Transparency 5-1 Relative Size Speed Innovation Quality Ability for Action and Response Outcomes...

Transparency 5-1Transparency 5-1

Relative SizeSpeed

InnovationQuality

Ability for Ability for Action and Action and ResponseResponse

OutcomesOutcomesDrivers of Drivers of

Competitive Competitive BehaviorBehaviorAwarenessMotivationCapability

Competitor Competitor AnalysisAnalysisMarket

Commonality

ResourceSimilarity

Interfirm Rivalry:Interfirm Rivalry:Attack & ResponseAttack & Response

Likelihood of AttackLikelihood of AttackFirst Mover Incentives

Likelihood of ResponseLikelihood of ResponseType of Competitive

Action

Dependence on theMarket

Resource Availability

Actor’s Reputation

CompetitiveCompetitive

Slow, Standardor Fast Cycle

Market TypesMarket Types

CompetitiveCompetitive

SustainedOutcomesOutcomes

CompetitiveAdvantageTemporaryAdvantageEvolutionaryEvolutionaryOutcomesOutcomes

Entrepreneurial

or Market-PowerGrowth-Oriented

Actions

FeedbackFeedback

Model of Interfirm Rivalry:Likelihood of Attack and Response



Drivers of Drivers of Competitive Competitive

BehaviorBehavior

Motivation

Capability

Do managers understand Do managers understand the key characteristics of the key characteristics of competitors?competitors?

AwarenessAwareness




Does the firm have Does the firm have appropriate incentives to appropriate incentives to attack or respond?attack or respond?


BehaviorBehavior

MotivationMotivation

Capability

Awareness




Does the firm have the Does the firm have the necessary resources to necessary resources to attack or respond?attack or respond?


BehaviorBehavior

Motivation

CapabilityCapability

Awareness




Competitor Competitor AnalysisAnalysis

Resource Similarity

Do firms compete with each Do firms compete with each other in multiple markets?other in multiple markets?

Market Commonality

Market Commonality





Resource Similarity

Market Commonality

Market Commonality

Multipoint competition tends to Multipoint competition tends to reduce competitive interactions, reduce competitive interactions, but increases the likelihood of but increases the likelihood of response where interaction occursresponse where interaction occurs

For example, airlines price For example, airlines price flights similarly, but respond flights similarly, but respond quickly when competitors quickly when competitors introduce promotional pricesintroduce promotional prices





Resource SimilarityResource Similarity

Do competitors possess similar Do competitors possess similar types or amounts of types or amounts of resources?resources?

Market Commonality





Resource SimilarityResource Similarity

Market Commonality

Firms are less inclined to attack a Firms are less inclined to attack a firm that is likely to retaliatefirm that is likely to retaliate

Firms with dissimilar resources Firms with dissimilar resources are more likely to attackare more likely to attack

Firms with similar resources Firms with similar resources are more likely to be aware of are more likely to be aware of each other’s competitive moveseach other’s competitive moves





Likelihood of AttackLikelihood of Attack

First Mover IncentivesLikelihood of ResponseLikelihood of Response

Type of CompetitiveAction

Dependence on theMarket

Resource Availability

Actor’s Reputation




Firms that take an initial competitive actionFirms 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

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 respondCan earn above average profits until competitors respond

Gain customer loyalty, helping to create a barrier to entry by competitorsGain customer loyalty, helping to create a barrier to entry by competitors

Advantage depends upon difficulty of imitationAdvantage depends upon difficulty of imitation

First MoverFirst Mover


Second MoverSecond Mover

Firms that respond to a First Mover’s actionsFirms that respond to a First Mover’s actions

Second Movers frequently imitate First MoversSecond Movers frequently imitate First Movers

Should evaluate customers’ response before movingShould evaluate customers’ response before moving

“Fast” Second Movers can capture some of initial customers and develop some brand loyalty“Fast” Second Movers can capture some of initial customers and develop some brand loyalty

Avoid some of the risks associated with First MoveAvoid some of the risks associated with First Move

Speed of response often dictates successSpeed of response often dictates success

Must possess necessary capabilities to imitateMust possess necessary capabilities to imitate

Second MoverSecond Mover



Likelihood of AttackLikelihood of Attack

First Mover IncentivesFirst Mover IncentivesLikelihood of ResponseLikelihood of Response

Type of CompetitiveType of CompetitiveActionAction

Dependence on theDependence on theMarketMarket

Resource AvailabilityResource Availability

Actor’s ReputationActor’s Reputation

Whether a competitor Whether a competitor is likely to respond is likely to respond depends on several depends on several key factorskey factors




Types of Competitive ActionsTypes of Competitive ActionsTypes of Competitive ActionsTypes of Competitive Actions

TacticalTacticalActionsActionsTacticalTacticalActionsActions Relatively easy to implementRelatively easy to implementRelatively easy to implementRelatively easy to implement

Relatively easy to reverseRelatively easy to reverseRelatively easy to reverseRelatively easy to reverse

Undertaken to “fine tune” strategyUndertaken to “fine tune” strategyUndertaken to “fine tune” strategyUndertaken to “fine tune” strategy

Price cutPrice cutPrice cutPrice cutExampleExampleExampleExample

Strategic ActionsStrategic Actions

Significant commitments of specific & distinctive organizational resourcesSignificant commitments of specific & distinctive organizational resources

Difficult to implementDifficult to implement

Difficult to reverseDifficult to reverse

Major AcquisitionMajor AcquisitionExampleExample


Gauging the Likelihood of ResponseGauging the Likelihood of Response

Easier to respond toEasier to respond to

Require fewer resources to mount a responseRequire fewer resources to mount a response

Actor’s ReputationActor’s Reputation

Market leaders are more likely to be copiedMarket leaders are more likely to be copiedMarket leaders are more likely to be copiedMarket leaders are more likely to be copied

““Risk taking” firms are less likely to be copiedRisk taking” firms are less likely to be copied““Risk taking” firms are less likely to be copiedRisk taking” firms are less likely to be copied

““Price Predators” are less likely to be copied Price Predators” are less likely to be copied ““Price Predators” are less likely to be copied Price Predators” are less likely to be copied

Type of Competitive Action -Tactical or StrategicType of Competitive Action -Tactical or Strategic


Market DependenceMarket Dependence

Firms that are more dependent on a single industry are more likely to respond than are diversified firmsFirms 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 actionsIndustry dependent firms will likely respond to either strategic or tactical actions

Competitor ResourcesCompetitor Resources

Smaller firms are more likely to respond to tactical Smaller firms are more likely to respond to tactical actionsactionsSmaller firms are more likely to respond to tactical Smaller firms are more likely to respond to tactical actionsactions

Limited resources may lead to alternatives such as Limited resources may lead to alternatives such as Strategic AlliancesStrategic AlliancesLimited resources may lead to alternatives such as Limited resources may lead to alternatives such as Strategic AlliancesStrategic Alliances

Gauging the Likelihood of ResponseGauging the Likelihood of Response


Relative SizeRelative Size

Quality

Innovation

Speed

Firm size can have Firm size can have opposing effects on opposing effects on competitive dynamicscompetitive dynamics





Quality

Speed

Large firms may exert market Large firms may exert market power over rivals and erect power over rivals and erect barriers to entry against smaller barriers to entry against smaller competitorscompetitors

However, smaller competitors However, smaller competitors may be more nimble and may be more nimble and innovativeinnovative



Innovation




Quality

Speed


““Think and act big and Think and act big and we’ll get smaller. Think we’ll get smaller. Think and act small and we’ll get and act small and we’ll get bigger.”bigger.”

Herb Kelleher, CEO, Southwest Airlines

Herb Kelleher, CEO, Southwest Airlines


Innovation




Relative Size

Quality

Innovation

SpeedSpeed

Quick response is Quick response is crucial to both the crucial to both the first mover and the first mover and the fast second moverfast second mover





Consistent innovation Consistent innovation is required for market is required for market leadership in many leadership in many dynamic industries dynamic industries


Relative Size

Quality

InnovationInnovation

Speed




Exceeding customer Exceeding customer expectations is a necessity expectations is a necessity to compete in the 1990sto compete in the 1990s


Relative Size

QualityQuality

Innovation

Speed




OutcomesOutcomes

Evolutionary ActionsGrowth-Oriented Actions Market-Power Actions

Evolutionary OutcomesEvolutionary Outcomes

Sustained Competitive

Competitive Market TypesCompetitive Market TypesSlow, Standard or Fast Cycle

Competitive OutcomesCompetitive Outcomes

Advantage

Temporary Advantage




Slow cycle markets are Slow cycle markets are frequently shielded by frequently shielded by monopoly power or very monopoly power or very strong brand loyaltiesstrong brand loyalties

This market outcome and This market outcome and lack of interfirm rivalry lack of interfirm rivalry may lead to sustained may lead to sustained competitive advantagecompetitive advantage

OutcomesOutcomes



Sustained CompetitiveSustained Competitive

Competitive Market TypesCompetitive Market TypesSlow, Standard or Fast CycleSlow, Standard or Fast Cycle


AdvantageAdvantage

Temporary AdvantageTemporary Advantage




OutcomesOutcomes



Sustained competitive Sustained competitive advantage is a possible advantage is a possible outcome in this instanceoutcome in this instance

Standard cycle markets Standard cycle markets often lead to highly often lead to highly competitive pressures competitive pressures despite world class despite world class productsproducts

Firms with multimarket Firms with multimarket competition may dampen competition may dampen rivalry somewhatrivalry somewhat




AdvantageAdvantage






OutcomesOutcomes



AdvantageAdvantage



Fast cycle markets are Fast cycle markets are intensely dynamic and a intensely dynamic and a first mover advantage is first mover advantage is often unsustainableoften unsustainable


Firms may cannibalize Firms may cannibalize older generation products older generation products while introducing new while introducing new innovative premium innovative premium productsproducts

Sustainable competitive Sustainable competitive advantage is unilkelyadvantage is unilkely




Time (years)Time (years) 1010

LaunchLaunch

ExploitationExploitationCounterattackCounterattack

Returns Returns from a from a

Sustained Sustained Competitive Competitive AdvantageAdvantage

Sustained Competitive Advantage which Eventually Erodes

Sustained Competitive Advantage which Eventually Erodes


Some Firms Maintain Competitive Advantage in Fast-Cycle Markets by Seizing the InitiativeSome Firms Maintain Competitive Advantage in Fast-Cycle Markets by Seizing the Initiative

11Disrupting the Status QuoDisrupting the Status QuoIdentify new opportuntites to serve the customer by shifting the rules of competition through speed and varietyIdentify new opportuntites to serve the customer by shifting the rules of competition through speed and variety

22Creating Temporary AdvantageCreating Temporary Advantage

Use superior knowledge of the customer, technology and the future to enhance customer orientation and empower workersUse superior knowledge of the customer, technology and the future to enhance customer orientation and empower workers

33Seizing the InitiativeSeizing the InitiativeMove aggressively into new areas of competition to create new advantage and undermine a competitor’s old advantageMove aggressively into new areas of competition to create new advantage and undermine a competitor’s old advantage

44Sustaining the MomentumSustaining the MomentumTake several actions in a row in order to seize the initiative and create momentum to develop new advantagesTake several actions in a row in order to seize the initiative and create momentum to develop new advantages

Transparency 5-28Transparency 5-28 Time (years)Time (years) 1010

LaunchLaunch

ExploitationExploitation CounterattackCounterattack



Obtaining Temporary Advantages to Create Sustained Advantage


55 1515

Firm has already moved Firm has already moved on to Advantage No. 2on to Advantage No. 2

Transparency 5-29Transparency 5-29 Time (years)Time (years) 1010

LaunchLaunch

ExploitationExploitation CounterattackCounterattack





55 1515

Firm continues to move Firm continues to move on to the next Advantageon to the next Advantage


An Action-Based Model of the Industry Life Cycle

An Action-Based Model of the Industry Life Cycle

Key TaskKey Task

Exploiting Open Niches (Blind Spots)

and Competitive Uncertainty

Key TaskKey Task Key TaskKey Task

Entrepreneurial Actions

Entrepreneurial Actions

Growth-OrientedActions

Growth-OrientedActions

Market-PowerActions

Market-PowerActions

Exploiting Factors of Production

Exploiting Market Position

Firm Resource Firm Resource &&

Market StrengthMarket Strength

Emerging StageEmerging StageEmerging StageEmerging Stage Growth StageGrowth StageGrowth StageGrowth Stage Mature StageMature StageMature StageMature Stage

TimeTime

Transparency 5-1 Relative Size Speed Innovation Quality Ability for Action and Response Outcomes...

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