Chapter 6

Competitive Rivalry and

Competitive Dynamics

Robert E. Hoskisson
Michael A. Hitt
R. Duane Ireland

2004 by South-Western/Thomson Learning 1

The Strategic Management Process
Strategic Chapter 1
Chapter 2
Introduction to
Thinking Strategic Leadership
Strategic Management

Strategic Chapter 3 Chapter 4

Strategic Intent
The External The Internal
Analysis Strategic Mission
Environment Organization

Chapter 5 Chapter 6
Chapter 7
Business-Level Competitive Rivalry and
Creating Strategy Competitive Dynamics
Corporate-Level Strategy
Competitive
Advantage Chapter 8
Chapter 9 Chapter 10
Acquisition and
International Strategy Cooperative Strategy
Restructuring Strategies

Monitoring
And Creating Chapter 11 Chapter 12
Entrepreneurial Corporate Governance Strategic Entrepreneurship
2
Opportunities
Discussion Questions
Click
Here 1. What is competitive dynamics and why
is it important?
Click
Here 2. What are the reasons why rivalry
increases or decreases between
firms?
Click
Here 3. What factors drive awareness of the
potential for increased rivalry and
competitive attack and response?

Click
Here More discussion questions 3
Discussion Questions (cont.)
Click
Here 4. What factors lead to motivation and
ability for competitive attack and
response?
Click
Here 5. Besides market commonality and
resource similarity, what additional
factors might lead a firm to attack?
Click
Here 6. Once competitive action is taken,
what factors increase the likelihood of
competitive response?
Click
Here More discussion questions 4
Discussion Questions (cont.)
Click
Here 7. What strategic approach is necessary
to compete in slow versus fast cycle
or hyper-competitive markets?

5
Discussion Question 1

What is competitive dynamics and

why is it important?

6
Definitions
Competitors
firms operating in the same market, offering
similar products and targeting similar
customers
Competitive rivalry
the ongoing set of competitive actions and
responses occurring between competitors
competitive rivalry influences an individual
firms ability to gain and sustain competitive
advantages
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Definitions
Competitive behavior
the 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
the total set of actions and responses taken by
all firms competing within a market

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 From Competitors to
Competitive Dynamics
Competitors To gain an advantageous
Engage in Why? market position
Competitive
rivalry Through competitive
How? behavior
Competitive actions
What results? Competitive responses
What results?

Competitive Dynamics
Competitive actions and responses taken by all
firms competing in a market 9
Effect of Competitive Rivalry on
a Firms Strategies
Success of a strategy is determined by:
the firms initial competitive actions
how well it anticipates competitors responses
to them
how well the firm anticipates and responds to
its competitors initial actions
Competitive rivalry
affects all types of strategies
most dominant influence is on the firms
business-level strategy or strategies.

Click
Here Return to Discussion Questions 10
Discussion Question 2

What are the reasons why rivalry

increases or decreases between
firms?

11
 A Model of Competitive
Rivalry
Outcomes
Competitive Analysis feedback Market position
Market commonality Financial performance
Resource similarity

Interfirm Rivalry
Likelihood of Attack
Drivers of Competitive First mover incentives
Behavior Organizational size
Awareness Quality
Motivation Likelihood of Response
Ability Type of competitive action
Reputation
Market dependence 12
Competitive Rivalry
Firms are mutually interdependent
one firms competitive actions have noticeable
effects on competitors
one firms competitive actions elicit
competitive responses from competitors
competitors feel each others actions and
responses
Marketplace success is a function of both
individual strategies and the
consequences of their use
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Competitor Analysis
Competitor analysis
a technique firms use to understand their
competitive environment. Along with the
general and industry environments, the
competitive environment comprises the firms
external environment
a technique used to help the firm understand
its competitors
the first step to being able to predict
competitors behavior in the form of its
competitive actions and responses

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Here Return to Discussion Questions 14
 Discussion Question 3

What factors drive awareness of the

potential for increased rivalry and
competitive attack and response?

15
Market Commonality
Market Commonality is concerned with
the number of markets with which a firm and a
competitor are jointly involved
the degree of importance of the individual
markets to each competitor
Most industries markets are somewhat
related in terms of
technologies
core competencies
Multimarket competition
Firms competing in several markets
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Resource Similarity
Resource similarity
the extent to which the firms tangible and
intangible resources are comparable to a
competitors 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 can be
difficult if critical resources are intangible
rather than tangible
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 A Framework of Competitor
Analysis
High
Market II I
Commonality III IV
Low
KEY
The shaded area represents Low High
degree of market commonality Resource
between two firms Similarity
Resource endowment A

Resource endowment B
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 Drivers of Competitive Actions
and Responses: Awareness
Drivers of competitive behavior
Awareness is the extent to which
Awareness competitors recognize the degree of
their mutual interdependence
mutual interdependence results
from
market commonality
resource similarity

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Here Return to Discussion Questions 19
Discussion Question 4

What factors lead to motivation

and ability for competitive attack
and response?

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 Drivers of Competitive Actions
and Responses: Motivation
Drivers of competitive behavior
Motivation concerns the firms
Awareness incentive
to take action
Motivation or to respond to a competitors
attack
and relates to perceived gains and
losses

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 Drivers of Competitive Actions
and Responses: Ability
Drivers of competitive behavior
Ability relates
Awareness to each firms resources
the flexibility these resources
Motivation provide
Without available resources the firm
lacks the ability
Ability
to attack a competitor
to respond to the competitors
actions

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 Drivers of Competitive Actions
and Responses: Dissimilarity
Drivers of competitive behavior
Dissimilarity refers to the resource
Awareness imblance between the acting firm and
competitors
Motivation potential responders
The greater the imbalance, the
Ability greater will be the delay in
response by the firm with the
resource disadvantage
Dissimilarity

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 Drivers of Competitive Actions
and Responses: Market Commonality
Drivers of competitive behavior influenced by
Market A firm is more likely to attack the
commonality rival with whom it has low market
commonality than the one with whom
it competes in multiple markets
Because of the high stakes of
competition under the condition of
market commonality, there is a high
probability that the attacked firm will
respond to its competitors action in
an effort to protect its position in one
or more markets
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 Drivers of Competitive Actions
and Responses: Resource Similarity
Drivers of competitive behavior influenced by
Market The greater the resource imbalance
commonality between the acting firm and
competitors or potential responders,
Resource the greater will be the delay in
similarity response by the firm with a resource
disadvantage
When facing competitors with greater
resources or more attractive market
Click
positions, firms should eventually
Here Return to respond, no matter how challenging
Discussion the response
Questions 25
Discussion Question 5

Besides market commonality and

resource similarity, what additional
factors might lead a firm to attack?

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Factors Affecting Likelihood of
Attack: First Mover Incentives
First mover First movers allocate funds for
incentives product innovation and
development
aggressive advertising
advanced research and
development
First movers can gain
the loyalty of customers who may
become committed to the firms
goods or services
market share that can be difficult
for competitors to take during
future competitive rivalry
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Factors Affecting Likelihood of
Attack: Size
First mover Small firms are more likely
incentives to launch competitive actions
to be quicker in doing so
Small firms are perceived as
Size
nimble and flexible competitors
relying on speed and surprise to
defend their competitive
advantages or develop new ones
while engaged in competitive
rivalry
Small firms have the flexibility needed
to launch a greater variety of
competitive actions
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Factors Affecting Likelihood of
Attack: Size
First mover Large firms are likely to initiate more
incentives competitive actions as well as
strategic actions during a given time
Size period
Large organizations commonly have
the slack resources required to
launch a larger number of total
competitive actions
Think and act big and well get smaller. Think and
act small and well get bigger.
- Herb Kelleher,
Former CEO, Southwest Airlines
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Factors Affecting Likelihood of
Attack: Quality
First mover Quality exists when the firms goods
incentives or services meet or exceed
customers expectations
Size Product quality dimensions include
Performance
Features
Quality Flexibility
Durability
Conformance
Serviceability
Aesthetics
Perceived quality

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Factors Affecting Likelihood of
Attack: Quality
First mover Quality exists when the firms goods
incentives or services meet or exceed
customers expectations
Size Service quality dimensions include
Timeliness
Courtesy
Quality Consistency
Convenience
Completeness
Accuracy

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Here Return to Discussion Questions
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Discussion Question 6

Once competitive action is taken,

what factors increase the
likelihood of competitive
response?

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Factors Affecting Likelihood of
Response
Firms study three factors to predict how a
competitor is likely to respond to
competitive actions
type of competitive action
reputation
market dependence

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Strategic and Tactical Actions
Strategic action or a strategic response
a market-based move that involves a
significant commitment of organizational
resources and is difficult to implement and
reverse
Tactical action or a tactical response
a market-based move that is taken to fine-tune
a strategy; it involves fewer resources and is
relatively easy to implement and reverse

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Factors Affecting Likelihood of
Response: Type of Competitive Action
Type of Strategic actions receive strategic
competitive responses
action Tactical responses are taken to
counter the effects of tactical actions
Strategic actions elicit fewer total
competitive responses
A competitor likely will respond
quickly to a tactical action
The time needed to implement and
assess a strategic action delays
competitors responses

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Factors Affecting Likelihood of
Response: Reputation
Type of An actor is the firm taking an action
competitive or response
action Reputation is the positive or negative
attribute ascribed by one rival to
Reputation another based on past competitive
behavior
The firm studies responses that a
competitor has taken previously when
attacked to predict likely responses

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Factors Affecting Likelihood of
Response: Market Dependence
Type of Market dependence is
competitive the extent to which a firms
action revenues or profits are derived
from a particular market
Reputation
In general, firms can predict that
competitors with high market
Market dependence are likely to respond
dependence strongly to attacks threatening their
market position

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Here Return to Discussion Questions 37
Discussion Question 7

What strategic approach is

necessary to compete in slow
versus fast cycle or hyper-
competitive markets?

38
Competitive Dynamics:
Slow-Cycle Markets
Slow-cycle Slow-cycle markets
markets the firms competitive advantages
are shielded from imitation for long
periods of time
imitation is costly
Competitive advantages are
sustainable in slow-cycle markets
A proprietary, one-of-a-kind
competitive advantage leads to
competitive success in a slow-cycle
market

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Gradual Erosion of a Sustainable
Competitive Advantage
Returns from a Sustainable

Exploitation
Competitive Advantage

Launch Counterattack

0 5
Time (Years)
10
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Competitive Dynamics:
Fast-Cycle Markets
Slow-cycle Fast-cycle markets
markets the firms competitive advantages
arent shielded from imitation
Fast-cycle
imitation happens quickly and
markets
somewhat inexpensively
Competitive advantages arent
sustainable
Competitors use reverse engineering
to quickly imitate or improve on the
firms products
Non-proprietary technology is
diffused rapidly
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Obtaining Temporary Advantages to
Create Sustained Advantage
Returns from a Series
of Replicable Actions

Firm has already moved

to next advantage
Exploitation
Launch Counterattack

0 5 10 15
Time (Years)

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 Competitive Dynamics:
Standard-Cycle Markets
Slow-cycle Standard-cycle markets
markets the firms competitive advantages
may be shielded from imitation
Fast-cycle imitation is moderately costly
markets Competitive advantages are partially
sustainable if the firm is able to
Standard-cycle continuously upgrade the quality of
markets its competitive advantages
Firms
seek large market shares
gain customer loyalty through
brand names
carefully control operations
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