Model of Interfirm Rivalry: Likelihood of Attack and Response Drivers of Competitive Behavior Outcomes Ability for Action and Response Interfirm Rivalry: Attack & Response Competitive Awareness Market Types Motivation Slow, Standard Capability Likelihood of Attack Relative Size or Fast Cycle First Mover Incentives Speed Competitive Innovation Outcomes Likelihood of Response Quality Sustained Type of Competitive Competitive Competitor Analysis Action Advantage Actor’s Reputation Temporary Dependence on the Advantage Market Commonality Market Evolutionary Resource Availability Outcomes Resource Similarity Entrepreneurial Growth-Oriented Feedback or Market-Power Actions 14

Drivers of Competitive Behavior Motivation Capability Model of Interfirm Rivalry: Likelihood of Attack and Response Drivers of Competitive Behavior Do managers understand the key characteristics of competitors? Awareness Motivation Capability 16

Drivers of Competitive Behavior Awareness Capability Model of Interfirm Rivalry: Likelihood of Attack and Response Drivers of Competitive Behavior Awareness Does the firm have appropriate incentives to attack or respond? Motivation Capability 17

Drivers of Competitive Behavior Awareness Motivation Model of Interfirm Rivalry: Likelihood of Attack and Response Drivers of Competitive Behavior Awareness Motivation Does the firm have the necessary resources to attack or respond? Capability 18

Model of Interfirm Rivalry: Likelihood of Attack and Response Competitor Analysis Market Commonality Do firms compete with each other in multiple markets? Resource Similarity 21

Model of Interfirm Rivalry: Likelihood of Attack and Response Competitor Analysis Multipoint competition tends to reduce competitive interactions, but increases the likelihood of response where interaction occurs Market Commonality Resource Similarity For example, airlines price flights similarly, but respond quickly when competitors introduce promotional prices 22

Model of Interfirm Rivalry: Likelihood of Attack and Response Competitor Analysis Market Commonality Resource Similarity Do competitors possess similar types or amounts of resources? 23

Model of Interfirm Rivalry: Likelihood of Attack and Response Competitor Analysis Market Commonality Firms are less inclined to attack a firm that is likely to retaliate Resource Similarity Firms with similar resources are more likely to be aware of each other’s competitive moves Firms with dissimilar resources are more likely to attack 24

Interfirm Rivalry: Attack & Response Likelihood of Attack Model of Interfirm Rivalry: Likelihood of Attack and Response Interfirm Rivalry: Attack & Response Likelihood of Attack First Mover Incentives Likelihood of Response Type of Competitive Action Actor’s Reputation Dependence on the Market Resource Availability 26

First Mover Firms 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 respond Gain customer loyalty, helping to create a barrier to entry by competitors Advantage depends upon difficulty of imitation 29

Second Mover Second Mover Firms that respond to a First Mover’s actions Second 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 31

Interfirm Rivalry: Attack & Response Likelihood of Attack Model of Interfirm Rivalry: Likelihood of Attack and Response Interfirm Rivalry: Attack & Response Likelihood of Attack First Mover Incentives Likelihood of Response Type of Competitive Whether a competitor is likely to respond depends on several key factors Action Actor’s Reputation Dependence on the Market Resource Availability 32

Strategic Actions Tactical Actions Types of Competitive Actions Significant commitments of specific & distinctive organizational resources Strategic Actions Difficult to implement Difficult to reverse Example Major Acquisition Undertaken to “fine tune” strategy Tactical Actions Relatively easy to implement Relatively easy to reverse Example Price cut 41

Actor’s Reputation Gauging the Likelihood of Response Type of Competitive Action -Tactical or Strategic Easier to respond to Require fewer resources to mount a response Actor’s Reputation Market leaders are more likely to be copied “Risk taking” firms are less likely to be copied “Price Predators” are less likely to be copied 44

Market Dependence Competitor Resources Gauging the Likelihood of Response Market Dependence 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 Competitor Resources Smaller firms are more likely to respond to tactical actions Limited resources may lead to alternatives such as Strategic Alliances 46

Ability for Action and Response Relative Size Speed Innovation Quality Model of Interfirm Rivalry: Likelihood of Attack and Response Ability for Action and Response Firm size can have opposing effects on competitive dynamics Relative Size Speed Innovation Quality 49

Ability for Action and Response Relative Size Speed Innovation Quality Model of Interfirm Rivalry: Likelihood of Attack and Response Ability for Action and Response Large firms may exert market power over rivals and erect barriers to entry against smaller competitors Relative Size However, smaller competitors may be more nimble and innovative Speed Innovation Quality 50

Model of Interfirm Rivalry: Likelihood of Attack and Response Ability for Action and Response “Think and act big and we’ll get smaller. Think and act small and we’ll get bigger.” Relative Size Speed Herb Kelleher, CEO, Southwest Airlines Innovation Quality 51

Ability for Action and Response Relative Size Speed Innovation Quality Model of Interfirm Rivalry: Likelihood of Attack and Response Ability for Action and Response Relative Size Quick response is crucial to both the first mover and the fast second mover Speed Innovation Quality 52

Ability for Action and Response Relative Size Speed Innovation Quality Model of Interfirm Rivalry: Likelihood of Attack and Response Ability for Action and Response Relative Size Speed Consistent innovation is required for market leadership in many dynamic industries Innovation Quality 53

Ability for Action and Response Relative Size Speed Innovation Quality Model of Interfirm Rivalry: Likelihood of Attack and Response Ability for Action and Response Relative Size Speed Innovation Exceeding customer expectations is a necessity to compete in the 1990s Quality 54

Competitive Market Types Model of Interfirm Rivalry: Likelihood of Attack and Response Outcomes Competitive Market Types Slow, Standard or Fast Cycle Competitive Outcomes Sustained Competitive Advantage Temporary Advantage Evolutionary Outcomes Evolutionary Actions Growth-Oriented Actions Market-Power Actions 56

Competitive Market Types Model of Interfirm Rivalry: Likelihood of Attack and Response Outcomes Competitive Market Types Slow cycle markets are frequently shielded by monopoly power or very strong brand loyalties Slow, Standard or Fast Cycle Competitive Outcomes Sustained Competitive Advantage This market outcome and lack of interfirm rivalry may lead to sustained competitive advantage Temporary Advantage Evolutionary Outcomes Evolutionary Actions Growth-Oriented Actions Market-Power Actions 57

Competitive Market Types Model of Interfirm Rivalry: Likelihood of Attack and Response Outcomes Standard cycle markets often lead to highly competitive pressures despite world class products Competitive Market Types Slow, Standard or Fast Cycle Competitive Outcomes Sustained Competitive Advantage Firms with multimarket competition may dampen rivalry somewhat Temporary Advantage Evolutionary Outcomes Evolutionary Actions Growth-Oriented Actions Market-Power Actions Sustained competitive advantage is a possible outcome in this instance 58

Competitive Market Types Model of Interfirm Rivalry: Likelihood of Attack and Response Outcomes Fast cycle markets are intensely dynamic and a first mover advantage is often unsustainable Competitive Market Types Slow, Standard or Fast Cycle Competitive Outcomes Sustained Competitive Firms may cannibalize older generation products while introducing new innovative premium products Advantage Temporary Advantage Evolutionary Outcomes Evolutionary Actions Growth-Oriented Actions Market-Power Actions Sustainable competitive advantage is unilkely 59

Sustained Competitive Advantage which Eventually Erodes Returns from a Sustained Competitive Advantage Exploitation Counterattack Launch Time (years) 10 60

1 2 3 4 Some Firms Maintain Competitive Advantage in Fast-Cycle Markets by Seizing the Initiative Disrupting the Status Quo 1 Identify new opportuntites to serve the customer by shifting the rules of competition through speed and variety Creating Temporary Advantage 2 Use superior knowledge of the customer, technology and the future to enhance customer orientation and empower workers Seizing the Initiative 3 Move aggressively into new areas of competition to create new advantage and undermine a competitor’s old advantage Sustaining the Momentum 4 Take several actions in a row in order to seize the initiative and create momentum to develop new advantages 65

Obtaining Temporary Advantages to Create Sustained Advantage Returns from a Sustained Competitive Advantage Firm has already moved on to Advantage No. 2 Exploitation Counterattack Launch 5 10 15 Time (years) 67

Obtaining Temporary Advantages to Create Sustained Advantage Returns from a Sustained Competitive Advantage Firm continues to move on to the next Advantage Exploitation Counterattack Launch 5 10 15 Time (years) 68

An Action-Based Model of the Industry Life Cycle Key Task Key Task Key Task Exploiting Open Niches (Blind Spots) and Competitive Uncertainty Exploiting Factors of Production Exploiting Market Position Firm Resource & Market Strength Market-Power Actions Growth-Oriented Actions Entrepreneurial Actions Emerging Stage Growth Stage Mature Stage Time 75