competitive dynamics by durga das bhattacharjee

Ch5-1

Chapter 5

Competitive Dynamics

Michael A. HittR. Duane Ireland

Robert E. Hoskisson

©2000 South-Western College Publishing

Ch5-2

Chapter 3Internal

Environment

Chapter 2External

EnvironmentThe StrategicThe StrategicManagementManagement

ProcessProcessStrategic IntentStrategic Mission

StrategicCompetitivenessAbove Average

ReturnsFeedback

Strategy Formulation

Chapter 4Business-Level

Strategy

Chapter 5CompetitiveDynamics

Chapter 6Corporate-Level

Strategy

Chapter 8International

Strategy

Chapter 9Cooperative

Strategies

Chapter 7Acquisitions &Restructuring

Strategy Implementation

Chapter 10Corporate

Governance

Chapter 11Structure& Control

Chapter 12Strategic

Leadership

Chapter 13Entrepreneurship & Innovation

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Ch5-3

Declining emphasis on single, domestic markets and Declining emphasis on single, domestic markets and increasing emphasis on global marketsincreasing emphasis on global markets

Advances in communication technology make Advances in communication technology make coordination easier across multiple marketscoordination easier across multiple markets

Advances in technology and innovation have increased Advances in technology and innovation have increased competitiveness of small and medium sized firmscompetitiveness of small and medium sized firms

National barriers are falling due to the number and National barriers are falling due to the number and scope of trade agreements (GATT, NAFTA, EEC)scope of trade agreements (GATT, NAFTA, EEC)

Factors Leading to More Complex Rivalry

Ch5-4

Competitive DynamicsCompetitive DynamicsResults from a series of competitive actions and Results from a series of competitive actions and competitive responses among firms competing within competitive responses among firms competing within a particular industrya particular industry

Competitive RivalryExists when two or more firms jockey with one another Exists when two or more firms jockey with one another in the pursuit of better market positionin the pursuit of better market position

Ch5-5

Actions and Actions and responses shape the responses shape the

competitive positions competitive positions of each firm’s of each firm’s business level business level

strategystrategy

Actions taken Actions taken by one firm by one firm elicit responses elicit responses from from competitorscompetitors

A firm’s A firm’s strategic conduct strategic conduct

is dynamic in is dynamic in naturenature

Competitive Competitive responses lead responses lead

to additional to additional actions from the actions from the

firm that acted firm that acted originallyoriginally

CompetitiveCompetitive Dynamics Dynamics

Ch5-6

Relative SizeSpeed

InnovationQuality

Ability for Ability for Action and Action and ResponseResponse

OutcomesOutcomesDrivers of Drivers of

Competitive Competitive BehaviorBehaviorAwarenessMotivationCapability

Competitor Competitor AnalysisAnalysisMarket

CommonalityResourceSimilarity

Interfirm Rivalry:Interfirm Rivalry:Attack & ResponseAttack & Response

Likelihood of AttackFirst Mover Incentives

Likelihood of ResponseType of Competitive

Action

Dependence on theMarket

Resource Availability

Actor’s Reputation

Competitive

Slow, Standardor Fast Cycle

Market Types

Competitive

SustainedOutcomes

CompetitiveAdvantageTemporaryAdvantageEvolutionaryOutcomes

Entrepreneurial

or Market-PowerGrowth-Oriented

Actions

FeedbackFeedback

Model of Interfirm Rivalry:Model of Interfirm Rivalry:Likelihood of Attack and ResponseLikelihood of Attack and Response

Ch5-7

Drivers of Drivers of Competitive Competitive

BehaviorBehavior

Motivation

Capability

Awareness


Do managers understand Do managers understand the key characteristics of the key characteristics of competitors?competitors?

Awareness

Ch5-8

Does the firm have Does the firm have appropriate incentives to appropriate incentives to attack or respond?attack or respond?


BehaviorBehavior

Motivation

Capability

Awareness


Ch5-9

Does the firm have the Does the firm have the necessary resources to necessary resources to attack or respond?attack or respond?


BehaviorBehavior

Motivation

Capability

Awareness


Ch5-10

Relative SizeSpeed

InnovationQuality









Action




Competitive


Market Types

Competitive

SustainedOutcomes


Entrepreneurial


Actions

FeedbackFeedback


Ch5-11

Competitor Competitor AnalysisAnalysis

Resource Similarity

Market Commonality


Do firms compete with each Do firms compete with each other in multiple markets?other in multiple markets?

Market Commonality

Ch5-12


Resource Similarity

Market Commonality

Multipoint competition tends to Multipoint competition tends to reduce competitive interactions, but reduce competitive interactions, but increases the likelihood of response increases the likelihood of response where interaction occurswhere interaction occurs

For example, airlines price flights For example, airlines price flights similarly but respond quickly when similarly but respond quickly when competitors introduce promotional competitors introduce promotional pricesprices


Ch5-13


Resource Similarity

Do competitors possess similar Do competitors possess similar types or amounts of types or amounts of resources?resources?

Market Commonality


Ch5-14


Resource Similarity

Market Commonality Firms are less inclined to attack a Firms are less inclined to attack a

firm that is likely to retaliatefirm that is likely to retaliate

Firms with dissimilar resources Firms with dissimilar resources are more likely to attackare more likely to attack

Firms with similar resources are Firms with similar resources are more likely to be aware of each more likely to be aware of each other’s competitive movesother’s competitive moves


Ch5-15

Relative SizeSpeed

InnovationQuality









Action




Competitive


Market Types

Competitive

SustainedOutcomes


Entrepreneurial


Actions

FeedbackFeedback


Ch5-16


Likelihood of AttackFirst Mover IncentivesLikelihood of Response

Type of CompetitiveAction






First Mover advantage First Mover advantage can be substantialcan be substantial

Ch5-17

First MoverFirst MoverFirms that take an initial competitive action

Generally possess the resources and capabilities that enable them to be pioneers in new products, new markets or new technologies

Can earn above average profits until competitors respondGain customer loyalty, helping to create a barrier to entry by competitorsAdvantage depends upon difficulty of imitation

Ch5-18

Second MoverSecond Mover

Firms that respond to a First Mover’s actionsSecond Movers frequently imitate First Movers

Speed of response often dictates success

Should evaluate customers’ response before moving

“Fast” Second Movers can capture some of initial customers and develop some brand loyalty

Avoid some of the risks associated with First Move

Must possess necessary capabilities to imitate

Ch5-19


Likelihood of AttackFirst Mover IncentivesLikelihood of Response

Type of CompetitiveAction




Whether a competitor Whether a competitor is likely to respond is likely to respond depends on several depends on several key factorskey factors


Ch5-20

TacticalTacticalActionsActions

Major AcquisitionMajor AcquisitionExampleExample

Types of Competitive ActionsTypes of Competitive Actions

Strategic Strategic ActionsActions

Price cutPrice cutExampleExample

Significant commitments of specific and distinctive organizational resources

Difficult to implement

Difficult to reverse

Relatively easy to implementRelatively easy to implement

Relatively easy to reverseRelatively easy to reverse

Undertaken to “fine tune” strategyUndertaken to “fine tune” strategy

Ch5-21

Gauging the Likelihood of ResponseGauging the Likelihood of Response

Actor’s ReputationActor’s Reputation

Market leaders are more likely to be copiedMarket leaders are more likely to be copied

““Risk taking” firms are less likely to be copiedRisk taking” firms are less likely to be copied

““Price Predators” are less likely to be copied Price Predators” are less likely to be copied

Type of Competitive Action -Tactical or Strategic

Easier to respond to

Require fewer resources to mount a response

Ch5-22

Market DependenceMarket Dependence

Competitor ResourcesCompetitor ResourcesSmaller firms are more likely to respond to tactical Smaller firms are more likely to respond to tactical actionsactions

Limited resources may lead to alternatives such as Limited resources may lead to alternatives such as Strategic AlliancesStrategic Alliances

Gauging the Likelihood of ResponseGauging the Likelihood of Response

Firms that are more dependent on a single industry are more likely to respond than are diversified firms

Industry dependent firms will likely respond to either strategic or tactical actions

Ch5-23

Relative SizeSpeed

InnovationQuality









Action




Competitive


Market Types

Competitive

SustainedOutcomes


Entrepreneurial


Actions

FeedbackFeedback


Ch5-24

Relative Size

Quality

Innovation

Speed



Relative SizeFirm size can have Firm size can have opposing effects on opposing effects on competitive dynamicscompetitive dynamics

Ch5-25

Quality

Speed

Large firms may exert market power Large firms may exert market power over rivals and erect barriers to over rivals and erect barriers to entry against smaller competitorsentry against smaller competitors

However, smaller competitors However, smaller competitors may be more nimble and may be more nimble and innovativeinnovative


Relative Size

Innovation


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

-- Herb Kelleher, CEO, Southwest Airlines

Ch5-26

Relative Size

Quality

Innovation

Speed

Quick response is Quick response is crucial to both the crucial to both the first mover and the first mover and the fast second moverfast second mover



Ch5-27

Consistent innovation Consistent innovation is required for market is required for market leadership in many leadership in many dynamic industries dynamic industries


Relative Size

Quality

Innovation

Speed


Ch5-28

Exceeding customer Exceeding customer expectations is a necessity expectations is a necessity to compete in the 21st to compete in the 21st centurycentury


Relative Size

Quality

Innovation

Speed


Ch5-29

Quality Dimensions of Goods & ServicesQuality Dimensions of Goods & Services

ProductProduct Quality Dimensions: Quality Dimensions:

Perceived quality Perceived quality Subjective assessment of Subjective assessment of characteristics (product image)characteristics (product image)

Performance Performance Operating characteristicsOperating characteristicsFeatures Features Important special characteristicsImportant special characteristicsFlexibility Flexibility Meeting operating specifications over timeMeeting operating specifications over timeDurability Durability Amount of use before performance Amount of use before performance

deterioratesdeterioratesConformance Conformance Match with pre-established standardsMatch with pre-established standardsServiceability Serviceability Ease and speed of repair or normal serviceEase and speed of repair or normal serviceAesthetics Aesthetics How a product looks and feelsHow a product looks and feels

Ch5-30

Quality Dimensions of Goods & ServicesQuality Dimensions of Goods & Services

ServiceService Quality Dimensions: Quality Dimensions:

Timeliness Timeliness Performed in promised period of timePerformed in promised period of time

Courtesy Courtesy Performed cheerfullyPerformed cheerfully

Consistency Consistency Giving all customers similar experiencesGiving all customers similar experiences

Convenience Convenience Accessibility to customersAccessibility to customers

Completeness Completeness Fully serviced, as requiredFully serviced, as required

Accuracy Accuracy Performed correctly each timePerformed correctly each time

Ch5-31

Relative SizeSpeed

InnovationQuality









Action




Competitive


Market Types

Competitive

SustainedOutcomes


Entrepreneurial


Actions

FeedbackFeedback


Ch5-32

OutcomesOutcomes

Evolutionary ActionsGrowth-Oriented Actions Market-Power Actions

Evolutionary Outcomes

Sustained Competitive

Competitive Market TypesSlow, Standard or Fast Cycle

Competitive Outcomes

AdvantageTemporary Advantage


Slow cycle markets are Slow cycle markets are frequently shielded by frequently shielded by monopoly power or very monopoly power or very strong brand loyaltiesstrong brand loyalties

This market outcome and This market outcome and lack of interfirm rivalry lack of interfirm rivalry may lead to sustained may lead to sustained competitive advantagecompetitive advantage





Ch5-33

OutcomesOutcomes


Evolutionary OutcomesSustained competitive Sustained competitive advantage is a possible advantage is a possible outcome in this instanceoutcome in this instance

Standard cycle markets Standard cycle markets often lead to highly often lead to highly competitive pressures competitive pressures despite world class despite world class productsproducts

Firms with multimarket Firms with multimarket competition may dampen competition may dampen rivalry somewhatrivalry somewhat






Ch5-34


OutcomesOutcomes





Fast cycle markets are Fast cycle markets are intensely dynamic and a intensely dynamic and a first mover advantage is first mover advantage is often unsustainableoften unsustainable


Firms may cannibalize Firms may cannibalize older generation products older generation products while introducing new while introducing new innovative premium innovative premium productsproducts

Sustainable competitive Sustainable competitive advantage is unilkelyadvantage is unilkely


Ch5-35Time (years)Time (years) 1010

LaunchLaunch

ExploitationExploitationCounterattackCounterattack

Gradual Erosion of a Gradual Erosion of a Sustained Competitive Advantage Sustained Competitive Advantage

Returns Returns from a from a

Sustained Sustained Competitive Competitive AdvantageAdvantage

Ch5-36

Some Firms Maintain Competitive Advantage Some Firms Maintain Competitive Advantage in Fast-Cycle Markets by Seizing the Initiativein Fast-Cycle Markets by Seizing the Initiative

Disrupting the Status QuoDisrupting the Status QuoIdentify new opportuntites to serve the customer by Identify new opportuntites to serve the customer by shifting the rules of competition through speed and varietyshifting the rules of competition through speed and variety

Creating Temporary AdvantageCreating Temporary AdvantageUse superior knowledge of the customer, technology and the Use superior knowledge of the customer, technology and the future to enhance customer orientation and empower future to enhance customer orientation and empower workersworkersSeizing the InitiativeSeizing the InitiativeMove aggressively into new areas of competition to create Move aggressively into new areas of competition to create new advantage and undermine a competitor’s old advantagenew advantage and undermine a competitor’s old advantage

11

22

33

44 Sustaining the MomentumSustaining the MomentumTake several actions in a row in order to seize the initiative Take several actions in a row in order to seize the initiative and create momentum to develop new advantagesand create momentum to develop new advantages


LaunchLaunch

ExploitationExploitation CounterattackCounterattack



Obtaining Temporary Advantages Obtaining Temporary Advantages to Create Sustained Advantageto Create Sustained Advantage

55 1515


LaunchLaunch




55 1515

Firm has already moved Firm has already moved on to Advantage No. 2on to Advantage No. 2



LaunchLaunch




55 1515

Firm continues to move Firm continues to move on to the next Advantageon to the next Advantage


Ch5-40

Strategies may be deter-Strategies may be deter-mined by the life cycle of mined by the life cycle of the industrythe industry

Younger firms and Younger firms and emerging industries are emerging industries are generally characterized by generally characterized by entrepreneurial actionsentrepreneurial actions

Growth-oriented and Growth-oriented and Market-power strategies Market-power strategies dominate established or dominate established or mature industriesmature industries


OutcomesOutcomes







Ch5-41

Relative SizeSpeed

InnovationQuality









Action




Competitive


Market Types

Competitive

SustainedOutcomes


Entrepreneurial


Actions

FeedbackFeedback


Ch5-42

An Action-Based Model of the An Action-Based Model of the Industry Life CycleIndustry Life Cycle

Key TaskKey Task

Exploiting Open Exploiting Open Niches (Blind Spots) Niches (Blind Spots)

and Competitive and Competitive UncertaintyUncertainty

Entrepreneurial Entrepreneurial ActionsActions

Key TaskKey Task

Growth-OrientedGrowth-OrientedActionsActions

Exploiting Factors Exploiting Factors of Productionof Production

Key TaskKey Task

Market-PowerMarket-PowerActionsActions

Exploiting Market Exploiting Market PositionPosition

Firm Resource Firm Resource &&

Market StrengthMarket Strength

Emerging StageEmerging Stage Growth StageGrowth Stage Mature StageMature Stage

TimeTime

competitive dynamics by durga das bhattacharjee

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