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Ch06 Discussion Light

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Strategy Management
Robert E. Hoskisson; Michael A. Hitt; R. Duane Ireland

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Ch06 Discussion Light

  1. 1. Competitive Rivalry and Competitive Dynamics Robert E. Hoskisson Michael A. Hitt R. Duane Ireland Chapter 6
  2. 2. Chapter 2 Strategic Leadership Chapter 4 The Internal Organization Chapter 6 Competitive Rivalry and Competitive Dynamics Chapter 9 International Strategy Chapter 1 Introduction to Strategic Management Chapter 3 The External Environment Chapter 5 Business-Level Strategy Chapter 8 Acquisition and Restructuring Strategies Chapter 11 Corporate Governance Strategic Intent Strategic Mission Chapter 7 Corporate-Level Strategy Chapter 10 Cooperative Strategy Chapter 12 Strategic Entrepreneurship Strategic Analysis Strategic Thinking Creating Competitive Advantage Monitoring And Creating Entrepreneurial Opportunities The Strategic Management Process Chapter 5 Business-Level Strategy Chapter 6 Competitive Rivalry and Competitive Dynamics
  3. 3. Discussion Questions <ul><li>What is competitive dynamics and why is it important? </li></ul><ul><li>What are the reasons why rivalry increases or decreases between firms? </li></ul><ul><li>What factors drive awareness of the potential for increased rivalry and competitive attack and response? </li></ul>Click Here Click Here Click Here More discussion questions Click Here
  4. 4. Discussion Questions (cont.) <ul><li>What factors lead to motivation and ability for competitive attack and response? </li></ul><ul><li>Besides market commonality and resource similarity, what additional factors might lead a firm to attack? </li></ul><ul><li>Once competitive action is taken, what factors increase the likelihood of competitive response? </li></ul>Click Here Click Here Click Here Click Here More discussion questions
  5. 5. Discussion Questions (cont.) <ul><li>What strategic approach is necessary to compete in slow versus fast cycle or hyper-competitive markets? </li></ul>Click Here
  6. 6. Discussion Question 1 <ul><li>What is competitive dynamics and why is it important? </li></ul>
  7. 7. Definitions <ul><li>Competitors </li></ul><ul><ul><li>firms operating in the same market, offering similar products and targeting similar customers </li></ul></ul><ul><li>Competitive rivalry </li></ul><ul><ul><li>the ongoing set of competitive actions and responses occurring between competitors </li></ul></ul><ul><ul><li>competitive rivalry influences an individual firm’s ability to gain and sustain competitive advantages </li></ul></ul>
  8. 8. Definitions <ul><li>Competitive behavior </li></ul><ul><ul><li>the set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position </li></ul></ul><ul><li>Competitive dynamics </li></ul><ul><ul><li>the total set of actions and responses taken by all firms competing within a market </li></ul></ul>
  9. 9. From Competitors to Competitive Dynamics Engage in Why? How? Competitors <ul><li>Through competitive </li></ul><ul><li>behavior </li></ul><ul><li>Competitive actions </li></ul><ul><li>Competitive responses </li></ul><ul><li>To gain an advantageous </li></ul><ul><li>market position </li></ul><ul><li>Competitive Dynamics </li></ul><ul><ul><li>Competitive actions and responses taken by all </li></ul></ul><ul><ul><li>firms competing in a market </li></ul></ul>Competitive rivalry What results? What results?
  10. 10. Effect of Competitive Rivalry on a Firm’s Strategies <ul><li>Success of a strategy is determined by: </li></ul><ul><ul><li>the firm’s initial competitive actions </li></ul></ul><ul><ul><li>how well it anticipates competitors’ responses to them </li></ul></ul><ul><ul><li>how well the firm anticipates and responds to its competitors’ initial actions </li></ul></ul><ul><li>Competitive rivalry </li></ul><ul><ul><li>affects all types of strategies </li></ul></ul><ul><ul><li>most dominant influence is on the firm’s business-level strategy or strategies. </li></ul></ul>Click Here Return to Discussion Questions
  11. 11. Discussion Question 2 <ul><li>What are the reasons why rivalry increases or decreases between firms? </li></ul>
  12. 12. A Model of Competitive Rivalry feedback <ul><li>Competitive Analysis </li></ul><ul><ul><li>Market commonality </li></ul></ul><ul><ul><li>Resource similarity </li></ul></ul><ul><li>Drivers of Competitive </li></ul><ul><li>Behavior </li></ul><ul><ul><li>Awareness </li></ul></ul><ul><ul><li>Motivation </li></ul></ul><ul><ul><li>Ability </li></ul></ul><ul><li>Interfirm Rivalry </li></ul><ul><ul><li>Likelihood of Attack </li></ul></ul><ul><ul><ul><li>First mover incentives </li></ul></ul></ul><ul><ul><ul><li>Organizational size </li></ul></ul></ul><ul><ul><ul><li>Quality </li></ul></ul></ul><ul><ul><li>Likelihood of Response </li></ul></ul><ul><ul><ul><li>Type of competitive action </li></ul></ul></ul><ul><ul><ul><li>Reputation </li></ul></ul></ul><ul><ul><ul><li>Market dependence </li></ul></ul></ul><ul><li>Outcomes </li></ul><ul><ul><li>Market position </li></ul></ul><ul><ul><li>Financial performance </li></ul></ul>
  13. 13. Competitive Rivalry <ul><li>Firms are mutually interdependent </li></ul><ul><ul><li>one firm’s competitive actions have noticeable effects on competitors </li></ul></ul><ul><ul><li>one firm’s competitive actions elicit competitive responses from competitors </li></ul></ul><ul><ul><li>competitors feel each other’s actions and responses </li></ul></ul><ul><li>Marketplace success is a function of both individual strategies and the consequences of their use </li></ul>
  14. 14. Competitor Analysis <ul><li>Competitor analysis </li></ul><ul><ul><li>a technique firms use to understand their competitive environment. Along with the general and industry environments, the competitive environment comprises the firm’s external environment </li></ul></ul><ul><ul><li>a technique used to help the firm understand its competitors </li></ul></ul><ul><ul><li>the first step to being able to predict competitors’ behavior in the form of its competitive actions and responses </li></ul></ul>Click Here Return to Discussion Questions
  15. 15. Discussion Question 3 <ul><li>What factors drive awareness of the potential for increased rivalry and competitive attack and response? </li></ul>
  16. 16. Market Commonality <ul><li>Market Commonality is concerned with </li></ul><ul><ul><li>the number of markets with which a firm and a competitor are jointly involved </li></ul></ul><ul><ul><li>the degree of importance of the individual markets to each competitor </li></ul></ul><ul><li>Most industries’ markets are somewhat related in terms of </li></ul><ul><ul><li>technologies </li></ul></ul><ul><ul><li>core competencies </li></ul></ul><ul><li>Multimarket competition </li></ul><ul><ul><li>Firms competing in several markets </li></ul></ul>
  17. 17. Resource Similarity <ul><li>Resource similarity </li></ul><ul><ul><li>the extent to which the firm’s tangible and intangible resources are comparable to a competitor’s in terms of both type and amount </li></ul></ul><ul><li>Firms with similar types and amounts of resources are likely to </li></ul><ul><ul><li>have similar strengths and weaknesses </li></ul></ul><ul><ul><li>use similar strategies </li></ul></ul><ul><li>Assessing resource similarity can be difficult if critical resources are intangible rather than tangible </li></ul>
  18. 18. A Framework of Competitor Analysis Market Commonality High Low Low High Resource Similarity The shaded area represents degree of market commonality between two firms Resource endowment B Resource endowment A KEY I II III IV
  19. 19. Drivers of Competitive Actions and Responses: <ul><li>Awareness is the extent to which competitors recognize the degree of their mutual interdependence </li></ul><ul><ul><li>mutual interdependence results from </li></ul></ul><ul><ul><ul><li>market commonality </li></ul></ul></ul><ul><ul><ul><li>resource similarity </li></ul></ul></ul>Awareness Drivers of competitive behavior Click Here Return to Discussion Questions Awareness
  20. 20. Discussion Question 4 <ul><li>What factors lead to motivation and ability for competitive attack and response? </li></ul>
  21. 21. Drivers of Competitive Actions and Responses: <ul><li>Motivation concerns the firm’s incentive </li></ul><ul><ul><li>to take action </li></ul></ul><ul><ul><li>or to respond to a competitor’s attack </li></ul></ul><ul><ul><li>and relates to perceived gains and losses </li></ul></ul>Drivers of competitive behavior Motivation Motivation Awareness
  22. 22. Drivers of Competitive Actions and Responses: <ul><li>Ability relates </li></ul><ul><ul><li>to each firm’s resources </li></ul></ul><ul><ul><li>the flexibility these resources provide </li></ul></ul><ul><li>Without available resources the firm lacks the ability </li></ul><ul><ul><li>to attack a competitor </li></ul></ul><ul><ul><li>to respond to the competitor’s actions </li></ul></ul>Drivers of competitive behavior Ability Ability Awareness Motivation
  23. 23. Drivers of Competitive Actions and Responses: <ul><li>Dissimilarity refers to the resource imblance between the acting firm and </li></ul><ul><ul><li>competitors </li></ul></ul><ul><ul><li>potential responders </li></ul></ul><ul><li>The greater the imbalance, the greater will be the delay in response by the firm with the resource disadvantage </li></ul>Drivers of competitive behavior Dissimilarity Ability Awareness Motivation Dissimilarity
  24. 24. Drivers of Competitive Actions and Responses: <ul><li>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 </li></ul><ul><li>Because of the high stakes of competition under the condition of market commonality, there is a high probability that the attacked firm will respond to its competitor’s action in an effort to protect its position in one or more markets </li></ul>Drivers of competitive behavior influenced by Market Commonality Market commonality
  25. 25. Drivers of Competitive Actions and Responses: <ul><li>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 </li></ul><ul><li>When facing competitors with greater resources or more attractive market positions, firms should eventually respond, no matter how challenging the response </li></ul>Drivers of competitive behavior influenced by Resource Similarity Click Here Return to Discussion Questions Resource similarity Market commonality
  26. 26. Discussion Question 5 <ul><li>Besides market commonality and resource similarity, what additional factors might lead a firm to attack? </li></ul>
  27. 27. Factors Affecting Likelihood of Attack: <ul><li>First movers allocate funds for </li></ul><ul><ul><li>product innovation and development </li></ul></ul><ul><ul><li>aggressive advertising </li></ul></ul><ul><ul><li>advanced research and development </li></ul></ul><ul><li>First movers can gain </li></ul><ul><ul><li>the loyalty of customers who may become committed to the firm’s goods or services </li></ul></ul><ul><ul><li>market share that can be difficult for competitors to take during future competitive rivalry </li></ul></ul>First Mover Incentives First mover incentives
  28. 28. Factors Affecting Likelihood of Attack: <ul><li>Small firms are more likely </li></ul><ul><ul><li>to launch competitive actions </li></ul></ul><ul><ul><li>to be quicker in doing so </li></ul></ul><ul><li>Small firms are perceived as </li></ul><ul><ul><li>nimble and flexible competitors </li></ul></ul><ul><ul><li>relying on speed and surprise to defend their competitive advantages or develop new ones while engaged in competitive rivalry </li></ul></ul><ul><li>Small firms have the flexibility needed to launch a greater variety of competitive actions </li></ul>Size Size First mover incentives
  29. 29. Factors Affecting Likelihood of Attack: <ul><li>Large firms are likely to initiate more competitive actions as well as strategic actions during a given time period </li></ul><ul><li>Large organizations commonly have the slack resources required to launch a larger number of total competitive actions </li></ul>Size First mover incentives Size “ Think and act big and we’ll get smaller. Think and act small and we’ll get bigger.” - Herb Kelleher, Former CEO, Southwest Airlines
  30. 30. Factors Affecting Likelihood of Attack: <ul><li>Quality exists when the firm’s goods or services meet or exceed customers’ expectations </li></ul>Quality <ul><li>Product quality dimensions include </li></ul><ul><ul><li>Performance </li></ul></ul><ul><ul><li>Features </li></ul></ul><ul><ul><li>Flexibility </li></ul></ul><ul><ul><li>Durability </li></ul></ul><ul><ul><li>Conformance </li></ul></ul><ul><ul><li>Serviceability </li></ul></ul><ul><ul><li>Aesthetics </li></ul></ul><ul><ul><li>Perceived quality </li></ul></ul>Quality First mover incentives Size
  31. 31. Factors Affecting Likelihood of Attack: <ul><li>Quality exists when the firm’s goods or services meet or exceed customers’ expectations </li></ul>Click Here Return to Discussion Questions Quality <ul><li>Service quality dimensions include </li></ul><ul><ul><li>Timeliness </li></ul></ul><ul><ul><li>Courtesy </li></ul></ul><ul><ul><li>Consistency </li></ul></ul><ul><ul><li>Convenience </li></ul></ul><ul><ul><li>Completeness </li></ul></ul><ul><ul><li>Accuracy </li></ul></ul>Quality First mover incentives Size
  32. 32. Discussion Question 6 <ul><li>Once competitive action is taken, what factors increase the likelihood of competitive response? </li></ul>
  33. 33. Factors Affecting Likelihood of Response <ul><li>Firms study three factors to predict how a competitor is likely to respond to competitive actions </li></ul><ul><ul><li>type of competitive action </li></ul></ul><ul><ul><li>reputation </li></ul></ul><ul><ul><li>market dependence </li></ul></ul>
  34. 34. Strategic and Tactical Actions <ul><li>Strategic action or a strategic response </li></ul><ul><ul><li>a market-based move that involves a significant commitment of organizational resources and is difficult to implement and reverse </li></ul></ul><ul><li>Tactical action or a tactical response </li></ul><ul><ul><li>a market-based move that is taken to fine-tune a strategy; it involves fewer resources and is relatively easy to implement and reverse </li></ul></ul>
  35. 35. Factors Affecting Likelihood of Response: <ul><li>Strategic actions receive strategic responses </li></ul><ul><li>Tactical responses are taken to counter the effects of tactical actions </li></ul><ul><li>Strategic actions elicit fewer total competitive responses </li></ul><ul><li>A competitor likely will respond quickly to a tactical action </li></ul><ul><li>The time needed to implement and assess a strategic action delays competitors’ responses </li></ul>Type of Competitive Action Type of competitive action
  36. 36. Factors Affecting Likelihood of Response: <ul><li>An actor is the firm taking an action or response </li></ul><ul><li>Reputation is the positive or negative attribute ascribed by one rival to another based on past competitive behavior </li></ul><ul><li>The firm studies responses that a competitor has taken previously when attacked to predict likely responses </li></ul>Reputation Reputation Type of competitive action
  37. 37. Factors Affecting Likelihood of Response: <ul><li>Market dependence is </li></ul><ul><ul><li>the extent to which a firm’s revenues or profits are derived from a particular market </li></ul></ul><ul><li>In general, firms can predict that competitors with high market dependence are likely to respond strongly to attacks threatening their market position </li></ul>Market Dependence Click Here Return to Discussion Questions Market dependence Type of competitive action Reputation
  38. 38. Discussion Question 7 <ul><li>What strategic approach is necessary to compete in slow versus fast cycle or hyper-competitive markets? </li></ul>
  39. 39. Competitive Dynamics: <ul><li>Slow-cycle markets </li></ul><ul><ul><li>the firm’s competitive advantages are shielded from imitation for long periods of time </li></ul></ul><ul><ul><li>imitation is costly </li></ul></ul><ul><li>Competitive advantages are sustainable in slow-cycle markets </li></ul><ul><li>A proprietary, one-of-a-kind competitive advantage leads to competitive success in a slow-cycle market </li></ul>Slow-Cycle Markets Slow-cycle markets
  40. 40. Gradual Erosion of a Sustainable Competitive Advantage Returns from a Sustainable Competitive Advantage Time (Years) Launch Exploitation Counterattack 0 5 10
  41. 41. Competitive Dynamics: <ul><li>Fast-cycle markets </li></ul><ul><ul><li>the firm’s competitive advantages aren’t shielded from imitation </li></ul></ul><ul><ul><li>imitation happens quickly and somewhat inexpensively </li></ul></ul><ul><li>Competitive advantages aren’t sustainable </li></ul><ul><li>Competitors use reverse engineering to quickly imitate or improve on the firm’s products </li></ul><ul><li>Non-proprietary technology is diffused rapidly </li></ul>Fast-Cycle Markets Fast-cycle markets Slow-cycle markets
  42. 42. Obtaining Temporary Advantages to Create Sustained Advantage Returns from a Series of Replicable Actions Time (Years) Launch Exploitation Counterattack Firm has already moved to next advantage 0 5 10 15
  43. 43. Competitive Dynamics: <ul><li>Standard-cycle markets </li></ul><ul><ul><li>the firm’s competitive advantages may be shielded from imitation </li></ul></ul><ul><ul><li>imitation is moderately costly </li></ul></ul><ul><li>Competitive advantages are partially sustainable if the firm is able to continuously upgrade the quality of its competitive advantages </li></ul><ul><li>Firms </li></ul><ul><ul><li>seek large market shares </li></ul></ul><ul><ul><li>gain customer loyalty through brand names </li></ul></ul><ul><ul><li>carefully control operations </li></ul></ul>Standard-Cycle Markets Slow-cycle markets Fast-cycle markets Standard-cycle markets

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