© 2007 thomson/south-western. all rights reserved

© 2007 Thomson/South-Western.© 2007 Thomson/South-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 Strategic ManagementManagementCompetitiveness 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

Competitive Rivalry Competitive Rivalry andandCompetitive DynamicsCompetitive Dynamics

BA 495 R. M. Zahrowski

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

DefinitionsDefinitions

• CompetitorsCompetitors

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

• Competitive RivalryCompetitive Rivalry

The ongoing set of competitive actions and responses The ongoing set of competitive actions and responses occurring between competitors.occurring between competitors.

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


DefinitionsDefinitions

• Competitive BehaviorCompetitive Behavior The set of competitive actions and competitive The set of competitive actions and competitive

responses the firm takes to build or defend its responses the firm takes to build or defend its competitive advantages and to improve its market competitive advantages and to improve its market position.position.

• Multimarket CompetitionMultimarket Competition Firms competing against each other in several Firms competing against each other in several

product or geographic markets.product or geographic markets.

• Competitive DynamicsCompetitive Dynamics The total set of actions and responses taken by all The total set of actions and responses taken by all

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


From Competitors to Competitive From Competitors to Competitive DynamicsDynamics

CompetitorsCompetitors • To gain an advantageous To gain an advantageous market positionmarket position

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

Competitive DynamicsCompetitive DynamicsCompetitive actions and responses taken Competitive actions and responses taken

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

Engagein

Why?

How?What Results? What Results?

Competitive Competitive RivalryRivalry


Competitive Rivalry’s Effect on StrategyCompetitive Rivalry’s Effect on Strategy

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

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

competitors’ initial actions.competitors’ initial actions.

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

level strategy or strategies.level strategy or strategies.


A Model of Competitive RivalryA Model of Competitive Rivalry

• Firms are mutually interdependentFirms are mutually interdependent A firm’s competitive actions have noticeable effects A firm’s competitive actions have noticeable effects

on its competitors.on its competitors.

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

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

• Marketplace success is a function of both Marketplace success is a function of both individual strategies and the consequences of individual strategies and the consequences of their use.their use.


A Model of Competitive RivalryA Model of Competitive Rivalry

Competitive AnalysisCompetitive Analysis• Market commonalityMarket commonality• Resource similarityResource similarity

Drivers of Competitive Drivers of Competitive BehaviorBehavior• AwarenessAwareness• MotivationMotivation• AbilityAbility

Interfirm RivalryInterfirm 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 Financial

performanceperformance

FeedbackFeedback


Competitor AnalysisCompetitor Analysis

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

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

• With the analysis, a firm is better able to predict With the analysis, a firm is better able to predict competitors’ behaviors when forming its competitors’ behaviors when forming its competitive 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 a The 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 to The degree of importance of the individual markets to

each competitor.each competitor.

• Firms competing against one another in several Firms competing against one another in several or many markets engage in multimarket or many markets engage in multimarket competition.competition. A firm with greater multimarket contact is less likely to A firm with greater multimarket contact is less likely to

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


Resource SimilarityResource Similarity• Resource SimilarityResource Similarity

How comparable the firm’s tangible and intangible How comparable the firm’s tangible and intangible resources are to a competitor’s in terms of both types resources are to a competitor’s in terms of both types and amounts.and amounts.

• Firms with similar types and amounts of Firms with similar types and amounts of resources 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 if Assessing resource similarity can be difficult if critical resources are intangible rather than critical resources are intangible rather than tangible.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 is the extent to which the extent to which

competitors recognize the competitors recognize the degree of their mutual degree of their mutual interdependence that interdependence that results from: results from: • Market commonalityMarket commonality• Resource similarityResource similarity

AwarenessAwareness


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

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

actionaction or to respond to a or to respond to a

competitor’s attackcompetitor’s attack and relates to perceived and relates to perceived

gains and lossesgains and losses

AwarenessAwareness

MotivationMotivation



• Ability relates toAbility relates to each firm’s resourceseach firm’s resources the flexibility these the flexibility these

resources provideresources provide

• Without available Without available resources the firm lacks resources the firm lacks the ability tothe ability to attack a competitorattack a competitor respond to the competitor’s respond to the competitor’s

actionsactions

AwarenessAwareness


AbilityAbility



• A firm is more likely to attack A firm is more likely to attack the rival with whom it has low the rival with whom it has low market commonality than the market commonality than the one with whom it competes in one with whom it competes in multiple markets.multiple markets.

• Given the strong competition Given the strong competition under market commonality, it is under market commonality, it is likely that the attacked firm will likely that the attacked firm will respond to its competitor’s respond to its competitor’s action in an effort to protect its action in an effort to protect its position in one or more position in one or more markets.markets.

AwarenessAwareness


Market Market CommonaliCommonali

tyty

AbilityAbility



• The greater the resource The greater the resource imbalance between the acting firm imbalance between the acting firm and competitors or potential and competitors or potential responders, the greater will be the responders, the greater will be the delay in response by the firm with a delay in response by the firm with a resource disadvantage.resource disadvantage.

• When facing competitors with When facing competitors with greater resources or more greater resources or more attractive market positions, firms attractive market positions, firms should eventually respond, no should eventually respond, no matter how challenging the matter how challenging the response.response.

AwarenessAwareness


Resource Resource DissimilaritDissimilarit

yy

AbilityAbility

Market Market CommonaliCommonali

tyty


Competitive RivalryCompetitive Rivalry

• Competitive ActionCompetitive Action A strategic or tactical action the firm takes to build or A strategic or tactical action the firm takes to build or

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

• Competitive ResponseCompetitive Response A strategic or tactical action the firm takes to counter A strategic or tactical action the firm takes to counter

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


Strategic and Tactical ActionsStrategic and Tactical Actions

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

A market-based move that involves a significant A market-based move that involves a significant commitment of organizational resources and is commitment of organizational resources and is difficult to implement and reverse.difficult to implement and reverse.

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

A market-based move that is taken to fine-tune a A market-based move that is taken to fine-tune a strategy: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 and Product innovation and

development development

Aggressive advertisingAggressive advertising

Advanced research and Advanced research and developmentdevelopment

• First movers can gain:First movers can gain: The loyalty of customers who may The loyalty of customers who may

become committed to the firm’s become committed to the firm’s goods or services.goods or services.

Market share that can be difficult Market share that can be difficult for competitors to take during for competitors to take during future competitive rivalry.future competitive rivalry.

First-Mover First-Mover IncentivesIncentives

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.


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

• Second mover responds to the first Second mover responds to the first mover’s competitive action, typically mover’s competitive action, typically through imitation:through imitation:

Studies customers’ reactions to Studies customers’ reactions to product innovations.product innovations.

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

Can avoid both the mistakes and the Can avoid both the mistakes and the huge spending of the first-movers.huge spending of the first-movers.

May develop more efficient May develop more efficient processes and technologies.processes and technologies.

First MoverFirst Mover

Second Second MoverMover

IncentivesIncentives



• Late mover responds to a Late mover responds to a competitive action only after competitive action only after considerable time has elapsed.considerable time has elapsed.

• Any success achieved will be slow Any success achieved will be slow in coming and much less than that in coming and much less than that achieved by first and second achieved by first and second movers.movers.

• Late mover’s competitive action Late mover’s competitive action allows it to earn only average allows it to earn only average returns and delays its returns and delays its understanding of how to create understanding of how to create value for customers.value for customers.



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 to Relying on speed and surprise to defend competitive advantages or defend competitive advantages or develop new ones while engaged in develop new ones while engaged in competitive rivalry.competitive rivalry.

Having the flexibility needed to Having the flexibility needed to launch a greater variety of launch a greater variety of competitive actions.competitive actions.



OrganizationOrganizational Size- al Size- SmallSmall




• Large firms are likely to initiate Large firms are likely to initiate more competitive actions as well as more competitive actions as well as strategic actions during a given time strategic actions during a given time periodperiod

• Large organizations commonly Large organizations commonly have the slack resources required have the slack resources required to launch a larger number of total to launch a larger number of total competitive actionscompetitive actions

• Think and act big and we’ll get Think and act big and we’ll get smaller. Think and act small and smaller. Think and act small and we’ll get bigger.we’ll get bigger.

Herb KelleherHerb KelleherFormer CEO, Southwest AirlinesFormer CEO, Southwest Airlines



OrganizationOrganizational Size -al Size -LargeLarge




• Quality exists when the firm’s Quality exists when the firm’s goods or services meet or goods or services meet or exceed customers’ exceed customers’ expectationsexpectations

• Product quality dimensions Product quality dimensions include:include:



QualityQuality(Product)(Product)


OrganizationOrganizational Sizeal Size

PerformancePerformance

FeaturesFeatures

FlexibilityFlexibility

DurabilityDurability

ConformanceConformance

ServiceabilityServiceability

AestheticsAesthetics

Perceived Perceived qualityquality


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

Product Quality Dimensions

1. Performance—Operating characteristics

2. Features—Important special characteristics

3. Flexibility—Meeting operating specifications over some period 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 Free Press; D. Garvin, 1988, Managed Quality: The Strategic and Competitive Edge, New York:The Free Press.


TableTable 5.15.1 Quality Dimensions of Goods and Services (cont’d)Quality Dimensions of Goods and Services (cont’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 Free Press; D. Garvin, 1988, Managed Quality: The Strategic and Competitive Edge, New York:The Free Press.

Service Quality Dimensions

1. 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


Factors Affecting Likelihood of Factors Affecting Likelihood of ResponseResponse• Firms study three other factors to predict how a Firms study three other factors to predict how a

competitor is likely to respond to competitive competitor is likely to respond to competitive actions:actions:

Type of competitive actionType of competitive action

ReputationReputation

Market dependenceMarket dependence


Factors Affecting Strategic ResponseFactors Affecting Strategic Response

• Strategic actions receive strategic Strategic actions receive strategic responsesresponses Strategic actions elicit fewer total Strategic actions elicit fewer total

competitive responses.competitive responses.

The time needed to implement and The time needed to implement and assess a strategic action delays assess a strategic action delays competitor’s responses.competitor’s responses.

• Tactical responses are taken to Tactical responses are taken to counter the effects of tactical actionscounter the effects of tactical actions A competitor likely will respond quickly A competitor likely will respond quickly

to a tactical actionsto a tactical actions

Type of Type of Competitive Competitive

ActionAction


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

• An actor is the firm taking an An actor is the firm taking an action or responseaction or response

• Reputation is the positive or Reputation is the positive or negative attribute ascribed by one negative attribute ascribed by one rival to another based on past rival to another based on past competitive behavior.competitive behavior.

• The firm studies responses that a The firm studies responses that a competitor has taken previously competitor has taken previously when attacked to predict likely when attacked to predict likely responses.responses.


ActionAction

Actor’s Actor’s ReputationReputation


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

• Market dependence is the Market dependence is the extent to which a firm’s extent to which a firm’s revenues or profits are derived revenues or profits are derived from a particular market.from a particular market.

• In general, firms can predict that In general, firms can predict that competitors with high market competitors with high market dependence are likely to dependence are likely to respond strongly to attacks respond strongly to attacks threatening their market threatening their market position.position.


ActionAction

Actor’s Actor’s ReputationReputation

Dependence Dependence on the on the marketmarket


Competitive Dynamics versus RivalryCompetitive Dynamics versus Rivalry

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

between between all firmsall firms competing within a market competing within a market for advantageous positions.for advantageous positions.

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

between between an individual firman individual firm and its and its competitorscompetitors for advantageous market for advantageous market position.position.


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

((Individual firmsIndividual firms))

Market commonality Market commonality and resource similarityand resource similarity

Awareness, motivation Awareness, motivation and abilityand ability

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

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

Market speed (slow-Market speed (slow-cycle, fast-cycle, and cycle, fast-cycle, and standard-cyclestandard-cycle

Effects of market Effects of market speed on actions and speed on actions and responses of all responses of all competitors in the competitors in the marketmarket


Competitive DynamicsCompetitive Dynamics

• Competitive advantages are Competitive advantages are shielded from imitation for long shielded from imitation for long periods of time and imitation is periods of time and imitation is costly.costly.

• Competitive advantages are Competitive advantages are sustainable in slow-cycle markets.sustainable in slow-cycle markets.

• All firms concentrate on All firms concentrate on competitive actions and competitive actions and responses to protect, maintain responses to protect, maintain and extend proprietary and extend proprietary competitive advantage.competitive advantage.

Slow-Cycle Slow-Cycle MarketsMarkets


FIGUREFIGURE 5.45.4 Gradual Erosion of a Sustained Competitive Gradual Erosion of a Sustained Competitive AdvantageAdvantage

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


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

• The firm’s competitive advantages The firm’s competitive advantages aren’t shielded from imitation.aren’t shielded from imitation.

• Imitation happens quickly and Imitation happens quickly and somewhat expensivelysomewhat expensively

• Competitive advantages aren’t Competitive advantages aren’t sustainable.sustainable. Competitors use reverse Competitors use reverse

engineering to quickly imitate or engineering to quickly imitate or improve on the firm’s productsimprove on the firm’s products

• Non-proprietary technology is Non-proprietary technology is diffused rapidlydiffused rapidly

Slow-Cycle Slow-Cycle MarketsMarkets

Fast-Cycle Fast-Cycle MarketsMarkets


FIGUREFIGURE 5.55.5 Developing Temporary Advantages to Create Developing Temporary Advantages to Create Sustained AdvantageSustained 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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