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
Transparency 5-1
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
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Drivers of
Competitive
Behavior
Awareness
Motivation
Capability
Transparency 5-2
Do managers understand
the key characteristics of
competitors?
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Drivers of
Competitive
Behavior
Awareness
Motivation
Capability
Transparency 5-3
Does the firm have
appropriate incentives to
attack or respond?
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Drivers of
Competitive
Behavior
Awareness
Motivation
Capability
Transparency 5-4
Does the firm have the
necessary resources to
attack or respond?
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Competitor
Analysis
Market
Commonality
Resource
Similarity
Transparency 5-5
Do firms compete with each
other in multiple markets?
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Competitor
Analysis
Market
Commonality
Resource
Similarity
Transparency 5-6
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
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Competitor
Analysis
Market
Commonality
Resource
Similarity
Transparency 5-7
Do competitors possess similar
types or amounts of resources?
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
Transparency 5-8
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
Transparency
5-9
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
Transparency 5-10
Second
Second Mover
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
Transparency 5-11
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
Transparency
5-12
Whether a competitor
is likely to respond
depends on several
key factors
Types of Competitive Actions
Strategic
Actions
Significant commitments of specific &
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
Transparency 5-13
Price cut
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
Transparency 5-14
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
Transparency 5-15
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Ability for
Action and
Response
Relative Size
Speed
Innovation
Quality
Transparency 5-16
Firm size can have
opposing effects on
competitive dynamics
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Ability for
Action and
Response
Relative Size
Speed
Innovation
Quality
Transparency 5-17
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
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Ability for
Action and
Response
Relative Size
Speed
Innovation
Quality
Transparency 5-18
“Think and act big and
we’ll get smaller. Think
and act small and we’ll get
bigger.”
Herb Kelleher,
CEO, Southwest Airlines
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Ability for
Action and
Response
Relative Size
Speed
Innovation
Quality
Transparency 5-19
Quick response is
crucial to both the
first mover and the
fast second mover
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Ability for
Action and
Response
Relative Size
Speed
Innovation
Quality
Transparency 5-20
Consistent innovation
is required for market
leadership in many
dynamic industries
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Ability for
Action and
Response
Relative Size
Speed
Innovation
Quality
Transparency 5-21
Exceeding customer
expectations is a necessity
to compete in the 1990s
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Outcomes
Competitive Market Types
Slow, Standard or Fast Cycle
Competitive Outcomes
Sustained Competitive
Advantage
Temporary Advantage
Evolutionary Outcomes
Evolutionary Actions
Growth-Oriented Actions
Market-Power
Actions
Transparency 5-22
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
Transparency 5-23
frequently shielded by
monopoly power or very
strong brand loyalties
This market outcome and
lack of interfirm rivalry
may lead to sustained
competitive advantage
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
Transparency 5-24
Sustained competitive
advantage is a possible
outcome in this instance
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
Transparency 5-25
Firms may cannibalize
older generation products
while introducing new
innovative premium
products
Sustainable competitive
advantage is unilkely
Sustained Competitive Advantage
which Eventually Erodes
Returns
from a
Sustained
Competitive
Advantage
Exploitation
Counterattack
Launch
Time (years)
Transparency 5-26
10
Some Firms Maintain Competitive Advantage
in Fast-Cycle Markets by Seizing the Initiative
Disrupting the Status Quo
1
Identify new opportuntites to serve the customer by shifting
the rules of competition through speed and variety
Creating Temporary Advantage
2
Use superior knowledge of the customer, technology and the
future to enhance customer orientation and empower workers
Seizing the Initiative
3
Move aggressively into new areas of competition to create
new advantage and undermine a competitor’s old advantage
Sustaining the Momentum
4
Take several actions in a row in order to seize the initiative
and create momentum to develop new advantages
Transparency 5-27
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
Transparency 5-28
5
Time (years) 10
15
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
Transparency 5-29
5
Time (years) 10
15
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
Transparency 5-30
Growth Stage
Time
Mature Stage