Strategic Management Concepts and Cases

Building and Sustaining Competitive Advantage

Competitors Competitive rivalry Competitive behavior

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

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

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

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

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

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

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

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

Gauging the Likelihood of 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 Type of Competitive Action -Tactical or Strategic Easier to respond to Require fewer resources to mount a response

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

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

Strategies may be deter- mined by the life cycle of the industry Younger firms and emerging industries are generally characterized by entrepreneurial actions Growth-oriented and Market-power strategies dominate established or mature industries Sustained Competitive Outcomes Competitive Market Types Slow, Standard or Fast Cycle Competitive Outcomes Advantage Temporary Advantage Evolutionary Actions Growth-Oriented Actions Market-Power Actions Evolutionary Actions Growth-Oriented Actions Market-Power Actions Evolutionary Outcomes Model of Interfirm Rivalry: Likelihood of Attack and Response

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

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