ch06 discussion blue
TRANSCRIPT
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2004 by South-Western/Thomson Learning 1
Competitive Rivalry andCompetitive Rivalry and
Competitive DynamicsCompetitive Dynamics
Robert E. Hoskisson
Michael A. Hitt
R. Duane Ireland
Chapter 6Chapter 6
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Chapter 2Chapter 2
Strategic LeadershipStrategic Leadership
Chapter 4Chapter 4
The InternalThe Internal
OrganizationOrganization
Chapter 6Chapter 6
Competitive Rivalry andCompetitive Rivalry and
Competitive DynamicsCompetitive Dynamics
Chapter 9Chapter 9
International StrategyInternational Strategy
Chapter 1Chapter 1
Introduction toIntroduction to
Strategic ManagementStrategic Management
Chapter 3Chapter 3
The ExternalThe External
EnvironmentEnvironment
Chapter 5Chapter 5
Business-LevelBusiness-Level
StrategyStrategy
Chapter 8Chapter 8Acquisition andAcquisition and
Restructuring StrategiesRestructuring Strategies
Chapter 11Chapter 11
Corporate GovernanceCorporate Governance
Strategic IntentStrategic Intent
Strategic MissionStrategic Mission
Chapter 7Chapter 7
Corporate-Level StrategyCorporate-Level Strategy
Chapter 10Chapter 10
Cooperative StrategyCooperative Strategy
Chapter 12Chapter 12
Strategic EntrepreneurshipStrategic Entrepreneurship
Strategic
Analysis
Strategic
Thinking
Creating
Competitive
Advantage
Monitoring
And Creating
EntrepreneurialOpportunities
The Strategic Management ProcessThe Strategic Management Process
Chapter 5Chapter 5
Business-LevelBusiness-Level
StrategyStrategy
Chapter 6Chapter 6
Competitive Rivalry andCompetitive Rivalry and
Competitive DynamicsCompetitive Dynamics
Chapter 7Chapter 7
Corporate-Level StrategyCorporate-Level Strategy
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Discussion QuestionsDiscussion Questions
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1. What is competitive dynamics and why
is it important?
2.What are the reasons why rivalryincreases or decreases between
firms?
3. What factors drive awareness of the
potential for increased rivalry andcompetitive attack and response?
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Discussion Questions (cont.)Discussion Questions (cont.)Click
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4. What factors lead to motivation and
ability for competitive attack and
response?
5. Besides market commonality and
resource similarity, what additional
factors might lead a firm to attack?
6. Once competitive action is taken,what factors increase the likelihood of
competitive response?Click
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Discussion Questions (cont.)Discussion Questions (cont.)
7. What strategic approach is necessary
to compete in slow versus fast cycle
or hyper-competitive markets?
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Discussion Question 1Discussion Question 1
What is competitive dynamics andwhy is it important?
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DefinitionsDefinitions
CompetitorsCompetitors
firms operating in the same market, offeringfirms operating in the same market, offering
similar products and targeting similarsimilar products and targeting similar
customerscustomers
Competitive rivalryCompetitive rivalry
the ongoing set of competitive actions andthe ongoing set of competitive actions and
responses occurring between competitorsresponses occurring between competitors
competitive rivalry influences an individualcompetitive rivalry influences an individual
firms ability to gain and sustain competitivefirms ability to gain and sustain competitive
advantagesadvantages
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DefinitionsDefinitions
Competitive behaviorCompetitive behavior
the set of competitive actions and competitivethe set of competitive actions and competitive
responses the firm takes to build or defend itsresponses the firm takes to build or defend its
competitive advantages and to improve itscompetitive advantages and to improve itsmarket positionmarket position
Competitive dynamicsCompetitive dynamics
the total set of actions and responses taken bythe total set of actions and responses taken by
all firms competing within a marketall firms competing within a market
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From Competitors toFrom Competitors to
Competitive DynamicsCompetitive DynamicsCompetitorsCompetitors
Through competitiveThrough competitive
behaviorbehavior Competitive actionsCompetitive actions Competitive responsesCompetitive responses
To gain an advantageousTo gain an advantageous
market positionmarket position
Competitive DynamicsCompetitive Dynamics Competitive actions and responses taken by allCompetitive actions and responses taken by all
firms competing in a marketfirms competing in a market
CompetitiveCompetitive
rivalryrivalry
Engage inEngage in
What results?What results?
What results?What results?
Why?Why?
How?How?
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Effect of Competitive Rivalry onEffect of Competitive Rivalry on
a Firms Strategiesa Firms Strategies Success of a strategy is determined by:Success of a strategy is determined by:
the firms initial competitive actionsthe firms initial competitive actions
how well it anticipates competitors responseshow well it anticipates competitors responses
to themto them
how well the firm anticipates and responds to itshow well the firm anticipates and responds to its
competitors initial actionscompetitors initial actions
Competitive rivalryCompetitive rivalry
affects all types of strategiesaffects all types of strategies
most dominant influence is on the firmsmost dominant influence is on the firms
business-level strategy or strategies.business-level strategy or strategies.Click
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Discussion Question 2Discussion Question 2
What are the reasons why rivalry
increases or decreases betweenfirms?
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A Model of CompetitiveA Model of Competitive
RivalryRivalryCompetitive AnalysisCompetitive Analysis Market commonalityMarket commonality Resource similarityResource similarity
Drivers of CompetitiveDrivers of Competitive
BehaviorBehavior AwarenessAwareness MotivationMotivation AbilityAbility
Interfirm RivalryInterfirm Rivalry Likelihood of AttackLikelihood of Attack
First mover incentivesFirst mover incentives Organizational sizeOrganizational size
QualityQuality Likelihood of ResponseLikelihood of Response
Type of competitive actionType of competitive action ReputationReputation
Market dependenceMarket dependence
OutcomesOutcomes Market positionMarket position Financial performanceFinancial performance
feedbackfeedback
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Competitive RivalryCompetitive Rivalry
Firms are mutually interdependentFirms are mutually interdependent
one firms competitive actions have noticeableone firms competitive actions have noticeable
effects on competitorseffects on competitors
one firms competitive actions elicitone firms competitive actions elicit
competitive responses from competitorscompetitive responses from competitors
competitors feel each others actions andcompetitors feel each others actions and
responsesresponses
Marketplace success is a function of bothMarketplace success is a function of both
individual strategies and theindividual strategies and the
consequences of their useconsequences of their use
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Competitor AnalysisCompetitor Analysis
Competitor analysisCompetitor analysis
a technique firms use to understand theira technique firms use to understand their
competitive environment. Along with the generalcompetitive environment. Along with the general
and industry environments, the competitiveand industry environments, the competitiveenvironment comprises the firms externalenvironment comprises the firms external
environmentenvironment
a technique used to help the firma technique used to help the firm understandunderstand itsits
competitorscompetitors the first step to being able tothe first step to being able to predictpredict
competitors behavior in the form of itscompetitors behavior in the form of its
competitive actions and responsescompetitive actions and responses
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Discussion Question 3Discussion Question 3
What factors drive awareness of the
potential for increased rivalry and
competitive attack and response?
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Market CommonalityMarket Commonality
Market Commonality is concerned withMarket Commonality is concerned with
the number of markets with which a firm and athe number of markets with which a firm and a
competitor are jointly involvedcompetitor are jointly involved
the degree of importance of the individual markets tothe degree of importance of the individual markets toeach competitoreach competitor
Most industries markets are somewhat related inMost industries markets are somewhat related in
terms ofterms of
technologiestechnologies
core competenciescore competencies
Multimarket competitionMultimarket competition
Firms competing in several marketsFirms competing in several markets
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A Framework of CompetitorA Framework of Competitor
AnalysisAnalysis
MarketMarket
CommonalityCommonality
HighHigh
LowLow
LowLow HighHigh
ResourceResourceSimilaritySimilarity
The shaded area representsThe shaded area represents
degree of market commonalitydegree of market commonalitybetween two firmsbetween two firms
Resource endowment BResource endowment B
Resource endowment AResource endowment A
KEYKEY
IIIIII
IIIIII IVIV
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Drivers of Competitive ActionsDrivers of Competitive Actions
and Responses:and Responses: Awareness is the extent to whichAwareness is the extent to which
competitors recognize the degree ofcompetitors recognize the degree of
their mutual interdependencetheir mutual interdependence mutual interdependence resultsmutual interdependence results
fromfrom
market commonalitymarket commonality
resource similarityresource similarity
AwarenessAwareness
AwarenessAwareness
Drivers of competitive behaviorDrivers of competitive behavior
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Discussion Question 4Discussion Question 4
What factors lead to motivation
and ability for competitive attackand response?
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MotivationMotivation
Drivers of Competitive ActionsDrivers of Competitive Actions
and Responses:and Responses: Motivation concerns the firmsMotivation concerns the firms
incentiveincentive
to take actionto take action or to respond to a competitorsor to respond to a competitors
attackattack
and relates to perceived gains andand relates to perceived gains and
losseslosses
AwarenessAwareness
Drivers of competitive behaviorDrivers of competitive behavior
MotivationMotivation
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AbilityAbility
Drivers of Competitive ActionsDrivers of Competitive Actions
and Responses:and Responses:
Ability relatesAbility relates
to each firms resourcesto each firms resources
the flexibility these resourcesthe flexibility these resourcesprovideprovide
Without available resources the firmWithout available resources the firm
lacks the abilitylacks the ability
to attack a competitorto attack a competitor to respond to the competitorsto respond to the competitors
actionsactions
AwarenessAwareness
Drivers of competitive behaviorDrivers of competitive behavior
MotivationMotivation
AbilityAbility
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AbilityAbility
Drivers of Competitive ActionsDrivers of Competitive Actions
and Responses:and Responses:
Dissimilarity refers to the resourceDissimilarity refers to the resource
imblance between the acting firm andimblance between the acting firm and
competitorscompetitors potential responderspotential responders
The greater the imbalance, theThe greater the imbalance, the
greater will be the delay ingreater will be the delay in
response by the firm with theresponse by the firm with theresource disadvantageresource disadvantage
AwarenessAwareness
Drivers of competitive behaviorDrivers of competitive behavior
MotivationMotivation
DissimilarityDissimilarity
DissimilarityDissimilarity
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Drivers of Competitive ActionsDrivers of Competitive Actions
and Responses:and Responses:
A firm is more likely to attack theA firm is more likely to attack the
rival with whom it has low marketrival with whom it has low market
commonality than the one with whomcommonality than the one with whomit competes in multiple marketsit competes in multiple markets
Because of the high stakes ofBecause of the high stakes of
competition under the condition ofcompetition under the condition of
market commonality, there is a highmarket commonality, there is a high
probability that the attacked firm willprobability that the attacked firm will
respond to its competitors action inrespond to its competitors action in
an effort to protect its position in onean effort to protect its position in one
or more marketsor more markets
MarketMarket
commonalitycommonality
Drivers of competitive behavior influenced byDrivers of competitive behavior influenced by
Market CommonalityMarket Commonality
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ResourceResource
similaritysimilarity
Drivers of Competitive ActionsDrivers of Competitive Actions
and Responses:and Responses:
The greater the resource imbalanceThe greater the resource imbalance
between the acting firm andbetween the acting firm and
competitors or potential responders,competitors or potential responders,the greater will be the delay inthe greater will be the delay in
response by the firm with a resourceresponse by the firm with a resource
disadvantagedisadvantage
When facing competitors with greaterWhen facing competitors with greater
resources or more attractive marketresources or more attractive market
positions, firms should eventuallypositions, firms should eventually
respond, no matter how challengingrespond, no matter how challenging
the responsethe response
Drivers of competitive behavior influenced byDrivers of competitive behavior influenced by
MarketMarket
commonalitycommonality
Resource SimilarityResource Similarity
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Questions
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Discussion Question 5Discussion Question 5
Besides market commonality and
resource similarity, what additionalfactors might lead a firm to attack?
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Factors Affecting Likelihood ofFactors Affecting Likelihood of
Attack:Attack:
First movers allocate funds forFirst movers allocate funds for
product innovation and developmentproduct innovation and development
aggressive advertisingaggressive advertising
advanced research and developmentadvanced research and development
First movers can gainFirst movers can gain the loyalty of customers who maythe loyalty of customers who may
become committed to the firms goodsbecome committed to the firms goods
or servicesor services
market share that can be difficult formarket share that can be difficult for
competitors to take during futurecompetitors to take during futurecompetitive rivalrycompetitive rivalry
First moverFirst mover
incentivesincentives
First Mover IncentivesFirst Mover Incentives
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SizeSize
Factors Affecting Likelihood ofFactors Affecting Likelihood of
Attack:Attack:
Small firms are more likelySmall firms are more likely to launch competitive actionsto launch competitive actions to be quicker in doing soto be quicker in doing so
Small firms are perceived asSmall firms are perceived as nimble and flexible competitorsnimble and flexible competitors relying on speed and surprise torelying on speed and surprise to
defend their competitive advantagesdefend their competitive advantages
or develop new ones while engagedor develop new ones while engaged
in competitive rivalryin competitive rivalry Small firms have the flexibility neededSmall firms have the flexibility needed
to launch a greater variety ofto launch a greater variety of
competitive actionscompetitive actions
First moverFirst mover
incentivesincentives
SizeSize
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Factors Affecting Likelihood ofFactors Affecting Likelihood of
Attack:Attack:
Large firms are likely to initiate moreLarge firms are likely to initiate more
competitive actions as well ascompetitive actions as well as
strategic actions during a given timestrategic actions during a given time
periodperiod Large organizations commonly haveLarge organizations commonly have
the slack resources required tothe slack resources required to
launch a larger number of totallaunch a larger number of total
competitive actionscompetitive actions
First moverFirst mover
incentivesincentives
SizeSize
SizeSize
Think and act big and well get smaller. Think andThink and act big and well get smaller. Think andact small and well get bigger.act small and well get bigger.
- Herb Kelleher,Former CEO, Southwest Airlines
- Herb Kelleher,Former CEO, Southwest Airlines
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QualityQuality
Factors Affecting Likelihood ofFactors Affecting Likelihood of
Attack:Attack:
Quality exists when the firms goodsQuality exists when the firms goods
or services meet or exceedor services meet or exceed
customers expectationscustomers expectations
First moverFirst mover
incentivesincentives
SizeSize
QualityQuality
Service quality dimensions includeService quality dimensions include TimelinessTimeliness
CourtesyCourtesy
ConsistencyConsistency
ConvenienceConvenience
CompletenessCompleteness AccuracyAccuracy
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Discussion Question 6Discussion Question 6
Once competitive action is taken,
what factors increase thelikelihood of competitive
response?
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Factors Affecting Likelihood ofFactors Affecting Likelihood of
ResponseResponse Firms study three factors to predict how aFirms study three factors to predict how a
competitor is likely to respond tocompetitor is likely to respond to
competitive actionscompetitive actions
type of competitive actiontype of competitive action reputationreputation market dependencemarket dependence
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Strategic and Tactical ActionsStrategic and Tactical Actions
Strategic action or a strategic responseStrategic action or a strategic response
a market-based move that involves aa market-based move that involves a
significant commitment of organizationalsignificant commitment of organizational
resources and is difficult to implement andresources and is difficult to implement andreversereverse
Tactical action or a tactical responseTactical action or a tactical response
a market-based move that is taken to fine-tunea market-based move that is taken to fine-tune
a strategy; it involves fewer resources and isa strategy; it involves fewer resources and isrelatively easy to implement and reverserelatively easy to implement and reverse
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Factors Affecting Likelihood ofFactors Affecting Likelihood of
Response:Response: Strategic actions receive strategicStrategic actions receive strategic
responsesresponses Tactical responses are taken toTactical responses are taken to
counter the effects of tactical actionscounter the effects of tactical actions Strategic actions elicit fewer totalStrategic actions elicit fewer total
competitive responsescompetitive responses A competitor likely will respondA competitor likely will respond
quickly to a tactical actionquickly to a tactical action The time needed to implement andThe time needed to implement and
assess a strategic action delaysassess a strategic action delays
competitors responsescompetitors responses
Type ofType of
competitivecompetitive
actionaction
Type of Competitive ActionType of Competitive Action
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ReputationReputation
Factors Affecting Likelihood ofFactors Affecting Likelihood of
Response:Response: An actor is the firm taking an actionAn actor is the firm taking an action
or responseor response
Reputation is the positive or negativeReputation is the positive or negative
attribute ascribed by one rival toattribute ascribed by one rival toanother based on past competitiveanother based on past competitive
behaviorbehavior
The firm studies responses that aThe firm studies responses that a
competitor has taken previously whencompetitor has taken previously whenattacked to predict likely responsesattacked to predict likely responses
Type ofType of
competitivecompetitive
actionaction
ReputationReputation
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MarketMarket
dependencedependence
Factors Affecting Likelihood ofFactors Affecting Likelihood of
Response:Response: Market dependence isMarket dependence is
the extent to which a firmsthe extent to which a firms
revenues or profits are derivedrevenues or profits are derived
from a particular marketfrom a particular market In general, firms can predict thatIn general, firms can predict that
competitors with high marketcompetitors with high market
dependence are likely to responddependence are likely to respond
strongly to attacks threatening theirstrongly to attacks threatening theirmarket positionmarket position
Type ofType of
competitivecompetitive
actionaction
ReputationReputation
Market DependenceMarket Dependence
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Discussion Question 7Discussion Question 7
What strategic approach is
necessary to compete in slowversus fast cycle or hyper-
competitive markets?
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Competitive Dynamics:Competitive Dynamics:
Slow-cycle marketsSlow-cycle markets the firms competitive advantagesthe firms competitive advantages
are shielded from imitation for longare shielded from imitation for long
periods of timeperiods of time imitation is costlyimitation is costly Competitive advantages areCompetitive advantages are
sustainable in slow-cycle marketssustainable in slow-cycle markets A proprietary, one-of-a-kindA proprietary, one-of-a-kind
competitive advantage leads tocompetitive advantage leads tocompetitive success in a slow-cyclecompetitive success in a slow-cycle
marketmarket
Slow-cycleSlow-cycle
marketsmarkets
Slow-Cycle MarketsSlow-Cycle Markets
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Gradual Erosion of a SustainableGradual Erosion of a Sustainable
Competitive AdvantageCompetitive Advantage
Retu
rnsfrom
aSustaina
ble
Returnsfrom
aSustaina
ble
Com
petitiveAdv
antage
Com
petitiveAdv
antage
Time (Years)Time (Years)
00 55 1010
LaunchLaunch
ExploitationExploitation
CounterattackCounterattack
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Fast-cycleFast-cycle
marketsmarkets
Competitive Dynamics:Competitive Dynamics:
Fast-cycle marketsFast-cycle markets the firms competitive advantagesthe firms competitive advantages
arent shielded from imitationarent shielded from imitation
imitation happens quickly andimitation happens quickly andsomewhat inexpensivelysomewhat inexpensively Competitive advantages arentCompetitive advantages arent
sustainablesustainable Competitors use reverse engineeringCompetitors use reverse engineering
to quickly imitate or improve on theto quickly imitate or improve on thefirms productsfirms products
Non-proprietary technology isNon-proprietary technology is
diffused rapidlydiffused rapidly
Slow-cycleSlow-cycle
marketsmarkets
Fast-Cycle MarketsFast-Cycle Markets
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Obtaining Temporary Advantages toObtaining Temporary Advantages to
Create Sustained AdvantageCreate Sustained Advantage
Return
sfroma
Se
ries
Return
sfrom
a
Series
of
Replicabl eA
cti
ons
ofReplicabl eA
cti
ons
Time (Years)Time (Years)
00 55 1010 1515
LaunchLaunch
ExploitationExploitation
CounterattackCounterattack
Firm has already movedFirm has already moved
to next advantageto next advantage
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Competitive Dynamics:Competitive Dynamics:
Standard-cycle marketsStandard-cycle markets
the firms competitive advantages maythe firms competitive advantages may
be shielded from imitationbe shielded from imitation
imitation is moderately costlyimitation is moderately costly
Competitive advantages are partiallyCompetitive advantages are partiallysustainable if the firm is able tosustainable if the firm is able to
continuously upgrade the quality of itscontinuously upgrade the quality of its
competitive advantagescompetitive advantages FirmsFirms
seek large market sharesseek large market shares gain customer loyalty through brandgain customer loyalty through brand
namesnames
carefully control operationscarefully control operations
Slow-cycleSlow-cycle
marketsmarkets
Fast-cycleFast-cycle
marketsmarkets
Standard-cycleStandard-cycle
marketsmarkets
Standard-Cycle MarketsStandard-Cycle Markets