Strategic Management
MODULE 5
Competitive Rivalry and Competitive
Dynamics
FOR CLASS DISCUSSION PURPOSES ONLY
Introduction
The competitive landscape is characterized by increasing
globalization, advanced technological development, and
other factors that will lead to an environment that is more
dynamic and charged with rivalry. Firms will act and react
in a dance of sorts, but one involving very high stakes—
even survival. This module introduces terms and concepts
relevant to the conversation about competitive behavior in
a variety of markets. A Model of Competitive Rivalry is
central to the discussion of most of the module.
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
From Competition to Competitive Dynamics
Competitors Why?
To gain an advantageous
market position
Engage
in Competitive
rivalry
Competitive behavior
•Competitive actions
•Competitive responses
How?
What
Results? What Results?
Competitive dynamics
Competitive actions and responses taken
by all firms competing in a market
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Definitions
Competitors - are firms operating in the same
market, offering similar products, and targeting
similar customers.
Competitive rivalry is the ongoing set of
competitive actions and competitive responses that
occur among fi rms as they maneuver for an
advantageous market position.
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Definitions
Competitive Behavior - is the set of competitive
actions and competitive responses the fi rm takes to
build or defend its competitive advantages and to
improve its market position.
Multimarket Competition - occurs when fi rms
compete against each other in several product or
geographic markets.
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Definitions
Competitive Dynamics - refer to all competitive
behaviors—that is, the total set of actions and
responses taken by all firms competing within a
market.
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
A Model of Competitive Rivalry
Competitive Analysis Drivers of Competitive Behavior
• Market commonality • Awareness
• Resource similarity • Motivation
• Ability
Feedback
Competitive Rivalry
• Likelihood of attack
•First-mover benefits
Outcomes •Organizational size
• Market position •Quality
• Financial performance • Likelihood of response
•Type of competitive action
•Actor’s reputation
•Market dependence
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Competitive Analysis
Market Commonality - is concerned with the
number of markets with which the fi rm and a
competitor are jointly involved and the degree of
importance of the individual markets to each.
• Firms competing against one another in several or
many markets engage in multimarket competition.
– A firm with greater multimarket contact is less likely
to initiate an attack, but more likely to more respond
aggressively when attacked.
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Competitive Analysis
Resource Similarity - is the extent to which the fi
rm’s tangible and intangible resources are
comparable to a competitor’s in terms of both type
and amount.
• Firms with similar types and amounts of resources are likely to:
– have similar strengths and weaknesses.
– use similar strategies.
• Assessing resource similarity is difficult if critical resources are
intangible, rather than tangible.
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
A Framework of Competitor Analysis
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Drivers of Competitive Behavior
• Awareness is:
Awareness
– the extent to which competitors
recognize the degree of their
mutual interdependence that
results from:
• market commonality
• resource similarity
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Drivers of Competitive Behavior
Awareness
• Motivation concerns:
– the firm’s incentive to take action
Motivation
or to respond to a competitor’s
attack
– relates to perceived gains and
losses
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Drivers of Competitive Behavior
Awareness • Ability relates to:
– each firm’s resources
Motivation – the flexibility that these resources
provide
Ability • Without available resources the firm
lacks the ability to:
– attack a competitor
– respond to the competitor’s actions
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Drivers of Competitive Behavior
Awareness • A firm is more likely to attack the rival
with whom it has low market
Motivation commonality than the one with whom it
competes in multiple markets.
Ability • Given the strong competition under
Market market commonality, it is likely that the
Commonality attacked firm will respond to its
competitor’s action in an effort to protect
its position in one or more markets.
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Drivers of Competitive Behavior
• The greater the resource imbalance
Awareness
between the acting firm and competitors
or potential responders, the greater will
Motivation
be the delay in response by the firm with
a resource disadvantage.
Ability
• When facing competitors with greater
Market resources or more attractive market
Commonality
positions, firms should eventually
Resource respond, no matter how challenging the
Dissimilarity response.
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Competitive Rivalry
Competitive Action - a strategic or tactical action
the firm takes to build or defend its competitive
advantages or improve its market position.
Competitive Response - a strategic or tactical action
the firm takes to counter the effects of a
competitor’s competitive action.
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Factors Affecting Likelihood of Attack
• First movers allocate funds for:
First Mover
Incentives – product innovation and development
First Mover – aggressive advertising
A firm that takes – advanced research and development
an initial • First movers can gain:
competitive – the loyalty of customers who may become
action in order to committed to the firm’s goods or services
build or defend – market share that can be difficult for
its competitive competitors to take during future
advantages or to competitive rivalry
improve its Strategic Management 12 Edition by: Hitt, Ireland & Hoskisson
th
market position. FOR CLASS DISCUSSION PURPOSES ONLY
Factors Affecting Likelihood of Attack
First Mover
• Second mover - responds to the first mover’s
Incentives competitive action, typically through imitation.
They:
Second Mover
Incentives – study customers’ reactions to product
innovations
– try to find any mistakes the first mover made, and
avoid them
– can avoid both the mistakes and the huge
spending of the first-movers
– may develop more efficient processes and
technologies
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Factors Affecting Likelihood of Attack
First Mover • Late mover responds to a competitive
Incentives
action only after considerable time has
Second Mover elapsed
Incentives
• Any success achieved will be slow in
Late Mover
Incentives coming and much less than that
achieved by first and second movers
• Late mover’s competitive action allows
it to earn only average returns and
delays its understanding of how to
create value for customers
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Factors Affecting Likelihood of Attack
First Mover • Small firms are more likely to:
Incentives
– launch competitive actions
Second Mover – be quicker in doing so
Incentives
• Small firms are perceived as:
Late Mover
Incentives – nimble and flexible competitors
– relying on speed and surprise to defend
Organizational
Size - Small competitive advantages or develop new ones
while engaged in competitive rivalry
– having the flexibility needed to launch a
greater variety of competitive actions
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Factors Affecting Likelihood of Attack
First Mover • Large firms are likely to initiate more
Incentives
competitive actions as well as strategic
Second Mover actions during a given time period
Incentives
• Large organizations commonly have the
Late Mover slack resources required to launch a larger
Incentives
number of total competitive actions
Organizational
Size - Large • Think and act big and we’ll get smaller.
Think and act small and we’ll get bigger.
Herb Kelleher Former CEO, Southwest Airlines
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Factors Affecting Likelihood of Attack
First Mover • Quality exists when the firm’s goods
Incentives
or services meet or exceed customers’
Second Mover expectations
Incentives
• Product quality dimensions include:
Late Mover
Incentives - performance - conformance
- features - serviceability
Organizational
Size - flexibility - aesthetics
- durability - perceived quality
Quality
(Product)
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Factors Affecting Likelihood of Attack
First Mover
Incentives • Service quality dimensions include:
Second Mover – timeliness
Incentives
– courtesy
Late Mover
Incentives – consistency
– convenience
Organizational
Size – completeness
Quality – accuracy
(Product)
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Factors Affecting Likelihood
of Response
• Firms study three other factors to predict how a
competitor is likely to respond to competitive
actions:
1. Type of competitive action
2. Actor’s reputation
3. Market dependence
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Factors Affecting Likelihood
of Response
• Strategic actions receive strategic responses
Type of – Strategic actions elicit fewer total
Competitive
Action competitive responses.
– The time needed to implement and assess a
strategic action delays competitor’s
responses.
• Tactical responses are taken to counter the
effects of tactical actions
– A competitor likely will respond quickly to a
tactical actions.
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Factors Affecting Likelihood
of Response
• An actor is the firm taking an action or
Type of
Competitive response.
Action
• Reputation is the positive or negative
Actor’s
Reputation
attribute ascribed by one rival to another
based on past competitive behavior.
• The firm studies responses that a
competitor has taken previously when
attacked to predict likely responses.
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Factors Affecting Likelihood
of Response
Type of • Market dependence is the extent to
Competitive
Action which a firm’s revenues or profits are
Actor’s
derived from a particular market.
Reputation
• Competitors with high market
Market dependence are likely to respond
Dependence
strongly to attacks threatening their
market position.
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Competitive Dynamics versus Rivalry
Competitive Dynamics - ongoing actions and
responses taking place between all firms competing
within a market for advantageous positions.
Competitive Rivalry - ongoing actions and
responses taking place between an individual firm
and its competitors for advantageous market
position.
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Competitive Dynamics
Slow-cycle • Competitive advantages are shielded from
Markets
imitation for long periods of time and
imitation is costly.
• Competitive advantages are sustainable in
slow-cycle markets.
• All firms concentrate on competitive
actions and responses to protect, maintain
and extend proprietary competitive
advantage.
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Gradual Erosion of a Sustained Advantage
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Competitive Dynamics
Slow-cycle
• The firm’s competitive advantages aren’t
Markets shielded from imitation.
Fast-cycle • Imitation happens rapidly and is
Markets
inexpensive.
• Competitive advantages are not
sustainable.
–Competitors use reverse engineering to
quickly imitate or improve on the firm’s
products.
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Developing Temporary Advantages to Create Sustained Advantage
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
Competitive Dynamics
Slow-cycle • Moderate cost of imitation may shield
Markets
competitive advantages.
Fast-cycle • Competitive advantages are partially
Markets
sustainable if their quality is continuously
upgraded.
Standard-cycle
Markets • Firms:
– seek large market shares
– gain customer loyalty through brand names
– carefully control operations
Strategic Management 12th Edition by: Hitt, Ireland & Hoskisson
FOR CLASS DISCUSSION PURPOSES ONLY
