Chapter 5
Competitive Dynamics
Dr. Mubarak Ali
Ch5-1
Strategic
Inputs
Chapter 2
External
Environment
Strategic Intent
Strategic Mission
Chapter 3
Internal
Environment
Strategy Implementation
Chapter 4
Business-Level
Strategy
Chapter 5
Competitive
Dynamics
Chapter 6
Corporate-Level
Strategy
Chapter 10
Corporate
Governance
Chapter 11
Structure
& Control
Chapter 7
Acquisitions &
Restructuring
Chapter 8
International
Strategy
Chapter 9
Cooperative
Strategies
Chapter 12
Strategic
Leadership
Chapter 13
Outcomes
Strategic
Strategic
Actions
Strategy Formulation
The Strategic
Management
Process
Feedback
Entrepreneurship
& Innovation
Strategic
Competitiveness
Above Average
Returns
Ch5-2
Factors Leading to More Complex Rivalry
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)
Ch5-3
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
Ch5-4
A firm’s
strategic conduct
is dynamic in
nature
Actions taken
by one firm
elicit responses
from
competitors
Competitive
Dynamics
Competitive
responses lead
to additional
actions from the
firm that acted
originally
Actions and
responses shape the
competitive positions
of each firm’s
business level
strategy
Ch5-5
Model of Interfirm Rivalry:
Likelihood of Attack and Response
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
Actor’s Reputation
Dependence on the
Market
Resource Availability
Ability for
Action and
Response
Relative Size
Speed
Innovation
Quality
Feedback
Outcomes
Competitive
Market Types
Slow, Standard
or Fast Cycle
Competitive
Outcomes
Sustained
Competitive
Advantage
Temporary
Advantage
Evolutionary
Outcomes
Entrepreneurial
Growth-Oriented
or Market-Power
Actions
Ch5-6
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Drivers of
Competitive
Behavior
Awareness
Motivation
Do managers understand
the key characteristics of
competitors?
Capability
Ch5-7
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Drivers of
Competitive
Behavior
Awareness
Motivation
Capability
Does the firm have
appropriate incentives to
attack or respond?
Ch5-8
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Drivers of
Competitive
Behavior
Awareness
Motivation
Capability
Does the firm have the
necessary resources to
attack or respond?
Ch5-9
Model of Interfirm Rivalry:
Likelihood of Attack and Response
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
Actor’s Reputation
Dependence on the
Market
Resource Availability
Ability for
Action and
Response
Relative Size
Speed
Innovation
Quality
Feedback
Outcomes
Competitive
Market Types
Slow, Standard
or Fast Cycle
Competitive
Outcomes
Sustained
Competitive
Advantage
Temporary
Advantage
Evolutionary
Outcomes
Entrepreneurial
Growth-Oriented
or Market-Power
Actions
Ch5-10
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Competitor
Analysis
Market
Commonality
Do firms compete with each
other in multiple markets?
Resource
Similarity
Ch5-11
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Competitor
Analysis
Market
Commonality
Resource
Similarity
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
Ch5-12
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Competitor
Analysis
Market
Commonality
Resource
Similarity
Do competitors possess similar
types or amounts of resources?
Ch5-13
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Competitor
Analysis
Market
Commonality
Resource
Similarity
Firms are less inclined to attack a
firm that is likely to retaliate
Firms with similar resources are
more likely to be aware of each
other’s competitive moves
Firms with dissimilar resources
are more likely to attack
Ch5-14
Model of Interfirm Rivalry:
Likelihood of Attack and Response
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
Actor’s Reputation
Dependence on the
Market
Resource Availability
Ability for
Action and
Response
Relative Size
Speed
Innovation
Quality
Feedback
Outcomes
Competitive
Market Types
Slow, Standard
or Fast Cycle
Competitive
Outcomes
Sustained
Competitive
Advantage
Temporary
Advantage
Evolutionary
Outcomes
Entrepreneurial
Growth-Oriented
or Market-Power
Actions
Ch5-15
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Interfirm Rivalry:
Attack & Response
Likelihood of Attack
First Mover advantage
First Mover Incentives can be substantial
Likelihood of Response
Type of Competitive
Action
Actor’s Reputation
Dependence on the
Market
Resource Availability
Ch5-16
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
Ch5-17
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
Ch5-18
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Interfirm Rivalry:
Attack & Response
Likelihood of Attack
First Mover Incentives
Likelihood of Response
Type of Competitive
Action
Actor’s Reputation
Dependence on the
Market
Resource Availability
Whether a competitor
is likely to respond
depends on several
key factors
Ch5-19
Types of Competitive Actions
Strategic
Actions
Significant commitments of specific and
distinctive organizational resources
Difficult to implement
Difficult to reverse
Example
Tactical
Actions
Major Acquisition
Undertaken to “fine tune” strategy
Relatively easy to implement
Relatively easy to reverse
Example
Price cut
Ch5-20
Gauging the Likelihood of Response
Type of Competitive Action -Tactical or Strategic
Easier to respond to
Require fewer resources to mount a 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
Ch5-21
Gauging the Likelihood of Response
Market Dependence
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
Competitor Resources
Smaller firms are more likely to respond to tactical
actions
Limited resources may lead to alternatives such as
Strategic Alliances
Ch5-22
Model of Interfirm Rivalry:
Likelihood of Attack and Response
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
Actor’s Reputation
Dependence on the
Market
Resource Availability
Ability for
Action and
Response
Relative Size
Speed
Innovation
Quality
Feedback
Outcomes
Competitive
Market Types
Slow, Standard
or Fast Cycle
Competitive
Outcomes
Sustained
Competitive
Advantage
Temporary
Advantage
Evolutionary
Outcomes
Entrepreneurial
Growth-Oriented
or Market-Power
Actions
Ch5-23
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Ability for
Action and
Response
Relative Size
Speed
Firm size can have
opposing effects on
competitive dynamics
Innovation
Quality
Ch5-24
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Ability for
Action and
Response
Relative Size
Speed
Innovation
Quality
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
“Think and act big and we’ll get
smaller. Think and act small
and we’ll get bigger.”
-- Herb Kelleher,
CEO, Southwest Airlines
Ch5-25
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Ability for
Action and
Response
Relative Size
Speed
Innovation
Quick response is
crucial to both the
first mover and the
fast second mover
Quality
Ch5-26
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Ability for
Action and
Response
Relative Size
Speed
Innovation
Quality
Consistent innovation
is required for market
leadership in many
dynamic industries
Ch5-27
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Ability for
Action and
Response
Relative Size
Speed
Innovation
Quality
Exceeding customer
expectations is a necessity
to compete in the 21st
century
Ch5-28
Quality Dimensions of Goods & Services
Product Quality Dimensions:
Performance
Features
Operating characteristics
Important special characteristics
Flexibility
Durability
Conformance
Meeting operating specifications over time
Amount of use before performance
deteriorates
Match with pre-established standards
Serviceability
Ease and speed of repair or normal service
Aesthetics
How a product looks and feels
Perceived quality Subjective assessment of
characteristics (product image)
Ch5-29
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
Ch5-30
Model of Interfirm Rivalry:
Likelihood of Attack and Response
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
Actor’s Reputation
Dependence on the
Market
Resource Availability
Ability for
Action and
Response
Relative Size
Speed
Innovation
Quality
Feedback
Outcomes
Competitive
Market Types
Slow, Standard
or Fast Cycle
Competitive
Outcomes
Sustained
Competitive
Advantage
Temporary
Advantage
Evolutionary
Outcomes
Entrepreneurial
Growth-Oriented
or Market-Power
Actions
Ch5-31
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Outcomes
Competitive Market Types Slow cycle markets are
Slow, Standard or Fast Cycle
Competitive Outcomes
Sustained Competitive
Advantage
Temporary Advantage
Evolutionary Outcomes
Evolutionary Actions
Growth-Oriented Actions
Market-Power Actions
frequently shielded by
monopoly power or very
strong brand loyalties
This market outcome and
lack of interfirm rivalry
may lead to sustained
competitive advantage
Ch5-32
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Outcomes
Standard cycle markets
Competitive Market Types often lead to highly
Slow, Standard or Fast Cycle competitive pressures
Competitive Outcomes despite world class
products
Sustained Competitive
Advantage
Firms with multimarket
Temporary Advantage
competition may dampen
rivalry
somewhat
Evolutionary Outcomes
Evolutionary Actions
Growth-Oriented Actions
Market-Power Actions
Sustained competitive
advantage is a possible
outcome in this instance
Ch5-33
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Outcomes
Fast cycle markets are
Competitive Market Types
intensely dynamic and a
Slow, Standard or Fast Cycle
first mover advantage is
Competitive Outcomes often unsustainable
Sustained Competitive
Advantage
Temporary Advantage
Evolutionary Outcomes
Evolutionary Actions
Growth-Oriented Actions
Market-Power Actions
Firms may cannibalize
older generation products
while introducing new
innovative premium
products
Sustainable competitive
advantage is unilkely Ch5-34
Gradual Erosion of a
Sustained Competitive Advantage
Returns
from a
Sustained
Competitive
Advantage
Exploitation
Counterattack
Launch
Time (years)
10
Ch5-35
Some Firms Maintain Competitive Advantage
in Fast-Cycle Markets by Seizing the Initiative
1 Disrupting the Status Quo
Identify new opportuntites to serve the customer by
shifting the rules of competition through speed and variety
2 Creating Temporary Advantage
Use superior knowledge of the customer, technology and the
future to enhance customer orientation and empower workers
3
Seizing the Initiative
Move aggressively into new areas of competition to create
new advantage and undermine a competitor’s old advantage
4 Sustaining the Momentum
Take several actions in a row in order to seize the initiative
and create momentum to develop new advantages
Ch5-36
Obtaining Temporary Advantages
to Create Sustained Advantage
Returns
from a
Sustained
Competitive
Advantage
Exploitation
Counterattack
Launch
5
Time (years) 10
15
Ch5-37
Obtaining Temporary Advantages
to Create Sustained Advantage
Returns
from a
Sustained
Competitive
Advantage
Firm has already moved
on to Advantage No. 2
Exploitation
Counterattack
Launch
5
Time (years) 10
15
Ch5-38
Obtaining Temporary Advantages
to Create Sustained Advantage
Returns
from a
Sustained
Competitive
Advantage
Firm continues to move
on to the next Advantage
Exploitation
Counterattack
Launch
5
Time (years) 10
15
Ch5-39
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Outcomes
Strategies
may
be
deterCompetitive Market Types
mined by the life cycle of
Slow, Standard or Fast Cycle
the industry
Competitive Outcomes
Sustained Competitive
Advantage
Temporary Advantage
Evolutionary Outcomes
Evolutionary Actions
Growth-Oriented Actions
Market-Power Actions
Younger firms and
emerging industries are
generally characterized by
entrepreneurial actions
Growth-oriented and
Market-power strategies
dominate established or
mature industries
Ch5-40
Model of Interfirm Rivalry:
Likelihood of Attack and Response
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
Actor’s Reputation
Dependence on the
Market
Resource Availability
Ability for
Action and
Response
Relative Size
Speed
Innovation
Quality
Feedback
Outcomes
Competitive
Market Types
Slow, Standard
or Fast Cycle
Competitive
Outcomes
Sustained
Competitive
Advantage
Temporary
Advantage
Evolutionary
Outcomes
Entrepreneurial
Growth-Oriented
or Market-Power
Actions
Ch5-41
An Action-Based Model of the
Industry Life Cycle
Firm Resource
&
Market Strength
Key Task
Key Task
Exploiting Open
Niches (Blind Spots)
and Competitive
Uncertainty
Exploiting Factors
of Production
Key Task
Exploiting Market
Position
Market-Power
Actions
Growth-Oriented
Actions
Entrepreneurial
Actions
Emerging Stage
Growth Stage
Time
Mature Stage
Ch5-42