Competing for Advantage

1. Competing for Advantage Chapter 6 Competitive Rivalry and Competitive Dynamics PART III CREATING COMPETITIVE ADVANTAGE

2. The Strategic Management Process

3. Introduction to New Age of Competition • Dramatic increase in competitive actions and reactions between firms • Decreased decision making time • Increased speed of new ideas and products • Soaring speed at which knowledge “pulses” between competitors Fast firms generate advantages and market power. Faster firms generate more advantages and greater market power.

4. Competitive Rivalry • Key Terms • Competitors Firms operating in the same market, offering similar products, and targeting similar customers • Competitive rivalry Ongoing set of competitive actions and competitive responses occurring between competitors as they contend with each other for an advantageous market position

5. Competitive Rivalry • Key Terms • Competitive behavior Set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position • Competitive dynamics Total set of actions and responses taken by all firms competing within a market • Multimarket competition Firms competing against each other in several product or geographic markets

6. From Competitors to Competitive Dynamics

7. Model of Competitive Rivalry

8. Intensity of Rivalry • The total number of competitors • Market characteristics • Quality of individual firms' strategies • Drivers of competitive behavior

9. Competitor Determinants • Market Commonality • Resource Similarity Firms with high market commonality and highly similar resources are clearly direct and mutually acknowledged competitors.

10. Market Commonality • Key Terms • Market commonality Number of markets with which the firm and a competitor are jointly involved and the degree of importance of the individual markets to each

11. Resource Similarity • Key Terms • Resource similarity Extent to which the firm's tangible and intangible resources are comparable to competitors' resources in terms of both type and amount

12. Framework of Competitive Analysis

13. Drivers of Competitive Actions and Responses • Awareness • Motivation • Ability • Resource Dissimilarity

14. Strategic and Tactical Actions • Key Terms • Competitive action Strategic or tactical action the firm takes to build or defend its competitive advantages or improve its market position • Competitive response Strategic or tactical action the firm takes to counter the effects of a competitor's action • Tactical action (or response) Market-based move that is taken to fine-tune a strategy

15. Differences Between Strategic and Tactical Actions/Responses • Strategic actions/responses are market-based moves that signify a significant commitment of organizational resources to pursue a specific strategy. They are difficult to implement and reverse. • Tactical actions/responses are market-based moves that are taken to fine-tune a strategy that is already in place, involving fewer resources. They are relatively easy to implement and reverse.

16. Likelihood of Attack • First mover incentives • Organizational size • Quality

17. Timing of Competitive Behavior • Key Terms • First mover Firm that takes an initial competitive action to build or to defend its competitive advantages or to improve its market position • Second mover Firm that responds to the first mover's competitive action, typically through imitation • Late mover Firm that responds to a competitive action, but only after considerable time has elapsed after the first mover's action and the second mover's response

18. First Movers • Often build upon a strategic foundation of superior research and development skills • Tend to be aggressive and willing to experiment with innovation • Tend to take higher, yet reasonable, risks • Need to have liquid resources that can be quickly allocated to support actions

19. First Mover Benefits • Competitive advantage • Above-average returns • Customer loyalty • Industry standards • Market share

20. First Mover Risks • Difficulty to accurately estimate potential returns • Substantial costs of product innovation, which reduces organizational slack available for other opportunities • Low likelihood of introducing or converting to the product that eventually becomes the dominant design or industry standard as the market evolves

21. Second Movers • More cautious than first movers • Tend to study customer reactions to product innovations • Tend to learn from the mistakes and avoid the large investments required of first movers, reducing their risks • Can take advantage of time to develop more efficient processes and technologies than first movers, reducing their costs • Will not benefit from first mover advantages, lowering potential returns

22. Late Movers • Respond to market opportunities only after considerable time has elapsed after first and second movers, substantially reducing risks and returns • Typically, a late response is better than no response at all

23. Organizational Size • Small firms • Nimble and flexible competitors • Rely on speed and surprise to defend their competitive advantage • Greater variety of competitive behavior options available

24. Organizational Size • Large firms • Often have greater slack • Greater likelihood to initiate competitive and strategic actions over time • Tend to rely on a limited variety of competitive actions, which can ultimately reduce their competitive success

25. Quality • Key Terms • Quality Customer perception that the firm's goods or services perform in ways that are important to the customer to meet or exceed their expectations

26. Dimensions of Quality

27. Likelihood of Response • Types of competitive action • Actor’s reputation • Dependence on the market • Competitive dynamics

28. Types of Competitive Action • Strategic actions elicit different responses than tactical actions. • Strategic actions generally elicit strategic responses. • Tactical actions generally elicit tactical responses. • Strategic actions elicit fewer total competitive responses. • Actions that target a large number of a rival’s customers are likely to elicit strong responses.

29. Actor’s Reputation • Key Terms • Actor Firm taking an action or response (in the context of competitive rivalry) • Reputation Positive or negative attribute ascribed by one rival to another based on past competitive behavior

30. Dependence on the Market • Key Terms • Market dependence Extent to which a firm's revenues or profits are derived from a particular market

31. Competitive Dynamics – Three Market Types • Slow-cycle markets • Fast-cycle markets • Standard-cycle markets

32. Slow-Cycle Markets • Key Terms • Slow-cycle markets Markets in which the firm's competitive advantages are shielded from imitation for what are commonly long periods of time and where imitation is costly

33. Competitive Advantages in Slow-Cycle Markets • One-of-a-kind proprietary competitive advantage • Orient competitive behavior to protecting, maintaining, and extending that advantage

34. Gradual Erosion of Sustained Competitive Advantage

35. Fast-Cycle Markets • Key Terms • Fast-cycle markets Markets in which the firm's capabilities that contribute to competitive advantages are not shielded from imitation and where imitation is often rapid and inexpensive

36. Conditions in Fast-Cycle Markets • Complex and rapid strategic decisions • Relatively easy imitation • Unprotected technology • High volatility

37. Competitive Advantages in Fast-Cycle Markets • Rapid and continuous development of new competitive advantages – innovation • Temporary competitive advantage • Avoid loyalty to products – willingly cannibalize own products

38. Obtaining Temporary Advantages to Create Sustained Advantage

39. Standard-Cycle Markets • Key Terms • Standard-cycle markets Markets in which the firm's competitive advantages are moderately shielded from imitation and where imitation is moderately costly

40. Competitive Advantages in Standard-Cycle Markets • Continuously upgrade quality • Serve many customers and gain a large market share • Gain customer loyalty through brand names • Deliver consistent customer experiences

41. Ethical Question When competing against one another, firms jockey for a market position that is advantageous, relative to competitors. In this jockeying, what are the ethical implications associated with the way competitor intelligence is gathered?

42. Ethical Question Second movers often respond to a first mover’s competitive actions through imitation. Is there anything unethical about a company imitating a competitor’s good or service as a means of engaging in competition?

43. Ethical Question The standards for competitive rivalry differ in countries throughout the world. What should firms do to cope with these differences? What guidance should a firm give to employees as they deal with competitive actions and competitive responses that are ethical in one country but unethical in others?

44. Ethical Question In slow-cycle markets, effective competitors are able to shield their competitive advantages from imitation by competitors for relatively long periods of time. However, this is not the case in fast-cycle markets. Do these conditions have implications in terms of ethical business practices? Do ethical standards in slow-cycle markets differ from those in fast-cycle markets?

45. Ethical Question Is it ethical for the firm competing against a competitor in several markets to launch a competitive response in a market that differs from the one in which that competitor took a competitive action against the local firm? Why or why not?