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strategic mngmnt
- 1. 1 Definitions • Competitors – firmsoperating in the same market, offering similar products and targeting similar customers • Competitive rivalry – the ongoing set of competitive actions and responses occurring between competitors – rivalry affects a firm’s ability to gain and sustain competitive advantages
- 2. 2 Definitions • Competitive behavior –the actions and responses the firm takes to build or defend its competitive advantages and to increase market power • Competitive dynamics – the total of actions and responses taken by all firms competing within a market
- 3. 3 From Competitors to CompetitiveDynamics Competitors • Through competitive behavior • actions • responses • To gain improved market position/power Competitive Dynamics • Competitive actions and responses taken by all firms competing in a market Competitive rivalry Engage in What results? What results? Why? How?
- 4. 4 Effect of CompetitiveRivalry on a Firm’s Strategies • Success of a competitive move is determined by: – the firm’s initial competitive actions – how well the firm anticipates competitors’ responses – how well the firm responds to its competitors’ initial actions • Competitive rivalry – affects all types of strategies – most dominant influence is on the firm’s business-level strategy or strategies. – Is primarily concerned with capabilities/resources
- 5. 5 Model of CompetitiveRivalry Competitive Analysis • Market commonality • Resource similarity Drivers of Competitive Behavior • Awareness • Motivation • Ability Interim Rivalry • Likelihood of Attack • First mover incentives • Organizational size • Quality • Likelihood of Response • Type of competitive action • Reputation • Market dependence Outcomes • Market position • Financial performance feedback
- 6. 6 Competitive Rivalry • Firmsare mutually interdependent – one firm’s competitive actions have noticeable effects on competitors – one firm’s competitive actions elicit competitive responses from competitors – competitors feel each other’s actions and responses • Success depends on individual strategies (deployment of capabilities/resources) and the consequences of their use
- 7. 7 Competitor Analysis • Competitoranalysis – a technique firms use to understand their competitive environment – think of competitive environment as the industry and general environments in motion. – a technique used to help the firm identigy/understand its competitors – the first step in predicting competitors’ behavior (competitive actions and responses)
- 8. 8 Market Commonality • MarketCommonality 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 • Industries’ markets are related in terms of – technologies – core competencies • Multimarket competition – Firms competing in several overlapping markets
- 9. 9 Resource Similarity • Resourcesimilarity – How comparable are the resources deployed by a firm and the resources deployed by that firm’s competitors (in both type and amount)? • Firms with similar types/amounts of resources are likely to: – have similar strengths and weaknesses – use similar strategies (deploy resources in the same way) • Assessing resource similarity can be difficult if critical resources are intangible rather than tangible
- 10. 10 A Framework ofCompetitor 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
- 11. 11 Source: J. McGill2005 Tech Knowledge & Alliances Among Competitors, Int’l Journal of Technology Management
- 12. 12 Drivers of CompetitiveBehavior • Awareness is the extent to which competitors recognize the degree of their mutual interdependence – mutual interdependence results from • market commonality • resource similarity • current & future! Awareness
- 13. 13 Motivation Drivers of CompetitiveBehavior • Motivation concerns the firm’s incentive – to take action – or to respond to a competitor’s attack – and relates to perceived gains and losses Awareness
- 14. 14 Ability Drivers of CompetitiveBehavior • Ability relates – to each firm’s resources – the flexibility these resources provide • Without available resources the firm lacks the ability – to attack a competitor – to respond to the competitor’s actions Awareness Motivation
- 15. 15 Drivers of CompetitiveBehavior • 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 • Because of the potential loss of market power under market commonality, there is a high probability that the attacked firm will respond to its competitor’s action to protect its position Market commonality
- 16. 16 Resource similarity Drivers of CompetitiveBehavior • The greater the resource imbalance between the acting firm and competitors, the greater the delay in response by the firm with a resource disadvantage • So, when facing competitors with greater resources or more attractive market positions, firms should eventually respond, no matter how challenging the response Market commonality
- 17. 17 Strategic and TacticalActions • Strategic action or a strategic response – a market-based move that involves a significant commitment of organizational resources and is difficult to implement and reverse • Tactical action or a tactical response – market-based move that is taken to fine-tune a strategy; it involves fewer resources and is relatively easy to implement and reverse
- 18. 18 Likelihood of Attack: •First movers’ resources – product innovation and development – aggressive advertising – R&D • First movers can gain – customer loyalty – Network effects market share that can be difficult for competitors to take during future competitive rivalry First mover incentives
- 19. 19 Size Likelihood of Attack: •Small firms are more likely – to launch competitive actions – to be quicker in doing so • Small firms - – nimble and flexible – use speed and surprise to defend their competitive advantages or develop new ones – Potentially launch a greater variety of competitive actions First mover incentives
- 20. 20 Likelihood of Attack: •Large firms are likely to initiate more strategic & tactical actions • Large firms often have slack resources required to launch a larger number of total competitive actions 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
- 21. 21 Likelihood of Response •Firms study three factors to predict how a competitor is likely to respond to competitive actions – type of competitive action – reputation – market dependence
- 22. 22 Likelihood of Response: •Strategic actions receive strategic responses • Tactical responses are taken to counter the effects of tactical actions • Strategic actions elicit fewer total competitive responses • A competitor likely will respond quickly to a tactical action • The time needed to implement and assess a strategic action delays competitors’ responses Type of competitive action
- 23. 23 Reputation Likelihood of Response: •An actor is the firm taking an action or response • Reputation 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 Type of competitive action
- 24. 24 Market dependence Likelihood of Response: •Market dependence is – the extent to which a firm’s revenues or profits are derived from a particular market • Firms can assume that competitors with high market dependence are likely to respond strongly to attacks threatening their market position Type of competitive action Reputation
- 25. 25 Competitive Dynamics: • Slow-cyclemarkets – the firm’s competitive advantages are shielded from imitation for long periods of time – imitation is costly • Competitive advantages are sustainable in slow-cycle markets • A proprietary, one-of-a-kind competitive advantage leads to competitive success in a slow-cycle market Slow-cycle markets
- 26. 26 Gradual Erosion ofa Sustainable Competitive Advantage Returns from a Sustainable Competitive Advantage Time (Years) 0 5 10 Launch Exploitation Counterattack
- 27. 27 Fast-cycle markets Competitive Dynamics: • Fast-cyclemarkets – the firm’s competitive advantages aren’t shielded from imitation – imitation happens quickly and somewhat inexpensively • Competitive advantages aren’t sustainable • Competitors use reverse engineering to quickly imitate or improve on the firm’s products • Non-proprietary technology is diffused rapidly Slow-cycle markets
- 28. 28 Obtaining Temporary Advantagesto Create Sustained Advantage Returns from a Series of Replicable Actions Time (Years) 0 5 10 15 Launch Exploitation Counterattack Firm has already moved to next advantage
- 29. 29 Competitive Dynamics: • Standard-cyclemarkets – the firm’s competitive advantages may be shielded from imitation – imitation is moderately costly • Competitive advantages are partially sustainable if the firm is able to continuously upgrade the quality of its competitive advantages • Firms – seek large market shares – gain customer loyalty through brand names – carefully control operations Slow-cycle markets Fast-cycle markets Standard-cycle markets