Competitive Dynamics Chapter 9

Learning Objectives Use industry and company trajectories to predict competitive actions. Appropriate techniques for competitive intelligence. Tactical versus strategic responses. When cooperation is effective.

Predictions Based on Industries Industry Environment Industry Trajectories Scenario Analysis

Predictions – Benign Environment Benign industry environment Demand exceeds supply High gross profit margins Low competitive intensity Differentiation strategy often effective Not the usual 21st Century conditions

Predictions – Hostile Environment Hostile industry environment Revenue growth – slow, flat, or decline Cost containment and price wars High competitive intensity Rapid product / service obsolescence Active efforts to reduce cost structures New product / service development Speed

Predictions – Industry Trajectories Strategy maps over time reveal tendencies

Predictions – Industry Trajectories Technological developments Evolution of customer preferences Evolution of Cell Phones

Predictions Based on Companies Classifying types of organizations Internal characteristics Gathering competitive intelligence

Predictions – Types of Organizations Prospector More concerned with customer, less with competitor Often leaders of change Defender Intensive Rigorously defend their position Analyzer Sometimes Prospector, sometimes Defender Unpredictable nature makes it dangerous Reactor Waits and reacts slower to developments

Predictions – Company Characteristics Strategy analysis of company Mission, Value Chain, Business Strategy Management patterns Experience and tendencies of senior management Financial situation Balance sheet Income statement Cash flow Access to financial capital

Predictions – Competitive Intelligence Media stories Wall Street analysts' reports Research among suppliers Conferences Speeches by senior management

Predictions – Scenario Analysis Consider potentially dramatic shifts Oil prices skyrocket to $250 / barrel, or Oil prices plummet to $50 / barrel Articulate effects Transportation, cost, customer service, etc. Pre-plan responses as changes begin to occur Decide what new resource investments & activities would be necessary Compare readiness to competitors

Tactics versus Strategy Tactical – shorter term competitive moves and counter-moves Strategic – longer term direction, investments, and performance

Tactics – Escalating Response Styles Acquiesce Compromise Avoid Defy Manipulate No direct confrontation Obey institutional rules & norms Balance expectations of stakeholders Threat, but not worth immediate fight Disengage, conserve resources Change goals, activities, field of play Key business segment is threatened Competition cannot be disregarded Actions directed at competitor Coopt, influence other stakeholders

Strategy – Escalating Response Styles Containment Shaping Absorption Neutralize Annulment Usual dimension of Rivalry New products, lock in customers & suppliers, raise switching costs, etc. Influence market-wide standards & practices Acquire the competitor Act to make competitor obsolete Leapfrog the competitor approach Change fundamental industry dynamic

Cooperation Competition is unusually destructive Prices and "fare wars" (Prisoner's Dilemma) Collusion is illegal Signaling – a tacit form of cooperation Price leaders Tit For Tat Mutual benefits from strategic alliances Each benefits more than operating alone Requires careful management & attention to goals