Class Lectures Strategic Competiveness Strategic competitiveness is achieved when a company successfully formulates and implements a value-creating strategy. A company's ability to sustain strategic competitiveness—also called competitive advantage—depends on whether or not other companies are able to imitate or duplicate the strategy. The period of time for which a company holds its competitive edge is determined by the speed with which competitors are able to duplicate the leader's value-creating strategy. What this means is that businesses cannot afford to become complacent. Another company can enter the market with a bigger, better, and cheaper imitation and take over the market, and soon, the new entrant will gain competitive advantage. When George Zimmer, the CEO of Men's Wearhouse Inc., first started his retail chain in 1973, his goal was to offer men's suits at prices that the average businessman could afford. He wanted to create an alternative to the stuffy department stores and men's boutique stores where prices were high and the atmosphere often uncomfortable. His main strategy was to situate Men's Wearhouse stores in outdoor shopping plazas away from high-rent neighborhoods rather than in malls. Zimmer continues to look for ways to cut expenses, as evidenced by the decision to move the manufacturing of a line of clothing from Italy to Korea. This move enabled him to sell suits for between $250 and $300, which is approximately half the price at specialty stores. Zimmer was not one for complacency. He continued to broaden his clientele and is known to be an out-of-the-box thinker. Zimmer decided to expand his line to include bridal wear, and started tuxedo rentals in 1999, where anticipated sales in 2004 are $80 million up from $51.5 million the previous year. Zimmer created an empire with overall sales in 2003 totalling $1.4 billion (Eng, 2010). The ability to create competitive advantage is vital to a company's ability to earn above-average returns. Above-average returns are returns in excess of what investors expected to earn from other investments with a similar amount of risk. Men's Wearhouse Inc. continues to be an example of competitive advantage. As of November 2004, the company's profits jumped 48%. The company's stock, which was trading at approximately $30.50, rose up 22% per year to date, out-performing the 6% increase of Standard and Poor's index of 25 apparel retailers (Pfeffer, 1997). Without competitive advantage, an investor can at most expect an average return. Companies that return anything below an average return often face the risk of failure. This is particularly true in a global economy where the threat of competition is high. According to Porter (1992), a leading authority on strategic competition and a professor at Harvard Business School, there are two basic types of competitive advantage: Cost advantage Differentiation advantage These advantages are achieved when a company can deliver the same benefits as.

1. Class Lectures
Strategic Competiveness
Strategic competitiveness is achieved when a company
successfully formulates and implements a value-creating
strategy. A company's ability to sustain strategic
competitiveness—also called competitive advantage—depends
on whether or not other companies are able to imitate or
duplicate the strategy. The period of time for which a company
holds its competitive edge is determined by the speed with
which competitors are able to duplicate the leader's value-
creating strategy.
What this means is that businesses cannot afford to become
complacent. Another company can enter the market with a
bigger, better, and cheaper imitation and take over the market,
and soon, the new entrant will gain competitive advantage.
When George Zimmer, the CEO of Men's Wearhouse Inc., first
started his retail chain in 1973, his goal was to offer men's suits
at prices that the average businessman could afford. He wanted
to create an alternative to the stuffy department stores and
men's boutique stores where prices were high and the
atmosphere often uncomfortable. His main strategy was to
situate Men's Wearhouse stores in outdoor shopping plazas
away from high-rent neighborhoods rather than in malls.
Zimmer continues to look for ways to cut expenses, as
evidenced by the decision to move the manufacturing of a line
of clothing from Italy to Korea. This move enabled him to sell
suits for between $250 and $300, which is approximately half
the price at specialty stores. Zimmer was not one for
complacency. He continued to broaden his clientele and is
known to be an
out-of-the-box thinker. Zimmer decided to expand his line to
include bridal wear, and started tuxedo rentals in 1999, where
anticipated sales in 2004 are $80 million up from $51.5 million
the previous year. Zimmer created an empire with overall sales

2. in 2003 totalling $1.4 billion (Eng, 2010).
The ability to create competitive advantage is vital to a
company's ability to earn above-average returns. Above-average
returns are returns in excess of what investors expected to earn
from other investments with a similar amount of risk. Men's
Wearhouse Inc. continues to be an example of competitive
advantage. As of November 2004, the company's profits jumped
48%. The company's stock, which was trading at approximately
$30.50, rose up 22% per year to date, out-performing the 6%
increase of Standard and Poor's index of 25 apparel retailers
(Pfeffer, 1997).
Without competitive advantage, an investor can at most expect
an average return. Companies that return anything below an
average return often face the risk of failure. This is particularly
true in a global economy where the threat of competition is
high.
According to Porter (1992), a leading authority on strategic
competition and a professor at Harvard Business School, there
are two basic types of competitive advantage:
Cost advantage
Differentiation advantage
These advantages are achieved when a company can deliver the
same benefits as its competitors but at lower prices or when a
company can deliver benefits that exceed those of their
competitors.
Wal-Mart is a case in point. Wal-Mart succeeded in developing
competitive advantage over time by delivering goods and
services at lower costs and in greater volume than most of its
competitors. Regardless of its employment practices or other
issues that recently came to light, Wal-Mart continues to be the
world's largest business. The company continues to grow and its
superstores, which offer fresh produce, deli counters, bakeries,
and butcheries, are located across the United States. The reason
for the company's success is, in large part, due to its ability to
deliver what the consumer wants, in a timely and cost effective
manner, and doing it better than its competitors.

3. Reference:
SUO. (2014). MGT4070: strategic management: Week 2:
strategic competiveness. Retrieved
from http://myeclassonline.com
Competitive Rivalry and Dynamics
Competitors engage in competitive rivalry to gain an
advantageous market position through competitive behavior—
competitive actions and competitiveresponses—which results in
competitive dynamics.
A firm's strategies are dynamic in nature and the actions taken
by a firm elicit responses from competitors, which, in turn,
typically result in responses from the firm that took the initial
action. While attempting to achieve and sustain competitive
advantage, the repetitive process of action and reaction may
result in lower prices, more product choices, and greater value
to customers.
Competitive rivalry affects all types of strategies—corporate,
international, and acquisition—and its primary effect is on
business-level strategies. The action and reaction process shows
that firms are mutually interdependent and that they are affected
by each other's actions and responses. The action and reaction
process also illustrates that success in the marketplace is a
function of individual strategies and their consequences.
The following model illustrates competitive rivalry at the firm
level:
Let us begin with the first component of the model—competitor
analysis.
Competitor Analysis
Competitor analysis is the first step that a firm takes when it

4. seeks to predict the extent and nature of its rivalry with
competitors. The characteristics of competitor rivalry that
determine the extent to which firms are competitors include
market commonality and resource similarity.
Companies with high market commonality and highly similar
resources are recognized as mutually direct competitors. Intense
rivalry is not necessarily dictated by direct competition. The
drivers of competitive behavior and the actions of a competitor
in response to its competitor's actions determine the intensity of
rivalry.
Market commonality refers to the number of markets in which a
firm and a competitor are involved in and the degree of
importance of the individual markets to each. Resource
similarity refers to the extent to which a firm's tangible and
intangible resources are comparable to a competitor's resources
in terms of type and amount.
Now let us discuss the second component of the model—drivers
of competitive behavior.
Drivers of Competitive Behavior
Market commonality and resource similarity influence the
drivers of competitive behavior—awareness, motivation, and
ability. These drivers in turn influence a firm's competitive
behavior, as evidenced by the actions and responses it takes
while engaged in competitive rivalry.
Awareness
A company needs to be aware of what other firms are doing in
order to respond to their actions. Before any action or response
is implemented, a company needs to be aware of how its actions
and responses are viewed by competitors. The company should
also be aware of the consequences of its actions and responses.
When a company lacks this awareness, it can become hyper
competitive, which may cause problems for its competitors.
Motivation
Firms are motivated to take action or respond to a competitor's
actions to achieve gains and avoid losses. Sometimes a company
may choose not to respond or take competitive action if it will

5. not result in competitive edge or, at the least, will not
negatively impact its position in the market.
Ability
A firm may be aware of the number of markets it shares in
common with its competitors, and is motivated to respond to
their competitive actions. However the firm may not have the
ability to take action. Ability refers to the capability of a firm
to take action or to respond to a competitor's action based on its
resources and the flexibility of these resources.
Strategic and Tactical Actions
The competitive actions that firms take may
be tactical or strategic in nature. A firm takes competitive
actions to either build or defend its position in the market.
Competitive responses are initiated to counteract the
competitive actions taken by competitors. Initiating strategic
competitive actions requires strong commitment of
organizational resources in a firm. Strategic competitive actions
or strategic responses are market-based actions that are not easy
to implement and very difficult to reverse. Tactical actions or
tactical responses are market-based actions that are taken to
fine-tune a strategy. They do not require strong commitment of
resources and are easier to implement and to reverse. An
example of a strategic action or strategic response is when a
company decides to enter a new market. This company will be
said to engage in a tactical action or tactical response if it
restructures its pricing schedule.
Likelihood of Attack
There are numerous factors that affect the likelihood of a
competitor using strategic actions or tactical actions to attack
its competitors. In addition to market commonality, resource
similarity, and the drivers of awareness, motivations and
ability, first mover incentives, organizational size, and quality
of product also affect the likelihood of attack. Let's discuss
these factors in greater detail.
First Mover Incentives
A firm is referred to as a first mover when it initiates a

6. competitive action with the objective of improving or protecting
its competitive advantage. First movers are companies that
allocate funds for product innovation and development,
aggressive advertising, and advanced research and development
(R&D).
Firms that are successful first movers can reap substantial
benefits. In fast-cycle markets, where rapid changes are the
norm and where it is almost impossible to sustain competitive
advantage for any length of time, a first mover may gain five to
ten times the valuation and revenue of a second mover.
Although first mover benefits are not guaranteed, they are often
critical to the success of a firm in industries that experience
rapid technological developments and relatively short product
life cycles.
First movers often reap the benefit of above-average returns, at
the least until its competitors respond. In addition to above-
average returns, first movers may also benefit from increased
customer loyalty and increased market share. These two benefits
are valuable to a first mover as they make it more difficult for a
competitor to woo customers away.
A second mover is a firm that responds to the first mover's
competitive action, usually through imitation.
A late mover is a firm that responds to a competitive action, but
only after a good deal of time has elapsed after the first mover's
action and the second mover's response.
Let us now discuss the effect of organizational size and quality.
Reference:
SUO. (2014). MGT4070: strategic management: Week 2:
competitive rivalry and dynamics. Retrieved
from http://myeclassonline.com
Organizational Size and Quality
Organizational Size
An organization's size impacts decisions related to competitive
actions, the specific type of actions, and their timeline of
implementation. Smaller companies tend to be first movers
because a small company has the ability to move more quickly

7. and is capable of initiating competitive actions faster than a
larger company. Smaller companies can rely on speed and
surprise to defend their competitive advantages or develop new
advantages while engaged in competitive rivalry, particularly
with large companies. Large firms, given their size and
organizational structure, tend to take more time to initiate
competitive and strategic actions. It is important to analyze
total sales revenue or total number of employees when
analyzing competition based on organizational size.
Quality
The quality of a firm's goods or services is determined by the
degree to which the goods or services meet or exceed customers'
expectations. From a strategic perspective, quality is considered
the outcome of how a firm completes primary and secondary
activities. Quality is subjective and is most likely to be an
important goal of the firm when all its employees are committed
to the goal. In this case, the goods and services produced by the
firm are typically well received by customers.
Likelihood of Response
Let's now discuss the factors that determine how a competitor is
likely to respond to competitive actions, such as:
· Type of competitive action
· Actor's reputation
· Market dependence
Type of Competitive Action
There are differences between competitive responses to
strategic actions and competitive responses to tactical actions.
When a company identifies the action taken against a
competitor, it is better able to determine its competitor's
response. It is theorized that strategic actions will attract
strategic responses and tactical actions will attract tactical
responses.
Strategic actions, due to their nature of requiring large
commitment of resources and the fact that such actions are
difficult to implement, typically receive fewer total competitive
responses. In some markets, it is easier for competitors to

8. respond to a tactical action because of the rapid changes that
occur when companies use a tactical action. An example would
be when a gas station lowers its prices.
Actor's Reputation
In the context of competitive rivalry, an actor is a firm that
takes an action or makes a response. A positive reputation can
be a source of above-average returns, particularly for producers
of consumer goods. A positive corporate reputation is of
strategic value and affects competitive rivalry. Given that past
behavior is assumed to be a predictor of future behavior, a firm
studies the responses of a competitor to predict the likelihood of
its response.
Market dependence
Market dependence refers to the extent to which a firm's
revenues or profits are derived from a specific market. Firms
can generally predict that competitors with high market
dependence are likely to respond strongly to attacks that
threaten their market position.
Competitive Dynamics
Competitive rivalry is concerned with ongoing actions and
responses between a company and its competitors for an
advantageous market position. Competitive dynamics refers to
the ongoing actions and responses of all the firms that compete
within a market. To understand competitive dynamics, you need
to understand the effects of varying rates of competitive speed
in various markets—slow-cycle,
fast-cycle, and standard-cycle. You also need to understand the
behavior—actions and responses—of all the competitors in the
market.
Slow-Cycle Markets
Slow-cycle markets are markets where the actions and responses
of all competitors are slowed down because of the high cost of
imitating goods and services. This enables a company to sustain
competitive advantage for longer periods of time.
Fast-Cycle Markets
Fast-cycle markets are markets where a company's competitive

9. advantage is not sustainable because of the ability of
competitors to replicate goods and services more quickly and at
a lower cost than in a slow-cycle market.
Standard-Cycle Markets
Standard-cycle markets are markets where a company's ability
to imitate a competitor's goods or services in a timely and cost
effective manner is average.
Reference:
SUO. (2014). MGT4070: strategic management: Week
2:organizational size and quality. Retrieved from
http://myeclassonline.com
Corporate-Level Strategies
Corporate-level strategy is a decision-making process that
results in a series of steps that a company takes in order to
achieve its goal of gaining competitive advantage. Using a
corporate-level strategy, a company identifies and manages
various businesses that compete in various industries and
product markets to achieve this goal. When a company chooses
to expand from operating a business in one industry to operating
in several industries, it uses a corporate-level strategy of
diversification.
A diversified company uses two levels of strategy, business-
level and corporate-level. Each business unit in a diversified
company chooses a business-level strategy to compete in a
product market. A firm's corporate-level strategy is concerned
with two key questions:
· Which businesses should the firm engage in?
· How should the corporate office manage the business groups?
Corporate-level strategies are expected to help earn above-
average returns by creating value in the same way a diversified
firm's business-level strategies create value. A successful
corporate-level strategy creates aggregate returns that exceed
what those returns would be without the strategy, across all
business units. It also contributes to a firm's strategic
competitiveness and its ability to earn above-average returns.

10. Product diversification is the primary corporate-level strategy.
It is concerned with the scope of industries and markets in
which a firm competes and how managers buy, create, and sell
different businesses to match skills and strengths with
opportunities. To engage in product diversification, a firm
needs to know what the opportunities are. The company needs
to perform an industry environment analysis to determine what
opportunities exist and an internal environment analysis to
determine its resources, capabilities, and core competencies.
In a global market, diversification is often not a matter of if but
a matter of when. Firms that seek to become world leaders
compete with large diversified companies. Companies that seek
to dominate their industries often regard diversification as a
tool to differentiate themselves within their industry and gain a
larger market segment. Traditional companies with one product
line have crossed over into other types of businesses, serving
entirely new market segments with goods and services not
typically associated with them. For example, the Gillette
Company—originally known for their shaving and grooming
products—has diversified over the years. Its businesses now
include grooming, batteries, oral care, personal care, and
appliances. The company is an industry leader in over a dozen
major consumer product categories and continually seeks to
introduce new product lines. In the over 100 years of its life
span, Gillette has used corporate-level strategies to gain and
hold large market positions in all its businesses.
Business strategists suggest that a firm should diversify into
additional markets only when it has excess resources,
capabilities, and core competencies with multiple value-creating
uses. Companies can choose from among various levels of
diversification ranging from low to high.
Let's next discuss the levels and types of diversification.
Levels and Types of Diversification
Diversified firms differ in their level of diversification and
connections among their businesses. There are five categories of
businesses based on their levels of diversification.

11. Low Levels of Diversification
A company that pursues a low level of diversification uses
either of the following diversification strategies:
· Single business: More than 95% of revenue comes from a
single business.
· Dominant business: Between 70% and 95% of revenue comes
from a single business.
Moderate to High Levels of Diversification
A company that pursues a high level of diversification uses
either of the following diversification strategies:
· Related constrained: Less than 70% of revenue comes from the
dominant business, and all businesses share product,
technological, and distribution linkages.
· Related linked (mixed related and unrelated): Less than 70%
of revenue comes from the dominant business, and there are
only limited links between businesses.
Very High Levels of Diversification
A company that pursues a very high level of diversification uses
the following diversification strategy:
· Unrelated: Less than 70% of revenue comes from the dominant
business, and there are no common links between businesses.
There are numerous reasons firms use a corporate-level
diversification strategy. This strategy is generally used to
increase a firm's value by improving its overall performance.
Value is created through related diversification or unrelated
diversification when the strategy enables a firm's business units
to increase revenues or reduce costs while implementing the
business-level strategy. Another reason is to gain market power
relative to competitors. Diversification does not always increase
a firm's value; it may have a neutral effect, increase costs, or
reduce revenues and value. The reason a firm would go for
diversification is to try and neutralize the market power of a
competitor.
Related Diversification
Companies that use the related diversification strategy build on
or extend their resources, capabilities, and core competencies to

12. create value. Using this strategy, a company seeks to develop
and exploit economies of scope—cost savings created by
successfully transferring some capabilities and competencies
that were developed in one of the firm's business units to
another of its businesses. Let's discuss the types of related
diversification.
Operational Relatedness: Sharing Activities
Firms can create operational relatedness by sharing either a
primary activity such as an inventory delivery system or a
support activity such as a purchasing activity. Companies with
multiple business units routinely share activities to reduce
costs, which gives the customer more power as a buyer. It also
enables a firm, if it so chooses, to pass on some of those
savings to their customers, which can result in greater customer
loyalty and increased revenues.
Corporate Relatedness: Transferring of Core Competencies
Over time, a firm's intangible resources such as knowledge
become the foundation for core competencies. Corporate core
competencies are complex sets of resources and capabilities that
link various businesses, primarily through managerial and
technological knowledge, experience, and expertise. Related
linked companies often transfer competencies between
businesses, which creates value in two ways:
· The expense of developing a competence is incurred only in
one business unit. When it is transferred to a second business
unit, it is already a source of value because the second business
unit does not need to allocate resources to develop the
competence.
· Intangible resources, which are difficult for competitors to
understand and therefore imitate, are the second source of value
created through corporate relatedness. There are many examples
of corporate relatedness in companies, such as Virgin
Industries, Honda, and Coopers Industries (Whittingdon &
Mayer, 2002).
Market Power
Related diversification can also gain market power. A firm has

13. market power when it is able to sell its products above the
existing competitive level or to reduce the costs of its primary
and support activities below the competitive level or when it
can do both. There are several approaches to gaining market
power through diversification, such as:
· Multipoint competition: This exists when two or more
diversified firms simultaneously compete in the same product
areas or geographic markets. Two obvious examples are FedEx
and UPS. DHL, the strongest shipping company in Europe,
entered the US market, leading to more competition in this
industry.
· Vertical integration: This exists when a company produces its
own inputs or owns its own source of distribution, for example,
Apple.
Unrelated Diversification
A company can use an unrelated diversification strategy to
create value through two types of financial economies, which
are cost savings realized through improved allocations of
financial resources based on investments inside or outside the
firm.
· Efficient internal capital market allocation: This financial
economy results from efficient internal capital allocations. This
approach is used to reduce risk among the firm's business units.
· Restructuring: This financial economy deals with purchasing
other corporations and restructuring their assets. In this
approach, a diversified firm buys another company,
restructuring that company's assets in ways that enable it to
operate more efficiently and profitably, and then selling the
company for a profit in the external market.
Reference:
SUO. (2014). MGT4070: strategic management: Week 2:
corporate-level strategies. Retrieved from
http://myeclassonline.com