strategic management chapter 5

2007 Thomson/South-Western. All rights reserved.5*KNOWLEDGE OBJECTIVESDefine competitors, competitive rivalry, competitive behavior, and competitive dynamics.Describe market commonality and resource similarity as the building blocks of a competitor analysis.Explain awareness, motivation, and ability as drivers of competitive behavior.Discuss factors affecting the likelihood a competitor will take competitive actions.Discuss factors affecting the likelihood a competitor will respond to actions taken against it.Explain competitive dynamics in slow-cycle, fast-cycle, and standard-cycle markets.Studying this chapter should provide you with the strategic management knowledge needed to:

2007 Thomson/South-Western. All rights reserved.

2007 Thomson/South-Western. All rights reserved.5*DefinitionsCompetitorsFirms operating in the same market, offering similar products and targeting similar customers.Competitive RivalryThe ongoing set of competitive actions and responses occurring between competitors.Competitive rivalry influences an individual firms ability to gain and sustain competitive advantages.


2007 Thomson/South-Western. All rights reserved.5*DefinitionsCompetitive BehaviorThe set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position.Multimarket CompetitionFirms competing against each other in several product or geographic markets.Competitive DynamicsThe total set of actions and responses taken by all firms competing within a market.


2007 Thomson/South-Western. All rights reserved.5*From Competitors to Competitive DynamicsCompetitive DynamicsCompetitive actions and responses taken by all firms competing in a marketEngage inWhy?How?


2007 Thomson/South-Western. All rights reserved.5*Figure 5.1From Competitors to Competitive DynamicsSource: Adapted from M.-J. Chen, 1996, Competitor analysis and interfirm rivalry: Toward a theoretical integration, Academy of Management Review, 21: 100134.


2007 Thomson/South-Western. All rights reserved.5*Competitive Rivalrys Effect on StrategySuccess of a strategy is determined by:The firms initial competitive actions.How well it anticipates competitors responses to them.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 firms business-level strategy or strategies.


2007 Thomson/South-Western. All rights reserved.5*A Model of Competitive RivalryFirms are mutually interdependentA firms competitive actions have noticeable effects on its competitors.A firms competitive actions elicit competitive responses from its competitors.Competitors feel each others actions and responses.Marketplace success is a function of both individual strategies and the consequences of their use.


2007 Thomson/South-Western. All rights reserved.5*FIGURE 5.2A Model of Competitive RivalrySource: Adapted from M.-J. Chen, 1996, Competitor analysis and interfirm rivalry: Toward a theoretical integration, Academy of Management Review, 21: 100134.


2007 Thomson/South-Western. All rights reserved.5*Competitor AnalysisCompetitor 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.


2007 Thomson/South-Western. All rights reserved.5*Market CommonalityMarket 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.


2007 Thomson/South-Western. All rights reserved.5*Resource SimilarityResource SimilarityHow comparable the firms tangible and intangible resources are to a competitors 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.


2007 Thomson/South-Western. All rights reserved.5*FIGURE 5.3A Framework of Competitor AnalysisSource: Adapted from M.-J. Chen, 1996, Competitor analysis and interfirm rivalry: Toward a theoretical integration, Academy of Management Review, 21: 100134.


2007 Thomson/South-Western. All rights reserved.5*Drivers of Competitive BehaviorAwareness isthe extent to which competitors recognize the degree of their mutual interdependence that results from: Market commonalityResource similarity


2007 Thomson/South-Western. All rights reserved.5*Drivers of Competitive Behavior (contd)Motivation concernsthe firms incentive to take actionor to respond to a competitors attackand relates to perceived gains and losses


2007 Thomson/South-Western. All rights reserved.5*Drivers of Competitive Behavior (contd)Ability relates toeach firms resourcesthe flexibility these resources provideWithout available resources the firm lacks the ability toattack a competitorrespond to the competitors actions


2007 Thomson/South-Western. All rights reserved.5*Drivers of Competitive Behavior (contd)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 markets.Given the strong competition under market commonality, it is likely that the attacked firm will respond to its competitors action in an effort to protect its position in one or more markets.


2007 Thomson/South-Western. All rights reserved.5*Drivers of Competitive Behavior (contd)The greater the resource imbalance between the acting firm and competitors or potential responders, 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.


2007 Thomson/South-Western. All rights reserved.5*Competitive RivalryCompetitive ActionA strategic or tactical action the firm takes to build or defend its competitive advantages or improve its market position.Competitive ResponseA strategic or tactical action the firm takes to counter the effects of a competitors competitive action.


2007 Thomson/South-Western. All rights reserved.5*Strategic and Tactical ActionsStrategic Action (or Response)A market-based move that involves a significant commitment of organizational resources and is difficult to implement and reverse.Tactical Action (or Response)A market-based move that is taken to fine-tune a strategy:Usually involves fewer resources.Is relatively easy to implement and reverse.


2007 Thomson/South-Western. All rights reserved.5*Factors Affecting Likelihood of AttackFirst movers allocate funds for:Product innovation and development Aggressive advertisingAdvanced research and developmentFirst movers can gain:The loyalty of customers who may become committed to the firms goods or services.Market share that can be difficult for competitors to take during future competitive rivalry.First Mover A firm that takes an initial competitive action in order to build or defend its competitive advantages or to improve its market position.


2007 Thomson/South-Western. All rights reserved.5*Factors Affecting Likelihood of Attack (contd)Second mover responds to the first movers competitive action, typically through imitation:Studies customers reactions to product innovations.Tries to find any mistakes the first mover made, and avoid them.Can avoid both the mistakes and the huge spending of the first-movers.May develop more efficient processes and technologies.


2007 Thomson/South-Western. All rights reserved.5*Factors Affecting Likelihood of Attack (contd)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 movers competitive action allows it to earn only average returns and delays its understanding of how to create value for customers.


2007 Thomson/South-Western. All rights reserved.5*Factors Affecting Likelihood of Attack (contd)Small firms are more likely:To launch competitive actions.To be quicker in doing so.Small firms are perceived as:Nimble and flexible competitorsRelying on speed and surprise to defend competitive advantages or develop new ones while engaged in competitive rivalry.Having the flexibility needed to launch a greater variety of competitive actions.


2007 Thomson/South-Western. All rights reserved.5*Factors Affecting Likelihood of Attack (contd)Large firms are likely to initiate more competitive actions as well as strategic actions during a given time periodLarge organizations commonly have the slack resources required to launch a larger number of total competitive actionsThink and act big and well get smaller. Think and act small and well get bigger. Herb KelleherFormer CEO, Southwest Airlines


2007 Thomson/South-Western. All rights reserved.5*Factors Affecting Likelihood of Attack (contd)Quality exists when the firms goods or services meet or exceed customers expectationsProduct quality dimensions include:PerformanceFeaturesFlexibilityDurabilityConformanceServiceabilityAestheticsPerceived quality


2007 Thomson/South-Western. All rights reserved.5*Table 5.1Quality Dimensions of Goods and ServicesProduct Quality Dimensions1.PerformanceOperating characteristics2.FeaturesImportant special characteristics3.FlexibilityMeeting operating specifications over some period of time4.DurabilityAmount of use before performance deteriorates5.ConformanceMatch with preestablished standards6.ServiceabilityEase and speed of repair7.AestheticsHow a product looks and feels8.Perceived qualitySubjective 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 Free Press; D. Garvin, 1988, Managed Quality: The Strategic and Competitive Edge, New York:The Free Press.


2007 Thomson/South-Western. All rights reserved.5*Table 5.1Quality Dimensions of Goods and Services (contd)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 Free Press; D. Garvin, 1988, Managed Quality: The Strategic and Competitive Edge, New York:The Free Press.Service Quality Dimensions1.TimelinessPerformed in the promised period of time2.CourtesyPerformed cheerfully3.ConsistencyGiving all customers similar experiences each time4.ConvenienceAccessibility to customers5.CompletenessFully serviced, as required6.AccuracyPerformed correctly each time


2007 Thomson/South-Western. All rights reserved.5*Likelihood of ResponseResponses to a competitors action are taken when the action:Leads to better use of the competitors capabilities to gain or produce stronger competitive advantages or an improvement in its market position.Damages the firms ability to use its capabilities to create or maintain an advantage.Makes the firms market position becomes less defensible.


2007 Thomson/South-Western. All rights reserved.5*Factors Affecting Likelihood of ResponseFirms study three other factors to predict how a competitor is likely to respond to competitive actions:Type of competitive actionReputationMarket dependence


2007 Thomson/South-Western. All rights reserved.5*Factors Affecting Strategic ResponseStrategic actions receive strategic responsesStrategic actions elicit fewer total competitive responses.The time needed to implement and assess a strategic action delays competitors responses.Tactical responses are taken to counter the effects of tactical actionsA competitor likely will respond quickly to a tactical actions


2007 Thomson/South-Western. All rights reserved.5*Factors Affecting Strategic Response (contd)An actor is the firm taking an action or responseReputation 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 responses.


2007 Thomson/South-Western. All rights reserved.5*Factors Affecting Strategic Response (contd)Market dependence is the extent to which a firms 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.


2007 Thomson/South-Western. All rights reserved.5*Competitive Dynamics versus RivalryCompetitive DynamicsOngoing actions and responses taking place between all firms competing within a market for advantageous positions.Competitive RivalryOngoing actions and responses taking place between an individual firm and its competitors for advantageous market position.


2007 Thomson/South-Western. All rights reserved.5*Competitive Dynamics versus Rivalry (contd)Competitive Rivalry (Individual firms)Market commonality and resource similarityAwareness, motivation and abilityFirst mover incentives, size and qualityCompetitive Dynamics (All firms)Market speed (slow-cycle, fast-cycle, and standard-cycleEffects of market speed on actions and responses of all competitors in the market


2007 Thomson/South-Western. All rights reserved.5*Competitive DynamicsCompetitive advantages are shielded from imitation for long periods of time and imitation is costly.Competitive advantages are sustainable in slow-cycle markets.All firms concentrate on competitive actions and responses to protect, maintain and extend proprietary competitive advantage.


2007 Thomson/South-Western. All rights reserved.5*FIGURE 5.4Gradual Erosion of a Sustained Competitive AdvantageSOURCE: Adapted from I. C. MacMillan, 1988, Controlling competitive dynamics by taking strategic initiative, Academy of Management Executive, 11(2): 111118.


2007 Thomson/South-Western. All rights reserved.5*Competitive Dynamics (contd)The firms competitive advantages arent shielded from imitation.Imitation happens quickly and somewhat expensivelyCompetitive advantages arent sustainable.Competitors use reverse engineering to quickly imitate or improve on the firms productsNon-proprietary technology is diffused rapidly


2007 Thomson/South-Western. All rights reserved.5*FIGURE 5.5Developing Temporary Advantages to Create Sustained AdvantageSource: Adapted from I. C. MacMillan, 1988, Controlling competitive dynamics by taking strategic initiative, Academy of Management Executive, 11(2): 111118.


2007 Thomson/South-Western. All rights reserved.5*Competitive Dynamics (contd)Moderate cost of imitation may shield competitive advantages.Competitive advantages are partially sustainable if their quality is continuously upgraded.FirmsSeek large market sharesGain customer loyalty through brand namesCarefully control operations


******************************************

strategic management chapter 5

Documents

competitive responses

competitive advantages

competitive dynamicssource

competitive rivalrys

competitors responses

competitors initial

individual firms ability

competitor analysis