competitive AnalysisCompetitive Analysis Market commonalityMarket commonality Resource similarityResource similarity

Drivers of CompetitiveDrivers of Competitive

BehaviorBehavior AwarenessAwareness MotivationMotivation AbilityAbility

Interim RivalryInterim 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

OutcomesOutcomes Market positionMarket position Financial performanceFinancial performance

feedbackfeedback


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Competitive Rivalry

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Firms are mutually interdependentFirms are mutually interdependentone firms competitive actions haveone firms competitive actions have

noticeable effects on competitorsnoticeable effects on competitorsone firms competitive actions elicitone firms competitive actions elicit

competitive responses from competitorscompetitive responses from competitorscompetitors feel each others actions andcompetitors feel each others actions and

responsesresponses

Marketplace success is a function ofMarketplace success is a function of

both individual strategies and theboth individual strategies and the

consequences of their useconsequences of their use


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Competitor Analysis

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Competitor analysisCompetitor analysisa technique firms use to understand theira technique firms use to understand their

competitive environment. Along with thecompetitive environment. Along with the

general and industry environments, thegeneral and industry environments, the

competitive environment comprises thecompetitive environment comprises thefirms external environmentfirms external environment

a technique used to help the firma technique used to help the firm understandunderstandits competitorsits competitors

the first step to being able tothe first step to being able to predictpredictcompetitors behavior in the form of itscompetitors behavior in the form of its

competitive actions and responsescompetitive actions and responses


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Market Commonality

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Market Commonality is concerned withMarket Commonality is concerned withthe number of markets with which a firm andthe number of markets with which a firm and

a competitor are jointly involveda competitor are jointly involvedthe degree of importance of the individualthe degree of importance of the individual

markets to each competitormarkets to each competitorMost industries markets are somewhatMost industries markets are somewhat

related in terms ofrelated in terms oftechnologiestechnologies

core competenciescore competenciesMultimarket competitionMultimarket competitionFirms competing in several marketsFirms competing in several markets


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Resource Similarity

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Resource similarityResource similaritythe extent to which the firms tangible andthe extent to which the firms tangible and

intangible resources are comparable to aintangible resources are comparable to a

competitors in terms of both type and amountcompetitors in terms of both type and amount

Firms with similar types and amounts ofFirms with similar types and amounts ofresources are likely toresources are likely tohave similar strengths and weaknesseshave similar strengths and weaknesses

use similar strategiesuse similar strategies

Assessing resource similarity can beAssessing resource similarity can bedifficult if critical resources are intangibledifficult if critical resources are intangible

rather than tangiblerather than tangible


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A Framework of CompetitorAnalysis

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MarketMarket

CommonalityCommonality

HighHigh

LowLow

LowLow HighHigh

ResourceResourceSimilaritySimilarity

The shaded area representsThe shaded area represents

degree of market commonalitydegree of market commonalitybetween two firmsbetween two firms

Resource endowment BResource endowment B

Resource endowment AResource endowment A

KEYKEY

IIIIII

IIIIII IVIV


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Drivers of Competitive Actionsand Responses:

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Awareness is the extent to whichAwareness is the extent to which

competitors recognize the degreecompetitors recognize the degree

of their mutual interdependenceof their mutual interdependencemutual interdependence resultsmutual interdependence results

fromfrommarket commonalitymarket commonality

resource similarityresource similarity

AwarenessAwareness

AwarenessAwareness

Drivers of competitive behaviorDrivers of competitive behavior


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Motivation concerns the firmsMotivation concerns the firms

incentiveincentive

to take actionto take actionor to respond to a competitorsor to respond to a competitors

attackattackand relates to perceived gainsand relates to perceived gains

and lossesand losses

MotivationMotivation

AwarenessAwareness

Drivers of competitive behaviorDrivers of competitive behavior

MotivationMotivation


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A firm is more likely to attack the rivalA firm is more likely to attack the rival

with whom it has low marketwith whom it has low market

commonality than the one with whomcommonality than the one with whom

it competes in multiple marketsit competes in multiple markets

Because of the high stakes ofBecause of the high stakes of

competition under the condition ofcompetition under the condition of

market commonality, there is a highmarket commonality, there is a high

probability that the attacked firm willprobability that the attacked firm willrespond to its competitors action inrespond to its competitors action in

an effort to protect its position in onean effort to protect its position in one

or more marketsor more markets

MarketMarket

commonalitycommonality

Drivers of competitive behavior influenced byDrivers of competitive behavior influenced by

Market CommonalityMarket Commonality


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The greater the resource imbalanceThe greater the resource imbalance

between the acting firm andbetween the acting firm and

competitors or potential responders,competitors or potential responders,

the greater will be the delay inthe greater will be the delay in

response by the firm with a resourceresponse by the firm with a resource

disadvantagedisadvantage

When facing competitors with greaterWhen facing competitors with greater

resources or more attractive marketresources or more attractive marketpositions, firms should eventuallypositions, firms should eventually

respond, no matter how challengingrespond, no matter how challenging

the responsethe response

ResourceResource

similaritysimilarity

Drivers of competitive behavior influenced byDrivers of competitive behavior influenced by

MarketMarket

commonalitycommonality

Resource SimilarityResource Similarity


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Competitive Rivalry

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Competitive actionCompetitive actiona strategic or tactical action the firm takes toa strategic or tactical action the firm takes to

build or defend its competitive advantages orbuild or defend its competitive advantages or

improve its market positionimprove its market position

Competitive responseCompetitive responsea strategic or tactical action the firm takes toa strategic or tactical action the firm takes to

counter the effects of a competitorscounter the effects of a competitors

competitive actioncompetitive action


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Strategic and Tactical Actions

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Strategic action or a strategic responseStrategic action or a strategic responsea market-based move that involves aa market-based move that involves a

significant commitment of organizationalsignificant commitment of organizational

resources and is difficult to implement andresources and is difficult to implement and

reversereverseTactical action or a tactical responseTactical action or a tactical responsemarket-based move that is taken to fine-tunemarket-based move that is taken to fine-tune

a strategy; it involves fewer resources and isa strategy; it involves fewer resources and is

relatively easy to implement and reverserelatively easy to implement and reverse


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Factors Affecting Likelihood ofAttack:

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First movers allocate funds forFirst movers allocate funds forproduct innovation and developmentproduct innovation and developmentaggressive advertisingaggressive advertisingadvanced research and developmentadvanced research and development

First movers can gainFirst movers can gainthe loyalty of customers who maythe loyalty of customers who may

become committed to the firms goodsbecome committed to the firms goods

or servicesor servicesmarket share that can be difficult formarket share that can be difficult for

competitors to take during futurecompetitors to take during futurecompetitive rivalrycompetitive rivalry

First moverFirst mover

incentivesincentives

First Mover IncentivesFirst Mover Incentives


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Small firms are more likelySmall firms are more likelyto launch competitive actionsto launch competitive actionsto be quicker in doing soto be quicker in doing so

Small firms are perceived asSmall firms are perceived asnimble and flexible competitorsnimble and flexible competitorsrelying on speed and surprise torelying on speed and surprise to

defend their competitivedefend their competitive

advantages or develop new onesadvantages or develop new ones

while engaged in competitive rivalrywhile engaged in competitive rivalrySmall firms have the flexibility neededSmall firms have the flexibility needed

to launch a greater variety ofto launch a greater variety of

competitive actionscompetitive actions

SizeSize



SizeSize


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Large firms are likely to initiateLarge firms are likely to initiate

more competitive actions as well asmore competitive actions as well as

strategic actions during a givenstrategic actions during a given

time periodtime periodLarge organizations commonly haveLarge organizations commonly have

the slack resources required tothe slack resources required to

launch a larger number of totallaunch a larger number of total

competitive actionscompetitive actions



SizeSize

SizeSize

Think and act big and well get smaller. Think andThink and act big and well get smaller. Think andact small and well get bigger.act small and well get bigger.

- Herb Kelleher,Former CEO, Southwest Airlines

- Herb Kelleher,Former CEO, Southwest Airlines


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Quality exists when the firms goodsQuality exists when the firms goods

or services meet or exceedor services meet or exceed

customers expectationscustomers expectations

QualityQuality



SizeSize

QualityQuality

Product quality dimensions includeProduct quality dimensions include PerformancePerformance FeaturesFeatures FlexibilityFlexibility DurabilityDurability ConformanceConformance ServiceabilityServiceability AestheticsAesthetics Perceived qualityPerceived quality


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Quality exists when the firms goodsQuality exists when the firms goods

or services meet or exceedor services meet or exceed

customers expectationscustomers expectations

QualityQuality



SizeSize

QualityQuality

Service quality dimensions includeService quality dimensions include TimelinessTimeliness

CourtesyCourtesy

ConsistencyConsistency

ConvenienceConvenience

CompletenessCompleteness AccuracyAccuracy


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Factors Affecting Likelihood ofResponse

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Firms study three factors to predict how aFirms study three factors to predict how a

competitor is likely to respond tocompetitor is likely to respond to

competitive actionscompetitive actionstype of competitive actiontype of competitive actionreputationreputationmarket dependencemarket dependence


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Factors Affecting Likelihood ofResponse:

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Strategic actions receive strategicStrategic actions receive strategic

responsesresponsesTactical responses are taken toTactical responses are taken to

counter the effects of tacticalcounter the effects of tacticalactionsactionsStrategic actions elicit fewer totalStrategic actions elicit fewer total

competitive responsescompetitive responsesA competitor likely will respondA competitor likely will respond

quickly to a tactical actionquickly to a tactical actionThe time needed to implement andThe time needed to implement and

assess a strategic action delaysassess a strategic action delays

competitors responsescompetitors responses

Type ofType of

competitivecompetitive

actionaction

Type of Competitive ActionType of Competitive Action


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An actor is the firm taking an actionAn actor is the firm taking an action

or responseor response

Reputation is the positive orReputation is the positive or

negative attribute ascribed by onenegative attribute ascribed by onerival to another based on pastrival to another based on past

competitive behaviorcompetitive behavior

The firm studies responses that aThe firm studies responses that a

competitor has taken previouslycompetitor has taken previouslywhen attacked to predict likelywhen attacked to predict likely

responsesresponses

ReputationReputation

Type ofType of


actionaction



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Market dependence isMarket dependence isthe extent to which a firmsthe extent to which a firms

revenues or profits are derivedrevenues or profits are derived

from a particular marketfrom a particular marketIn general, firms can predict thatIn general, firms can predict that

competitors with high marketcompetitors with high market

dependence are likely to responddependence are likely to respond

strongly to attacks threatening theirstrongly to attacks threatening theirmarket positionmarket position

MarketMarket

dependencedependence

Type ofType of


actionaction


Market DependenceMarket Dependence


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Competition

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Competitive DynamicsCompetitive Dynamicscompetitive dynamics concerns the ongoingcompetitive dynamics concerns the ongoing

actions and responses taking place amongactions and responses taking place among allallfirms competing within a market forfirms competing within a market for

advantageous positionsadvantageous positionsCompetitive RivalryCompetitive Rivalrybuilding and sustaining competitivebuilding and sustaining competitive

advantages are at the core of competitiveadvantages are at the core of competitive

rivalryrivalrycompetitive advantages are the link to ancompetitive advantages are the link to an

advantageous market positionadvantageous market position


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Strategic Conduct is Dynamic

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A firms strategic conduct is dynamic inA firms strategic conduct is dynamic innaturenature

Actions and responses shape theActions and responses shape thecompetitive positions of each firmscompetitive positions of each firmsbusiness level strategybusiness level strategy

Firm BFirm BFirmFirm AA


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Strategic Conduct is Dynamic

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Firm BFirm BFirmFirm AA

Actions taken by one firm elicitsActions taken by one firm elicitsresponses from competitorsresponses from competitors

Competitive responses lead to additionalCompetitive responses lead to additionalactions from the firm that actedactions from the firm that actedoriginallyoriginally

ActionsActions

ResponseResponse

New ActionsNew Actions

New ResponseNew Response


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Competitive Dynamics:

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Slow-cycle marketsSlow-cycle marketsthe firms competitive advantagesthe firms competitive advantages

are shielded from imitation forare shielded from imitation for

long periods of timelong periods of timeimitation is costlyimitation is costlyCompetitive advantages areCompetitive advantages are

sustainable in slow-cycle marketssustainable in slow-cycle marketsA proprietary, one-of-a-kindA proprietary, one-of-a-kind

competitive advantage leads tocompetitive advantage leads tocompetitive success in a slow-cyclecompetitive success in a slow-cycle

marketmarket

Slow-cycleSlow-cycle

marketsmarkets

Slow-Cycle MarketsSlow-Cycle Markets


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Gradual Erosion of a SustainableCompetitive Advantage

33

Retu

rnsfrom

aSustaina

ble

Retu

rnsfrom

aSustaina

ble

Com

petitiveAdv

antage

Com

petitiveAdv

antage

Time (Years)Time (Years)

00 55 1010

LaunchLaunch

ExploitationExploitation

CounterattackCounterattack


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Fast-cycle marketsFast-cycle marketsthe firms competitive advantagesthe firms competitive advantages

arent shielded from imitationarent shielded from imitation

imitation happens quickly andimitation happens quickly andsomewhat inexpensivelysomewhat inexpensivelyCompetitive advantages arentCompetitive advantages arent

sustainablesustainableCompetitors use reverseCompetitors use reverse

engineering to quickly imitate orengineering to quickly imitate orimprove on the firms productsimprove on the firms products

Non-proprietary technology isNon-proprietary technology is

diffused rapidlydiffused rapidly

Fast-cycleFast-cycle

marketsmarkets


marketsmarkets

Fast-Cycle MarketsFast-Cycle Markets


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Obtaining Temporary Advantages toCreate Sustained Advantage

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Return

sfroma

Se

ries

Return

sfrom

a

Series

of

Replicabl e

A

cti

ons

of

Replicabl eA

cti

ons

Time (Years)Time (Years)

00 55 1010 1515

LaunchLaunchExploitationExploitation

CounterattackCounterattack

Firm has already movedFirm has already moved

to next advantageto next advantage


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Standard-cycle marketsStandard-cycle marketsthe firms competitive advantages maythe firms competitive advantages may

be shielded from imitationbe shielded from imitationimitation is moderately costlyimitation is moderately costly

Competitive advantages are partiallyCompetitive advantages are partiallysustainable if the firm is able tosustainable if the firm is able to

continuously upgrade the quality of itscontinuously upgrade the quality of its

competitive advantagescompetitive advantagesFirmsFirms

seek large market sharesseek large market sharesgain customer loyalty through brandgain customer loyalty through brand

namesnamescarefully control operationscarefully control operations


marketsmarkets

Fast-cycleFast-cycle

marketsmarkets

Standard-cycleStandard-cycle

marketsmarkets

Standard-Cycle MarketsStandard-Cycle Markets

chapter 05r

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