Competing For Advantage

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Competing For Advantage

• Part III Creating Competitive Advantage
• Chapter 6 Competitive Rivalry and Competitive
  Dynamics

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The Strategic Management Process
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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
• 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

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Competitive Rivalry

• Key Terms
• Competitive Dynamics total set of actions and
  responses of all firms competing within a market
• Multimarket Competition firms competing against
  one another in several product or geographic
  markets

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From Competitors to Competitive Dynamics
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Model of Competitive Rivalry
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Intensity of Rivalry

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

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Competitor Determinants

• Market Commonality
• Resource Similarity

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Market Commonality

• Key Terms
• Market Commonality number of markets with which
  the firm and a competitor are jointly involved,
  and degree of importance of the individual
  markets to each firm

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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

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Framework of Competitive Analysis
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Drivers of Competitive Actions and Responses

• Awareness
• Motivation
• Ability
• Resource Dissimilarity

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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 the
  firms takes in order to fine-tune a strategy

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Differences Between Strategic and Tactical
Actions/Responses

• Strategic actions/responses market-based moves
  (difficult to implement and reverse) that signify
  a significant commitment of organizational
  resources to pursue a specific strategy
• Tactical actions/responses market-based moves
  (easy to implement and reverse) that involve
  fewer resources to fine-tune a strategy that is
  already in place

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Likelihood of Attack

• First mover incentives
• Organizational size
• Quality

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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 first
  mover's competitive action, typically through
  imitation
• Late Mover firm that responds to competitive
  action, but only after time has elapsed since
  first mover's action and second mover's response
  

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Timing of Competitive Behavior

• Key Terms
• Slack buffer or cushion provided by actual or
  obtainable resources not currently used by an
  organization, resources in excess of the minimum
  those needed to produce a given level of output

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First Mover Characteristics

• Often builds upon a strategic foundation of
  superior research and development skills
• Tends to be aggressive and willing to experiment
  with innovation
• Tends to take higher, yet reasonable, risks
• Needs to have liquid resources (slack) that can
  be quickly allocated to support actions

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First Mover Benefits

• Above-average returns
• Customer loyalty
• An early hold on market share

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First Mover Risks

• Difficulty in accurately estimating potential
  returns
• Substantial costs of product innovation, which
  reduce slack available for other opportunities
• Lower likelihood of introducing (or converting
  to) the product that becomes the industry
  standard as the market evolves

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Second Mover Characteristics

• Responds to first mover, typically through
  imitation
• Is more cautious than first movers
• Tends to study customer reactions to product
  innovations
• Tends to learn from the mistakes of first movers,
  reducing its risks
• Takes advantage of time to develop processes and
  technologies that are more efficient than first
  movers, reducing its costs
• Will not benefit from first mover advantages,
  lowering potential returns

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Late Mover Characteristics

• Responds to market opportunities only after
  considerable time has elapsed since first and
  second movers have taken action
• Has substantially reduced risks and returns

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Organizational Size

• Small firms
• Act as nimble and flexible competitors
• Rely on speed and surprise to defend their
  competitive advantage
• Have greater variety of competitive behavior
  options available

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Organizational Size

• Large firms
• Often have greater slack
• Have 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

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Quality

• Key Terms
• Quality customer perception that the firm's
  goods or services perform in ways that are
  important to customers, meeting or exceeding
  their expectations

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Quality
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Likelihood of Response

• Types and effectiveness of the competitive action
• Reputation of the firm that takes competitive
  actions
• Dependence on the market
• If the action significantly strengthens or
  weakens the firm's competitive position

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Actors 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

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Dependence on the Market

• Key Terms
• Market Dependence extent to which a firm's
  revenues or profits are derived from a particular
  market

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Competitive Dynamics Three Market Types

• Slow-cycle markets
• Fast-cycle markets
• Standard-cycle markets

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Slow-Cycle Markets

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

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Slow-Cycle Markets

• Build a one-of-a-kind competitive advantage that
  is proprietary and difficult for competitors to
  understand (creating sustainability)
• Once a proprietary advantage is developed,
  competitive behavior should be oriented to
  protecting, maintaining, and extending that
  advantage
• Organizational structure should be used to
  effectively support strategic efforts

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Slow-Cycle Markets
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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

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Fast-Cycle Markets

• Focus on learning how to rapidly and continuously
  develop new competitive advantages that are
  superior to those they replace (creating
  innovation)
• Avoid loyalty to any of their products, possibly
  cannibalizing their own current products to
  launch new ones before competitors learn how to
  do so through successful imitation
• Continually try to move on to another temporary
  competitive advantage before competitors can
  respond to the first one

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Fast-Cycle Markets
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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

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Standard-Cycle Markets

• Have competitive advantages that can be partially
  sustained when their quality is continuously
  upgraded
• Seek to serve many customers and gain a large
  market share
• Gain brand loyalty through brand names
• Carefully control operations to manage a
  consistent experience for the customer

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Ethical Questions

• 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?

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Ethical Questions

• Second movers often respond to a first movers
  competitive actions through imitation. Is there
  anything unethical about a company imitating a
  competitors good or service as a means of
  engaging in competition?

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Ethical Questions

• 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?

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Ethical Questions

• In slow-cycle markets, effective competitors
  are able to shield their competitive advantages
  from imitation by competitors for long periods of
  time. But this isnt the case in fast-cycle
  markets. Do these conditions have implications in
  terms of ethical business practices? Can what is
  considered ethical in slow-cycle markets be
  different from what is considered ethical in
  fast-cycle markets?

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Ethical Questions

• A firm competes against another organization in
  several markets. Is it ethical for the firm 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?