competitivedynamics.ppt

Slide,*,Adapted from Hitt et al,1998,Competitive Dynamics,Professor:Xiaoming He,Definitions,Competitors,Firms operating in the same market,offering similar products and targeting similar customers,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,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,From Competitors to Competitive Dynamics,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,EU),Relative Size,Speed,Innovation,Quality,Ability for Action and Response,Outcomes,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,Dependence on the,Market,Resource Availability,Actors Reputation,Competitive,Slow,Standard,or Fast Cycle,Market Types,Competitive,Sustained,Outcomes,Competitive,Advantage,Temporary,Advantage,Evolutionary,Outcomes,Entrepreneurial,or Market-Power,Growth-Oriented,Actions,Feedback,Model of Interfirm Rivalry:,Likelihood of Attack and Response,Competitor Analysis,Market Commonality,Each industry composed of various markets which can be subdivided into(segments),E.g.,Airline,pharmaceutical industries,Resource Similarity,Extent to which firms tangible/intangible resources are comparable to competitors in type and amount,E.g.,FedEx and UPS both have efficient operations and focus on cost reduction,Combination of,market commonality,&,resource similarity,indicate a firms direct competitors,A Framework of Competitor Analysis,Competitor Analysis,Resource Similarity,Market Commonality,Firms are less inclined to attack a firm that is likely to retaliate,Firms with dissimilar resources are more likely to attack,Firms with similar resources are more likely to be aware of each others competitive moves,Model of Interfirm Rivalry:,Likelihood of Attack and Response,Drivers of Competitive Behavior,Motivation,Capability,Awareness,Model of Interfirm Rivalry:,Likelihood of Attack and Response,Awareness,Prerequisite to any competitive action,Extent competitors recognize degree of mutual interdependence that results from market commonality and resource similarity,Motivation,Firms incentive to take action,or to respond to a competitors attack,as it relates to perceived gains and losses,Ability,Firms resources that allow competitive action and flexibility responsiveness,Interfirm Rivalry:,Attack&Response,Likelihood of Attack,First Mover Incentives,Likelihood of Response,Type of Competitive,Action,Dependence on the,Market,Resource Availability,Actors Reputation,Model of Interfirm Rivalry:,Likelihood of Attack and Response,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,First Mover,Second Mover,Firms that respond to a First Movers actions,Second Movers frequently imitate First Movers,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,Speed of response often dictates success,Must possess necessary capabilities to imitate,Second Mover,Types of Competitive Actions,Tactical,Actions,Relatively easy to implement,Relatively easy to reverse,Undertaken to“fine tune”strategy,Price cut,Example,Strategic Actions,Significant commitments of specific&distinctive organizational resources,Difficult to implement,Difficult to reverse,Major Acquisition,Example,Gauging the Likelihood of Response,Easier to respond to,Require fewer resources to mount a response,Actors 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,Type of Competitive Action-Tactical or Strategic,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,Gauging the Likelihood of Response,Relative Size,Quality,Innovation,Speed,Ability for Action and Response,Model of Interfirm Rivalry:,Likelihood of Attack and Response,Organizational Size,Influences the likelihood of attach as well as types and timing,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,Large firms,Often have greater slack,Have greater likelihood to initiate competitive and strategic actions over time,Relative Size,Speed,Innovation,Quality,Ability for Action and Response,Outcomes,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,Dependence on the,Market,Resource Availability,Actors Reputation,Competitive,Slow,Standard,or Fast Cycle,Market Types,Competitive,Sustained,Outcomes,Competitive,Advantage,Temporary,Advantage,Evolutionary,Outcomes,Entrepreneurial,or Market-Power,Growth-Oriented,Actions,Feedback,Model of Interfirm Rivalry:,Likelihood of Attack and Response,Outcomes,Evolutionary Actions,Growth-Oriented Actions Market-Power Actions,Evolutionary Outcomes,Sustained Competitive,Competitive Market Types,Slow,Standard or Fast Cycle,Competitive Outcomes,Advantage,Temporary Advantage,Model of Interfirm Rivalry:,Likelihood of Attack and Response,An Action-Based Model of the,Industry Life Cycle,Key Task,Exploiting Open Niches(Blind Spots)and Competitive Uncertainty,Key Task,Key Task,Entrepreneurial Actions,Growth-Oriented,Actions,Market-Power,Actions,Exploiting Factors of Production,Exploiting Market Position,Firm Resource,&,Market Strength,Emerging Stage,Growth Stage,Mature Stage,Time,Time(years),3,Launch,Exploitation,Counterattack,Returns from a Sustained Competitive Advantage,Sustained Competitive Advantage,which Eventually Erodes,Competitive Dynamics:3 Market Cycles,1.Slow-Cycle Markets,Markets in which the firms competitive advantages are shielded from imitation for long periods of time,and in which imitation is costly,Build a one-of-a-kind competitive advantage which creates sustainability(I.e.,proprietary and difficult for competitors to understand),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,Gradual Erosion of a Sustained Competitive Advantage,Competitive Dynamics:3 Market Cycles,(Contd),2.Fast-Cycle Markets,Markets in which the firms capabilities that contribute to competitive advantages are not shielded from imitation and where imitation is often rapid and inexpensive,Focus:learning how to rapidly and continuously develop new competitive advantages that are superior to those they replace(creating innovation,),Avoid loyalty to any one product,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,Some Firms Maintain Competitive Advantage,in Fast-Cycle Markets by Seizing the Initiative,1,Disrupting the Status Quo,Identify new opportunities 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 competitors 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,Time(years),4Launch,Exploitation,Counterattack,Returns from a Sustained Competitive Advantage,Obtaining Temporary Advantages to Create Sustained Advantage,2,6,Firm continues to move on to the next Advantage,Competitive Dynamics:3 Market Cycles,(Contd),3.Standard-Cycle Markets,Markets where firms competitive advantages are moderately shielded from imitation and where imitation is moderately costly,Competitive advantages partially sustained as quality is continuously upgraded,Seek to serve many customers and gain a large market share,Gain brand loyalty through brand names,Careful operational control/manage a consistent experience for the customer,