Ch5-1 Chapter 5 Competitive Dynamics Michael A. Hitt R. Duane Ireland Robert E. Hoskisson Michael A. Hitt R. Duane Ireland Robert E. Hoskisson ©2000 South-Western College Publishing

Ch5-2 Chapter 3 Internal Environment Chapter 2 External Environment The Strategic ManagementProcess ManagementProcess Strategic Intent Strategic Mission Strategic Competitiveness Above Average Returns Feedback Strategy Formulation Chapter 4 Business-Level Strategy Chapter 5 Competitive Dynamics Chapter 6 Corporate-Level Strategy Chapter 8 International Strategy Chapter 9 Cooperative Strategies Chapter 7 Acquisitions & Restructuring Strategy Implementation Chapter 10 Corporate Governance Chapter 11 Structure & Control Chapter 12 Strategic Leadership Chapter 13 Entrepreneurship & Innovation Entrepreneurship & Innovation Strategic Inputs Strategic Actions Strategic Outcomes

Ch5-3 Declining emphasis on single, domestic markets and increasing emphasis on global markets Advances in communication technology make coordination easier across multiple markets Advances in technology and innovation have increased competitiveness of small and medium sized firms National barriers are falling due to the number and scope of trade agreements (GATT, NAFTA, EEC) Factors Leading to More Complex Rivalry

Ch5-4 Competitive Dynamics Results from a series of competitive actions and competitive responses among firms competing within a particular industry Competitive Rivalry Exists when two or more firms jockey with one another in the pursuit of better market position

Ch5-5 Actions and responses shape the competitive positions of each firm’s business level strategy Actions taken by one firm elicit responses from competitors A firm’s strategic conduct is dynamic in nature Competitive responses lead to additional actions from the firm that acted originally Competitive Dynamics

Ch5-6 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

Ch5-7 Drivers of Competitive Behavior Motivation Capability Awareness Model of Interfirm Rivalry: Likelihood of Attack and Response Do managers understand the key characteristics of competitors? Awareness

Ch5-8 Does the firm have appropriate incentives to attack or respond? Drivers of Competitive Behavior Motivation Capability Awareness Model of Interfirm Rivalry: Likelihood of Attack and Response

Ch5-9 Does the firm have the necessary resources to attack or respond? Drivers of Competitive Behavior Motivation Capability Awareness Model of Interfirm Rivalry: Likelihood of Attack and Response

Ch5-10 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

Ch5-11 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

Ch5-12 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

Ch5-13 Competitor Analysis Resource Similarity Do competitors possess similar types or amounts of resources? Market Commonality Model of Interfirm Rivalry: Likelihood of Attack and Response

Ch5-14 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

Ch5-15 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

Ch5-16 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

Ch5-17 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

Ch5-18 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

Ch5-19 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 Whether a competitor is likely to respond depends on several key factors Model of Interfirm Rivalry: Likelihood of Attack and Response

Ch5-20 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

Ch5-21 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

Ch5-22 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

Ch5-23 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

Ch5-24 Relative Size Quality Innovation Speed Ability for Action and Response Model of Interfirm Rivalry: Likelihood of Attack and Response Relative Size Firm size can have opposing effects on competitive dynamics

Ch5-25 Quality Speed Large firms may exert market power over rivals and erect barriers to entry against smaller competitors However, smaller competitors may be more nimble and innovative Ability for Action and Response Relative Size Innovation Model of Interfirm Rivalry: Likelihood of Attack and Response “ Think and act big and we’ll get smaller. Think and act small and we’ll get bigger.” -- Herb Kelleher, CEO, Southwest Airlines -- Herb Kelleher, CEO, Southwest Airlines

Ch5-26 Relative Size Quality Innovation Speed Quick response is crucial to both the first mover and the fast second mover Ability for Action and Response Model of Interfirm Rivalry: Likelihood of Attack and Response

Ch5-27 Consistent innovation is required for market leadership in many dynamic industries Ability for Action and Response Relative Size Quality Innovation Speed Model of Interfirm Rivalry: Likelihood of Attack and Response

Ch5-28 Exceeding customer expectations is a necessity to compete in the 21st century Ability for Action and Response Relative Size Quality Innovation Speed Model of Interfirm Rivalry: Likelihood of Attack and Response

Ch5-29 Quality Dimensions of Goods & Services Product Quality Dimensions: Perceived quality Subjective assessment of characteristics (product image) Performance Operating characteristics Features Important special characteristics Flexibility Meeting operating specifications over time Durability Amount of use before performance deteriorates Conformance Match with pre-established standards Serviceability Ease and speed of repair or normal service Aesthetics How a product looks and feels

Ch5-30 Quality Dimensions of Goods & Services Service Quality Dimensions: Timeliness Performed in promised period of time Courtesy Performed cheerfully Consistency Giving all customers similar experiences Convenience Accessibility to customers Completeness Fully serviced, as required Accuracy Performed correctly each time

Ch5-31 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

Ch5-32 Outcomes Evolutionary Actions Growth-Oriented Actions Market-Power Actions Evolutionary Outcomes Sustained Competitive Competitive Market Types Slow, Standard or Fast Cycle Competitive Outcomes Advantage Temporary Advantage Model of Interfirm Rivalry: Likelihood of Attack and Response Slow cycle markets are frequently shielded by monopoly power or very strong brand loyalties This market outcome and lack of interfirm rivalry may lead to sustained competitive advantage Sustained Competitive Competitive Market Types Slow, Standard or Fast Cycle Competitive Outcomes Advantage Temporary Advantage

Ch5-33 Outcomes Evolutionary Actions Growth-Oriented Actions Market-Power Actions Evolutionary Outcomes Sustained competitive advantage is a possible outcome in this instance Standard cycle markets often lead to highly competitive pressures despite world class products Firms with multimarket competition may dampen rivalry somewhat Sustained Competitive Competitive Market Types Slow, Standard or Fast Cycle Competitive Outcomes Advantage Temporary Advantage Model of Interfirm Rivalry: Likelihood of Attack and Response

Ch5-34 Sustained Competitive Outcomes Competitive Market Types Slow, Standard or Fast Cycle Competitive Outcomes Advantage Temporary Advantage Evolutionary Actions Growth-Oriented Actions Market-Power Actions Fast cycle markets are intensely dynamic and a first mover advantage is often unsustainable Evolutionary Outcomes Firms may cannibalize older generation products while introducing new innovative premium products Sustainable competitive advantage is unilkely Model of Interfirm Rivalry: Likelihood of Attack and Response

Ch5-35 Time (years) 10Launch Exploitation Counterattack Gradual Erosion of a Sustained Competitive Advantage Returns from a Sustained Competitive Advantage

Ch5-36 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

Ch5-37 Time (years) 10 Launch Exploitation Counterattack Returns from a Sustained Competitive Advantage Obtaining Temporary Advantages to Create Sustained Advantage 515

Ch5-38 Time (years) 10 Launch Exploitation Counterattack Returns from a Sustained Competitive Advantage 515 Firm has already moved on to Advantage No. 2 Obtaining Temporary Advantages to Create Sustained Advantage

Ch5-39 Time (years) 10 Launch Exploitation Counterattack Returns from a Sustained Competitive Advantage 515 Firm continues to move on to the next Advantage Obtaining Temporary Advantages to Create Sustained Advantage

Ch5-40 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

Ch5-41 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

Ch5-42 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