dynamic competitive interaction: implications for strategy and competitive intelligence

Dynamic Competitive Interaction: Implications for Strategy and

Competitive Intelligence

Lynagh’s

TwoKeysTavern

TwoKeysTavern

Consequences of Cutthroat Rivalry

Prisoner’s Dilemma

Criminal 1

Criminal 2

Squeal

Squeal

Clam Up

Clam Up

Both Serve 1 Year

Both Serve 5 Years

#2 Serves 10 Years

#1 Goes Free

#1 Serves 10 Years

#2 Goes Free

What Price a Dollar?

$1.00 will be auctioned off Opening bid is 10¢ Bids increase in 10¢ increments Highest bidder wins $1.00 Top two bidders must pay auctioneer

Three Stooges

Larry, Curley and Moe are in a 3-way duel and agree to take turns shooting each other in that order

Accuracy statistics:– Larry hits intended target 20% of the time– Curley hits intended target 80% of the time– Moe hits intended target 100% of the time

What should Larry do?

The Playbook: What will they run next?

Complex Rivalry: Where to move?

Firm 1Actions

Firm 2Actions

CompetitiveInteraction

CompetitiveOutcomes

IndustryCharacteristics

OrganizationalCharacteristics

Competitive Dynamics Observe competitive moves Organize competitive moves

– Action/response pairs– Action repertoires (year-end tallies)– Competitive attacks/sequences

Measurement/Analysis of Characteristics– Four key action pattern characteristics

that improve:• Market share• Stock price• Profitability

Strategy as Action

Externally-directed, observable competitive moves carried out to improve relative competitive position:

PricingMarketingProductsServiceCapacitySignalsOther

AirlinesTelecomBrewingPCsSoftwareMutual Funds41 Industries

GenericActions:

Studies:

Actions symbolicallyrepresented as these

ActionPair 1

ActionPair 2

ActionPair 3

ActionPair 4

Company 1

Company 2

Action-Reaction “Pairs”

timeAction Response Profits Growth Mkt. Share

ActionPair 1

ActionPair 2

ActionPair 3

ActionPair 4

Company 1

Company 2

Action-Reaction “Pairs”

time

Type Implementation

Requirement Radicality Irreversibility

Likelihood Speed (delay) Matching

Prior Studies: Action “Repertoires”

time

Profits Growth Mkt. Share

Year-EndTallies

Action

Repertoire

Company 1

Company 2

Prior Studies: Action “Repertoires”

time

Profits Growth Mkt. Share

Year-EndTallies

Total Actions Complexity

Company 1

Company 2

a b c d e f g h

8

7

6

5

4

3

2

1

Sequential Competitive Interaction ?

This Sequence:

Black: Knight b4

White: Pawn c3

Black: Bishop g4

White: Queen b5

Black: Pawn c5

Named Sequences:

Epaulette’s Mate

Sicilian Defense

Sequence Applications...

LANGUAGE:

BOXING: DNA:

qcheaTiueissesne. hsiT si a cesneueq.

This is a sequence.

Jab...Jab…Uppercut

CA

GT

AC

AT

AG

TA

CG

AT

AC

GA

MUSIC:

COMPUTER PROGRAM:

data actions2; subj = _n_; do i = 1 to max; output = matrix; end;run;

Sequences in Competitive Interaction

Ordered sample of things – Temporal orderliness among elements

Logically unified sequence– Succession of market-based decisions

Patterns in stream of behaviors Coordinated series of actions Actions in a sequential strategic thrust

ActionSequence 1

ActionSequence 2

Competitive Attack: Sequence of Actions

time

Profits Growth Mkt. Share

Competitive

Attack

MKT MKTPRICEMKT PRICE

SVCPRODRival Firm

(a) (a’)

Time

Focal Firm

Avg. Attack Volume (a + a’)– No. of Actions per Attack

Avg. Attack Duration (a + a’)– No. days firm sustains attack

MKT MKTPRICEMKT PROD PRICE

Time

MKT MKTPRICE SIGPROD PRICE

Time Period 1

Time Period 2

MKT

Attack Unpredictability– Resemblance of two attack sequences

Focal Firm’s Stock Price and/or Market Share Gain

Focal Firm’s Competitive Attack• Attack Volume• Attack Duration • Attack Complexity• Attack Unpredictability

MKT MKTPRICEMKT PRODMKTCAP SIG PROD MKT

Attack a Attack a’

Group Exercise: Bud vs. Miller Total Actions

– Count of total actions Average Response Time

– Avg. number of time units between last competitive move and first competitive response

Repertoire Complexity– Extent to which repertoire is skewed vs.

balanced Attack Unpredictability

– Lack of discernable action combinations or repetition

Response:• Less Likely• Slower

Action Characteristics

Implementation Req. Irreversibility Radicality

Action/Response Pairs

Better Profitabilityfor Attacker

MarketShare

Gain

ActionRepertoire

Characteristics

More Actions

Complexity

Faster Avg.Response

Speed

Competitive Repertoire and Market Share Gain

Competitive Attack and Market Share Gain

Market ShareGain

CompetitiveAttack

Characteristics

Attack VolumeAttack Duration

Competitive Attack and Market Share Gain

Market ShareGain

Simple Complex

Extent of Attack Complexity

Competitive Attack and Market Share Gain

Market ShareGain

Predictable Unpredictable

Extent of Attack Unpredictability

Results: Attack Intensity

StockPrice

Sporadic,Infrequent

Intense,Sustained

Number of Actions within Sustained

Attack per Unit TimeResults reversed for relationship between focal firm’s attack and rival’s stock price.

Results: Attack Complexity

Simple Complex

Extent to which Focal Firm’s Attacks Consist of Actions of Many Types

StockPrice

Post Hoc: Attack Unpredictability

Rival’sStockPrice

Predicable,Inertia

Unpredictable,Change

Extent of Change in Focal Firm’s Sequence of Actions

Scoring the Fight

Total Actions

Faster Responses

More Complex Repertoire

Unpredictable Attacks

Miller Bud

Competitive Aggressiveness

Performance Market Share Gains

Profitability

Too much of a good thing?Lynagh’s vs. Two Keys

Implications for CI:Predict Future Behavior of Rivals

Rivals’ prior behavior Patterns Tendencies Type & order of

moves Proactiveness Reactiveness

Drivers of Behavior Management

orientation Decision-making Financial constraints Industry characteristics

Implications for CI:Monitor Your Own Behavior

Objective measures of competitive behavior Safeguard against complacency, predictability,

simplicity Keep rivals off balance / disruption Identify factors that facilitate aggressiveness What combinations of moves are effective? …

which are ineffective? …smoke signals?

Conclusions and Implications

Managerial Implications– Incorporate dynamic analysis of

competitive moves into competitive intelligence program

– Assists managers to make inform choices about the requisite level of competitive behavior

– Use stock returns as an important decision-making tool and as a messenger