CHAPTER 5

The Competitive
STRATEGIC Nature of Strategy
ACTIONS:
STRATEGY
FORMULATION
Management
of Strategy
PowerPoint Presentation by Charlie Cook
The University of West Alabama
Concepts and Cases
Michael A. Hitt • Robert E. Hoskisson • R. Duane
Ireland
KNOWLEDGE OBJECTIVES

Studying this chapter should provide you with the strategic

management knowledge needed to:
1. Define competitors, competitive rivalry, competitive behavior, and
competitive dynamics.
2. Describe market commonality and resource similarity as the
building blocks of a competitor analysis.
3. Explain awareness, motivation, and ability as drivers of competitive
behavior.
4. Discuss factors affecting the likelihood a competitor will take
competitive actions.
5. Discuss factors affecting the likelihood a competitor will respond to
actions taken against it.
6. Explain competitive dynamics in slow-cycle, fast-cycle, and
standard-cycle markets.

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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 firm’s
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.
• Multimarket Competition
 Firms competing against each other in several
product or geographic markets.
• 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 Why? • To gain an advantageous

market position
Engage
in Competitive
Rivalry
• Competitive Behavior
•Competitive actions
How? •Competitive responses
What
Results? What Results?

Competitive Dynamics
Competitive actions and responses taken
by all firms competing in a market

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 Figure 5.1 From Competitors to Competitive Dynamics

Source: Adapted from M.-J. Chen, 1996, Competitor analysis and interfirm rivalry: Toward
a theoretical integration, Academy of Management Review, 21: 100–134.
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Competitive Rivalry’s Effect on Strategy
• Success of a strategy is determined by:
 The firm’s 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.
 Has the strongest influence on the firm’s business-
level strategy or strategies.

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A Model of Competitive Rivalry
• Firms are mutually interdependent
 A firm’s competitive actions have noticeable effects
on its competitors.
 A firm’s competitive actions elicit competitive
responses from its competitors.
 Competitors feel each other’s actions and responses.

• Marketplace success is a function of both

individual strategies and the consequences of
their use.

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A Model of Competitive Rivalry

Competitive Analysis Drivers of Competitive

• Market commonality Behavior
• Resource similarity • Awareness
• Motivation
• Ability

Feedback
Interfirm Rivalry
• Likelihood of Attack
Outcomes • First-mover incentives
• Organizational size
• Market position
• Quality
• Financial
• Likelihood of Response
performance • Type of competitive action
• Reputation
• Market dependence

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 FIGURE 5.2 A Model of Competitive Rivalry

Source: Adapted from M.-J. Chen, 1996, Competitor analysis and interfirm rivalry:
Toward a theoretical integration, Academy of Management Review, 21: 100–134.
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Competitor Analysis
• Competitor analysis is used to help a firm
understand its competitors.
• The firm studies competitors’ future objectives,
current strategies, assumptions, and capabilities.
• With the analysis, a firm is better able to predict
competitors’ behaviors when forming its
competitive actions and responses.

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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.
• 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.

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Resource Similarity
• Resource Similarity
 How comparable the firm’s tangible and intangible
resources are to a competitor’s in terms of both types
and amounts.
• 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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 FIGURE 5.3 A Framework of Competitor Analysis

Source: Adapted from M.-J. Chen, 1996, Competitor analysis and interfirm rivalry:
Toward a theoretical integration, Academy of Management Review, 21: 100–134.
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Drivers of Competitive Behavior

Awareness • Awareness is
 the extent to which
competitors recognize the
degree of their mutual
interdependence that
results from:
• Market commonality
• Resource similarity

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Drivers of Competitive Behavior
(cont’d)
Awareness • Motivation concerns
 the firm’s incentive to take
action
Motivation  or to respond to a
competitor’s attack
 and relates to perceived
gains and losses

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Drivers of Competitive Behavior
(cont’d)
Awareness • Ability relates to
 each firm’s resources
 the flexibility these
Motivation resources provide
• Without available
Ability resources the firm lacks
the ability to
 attack a competitor
 respond to the competitor’s
actions

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Drivers of Competitive Behavior
(cont’d)
Awareness • A firm is more likely to attack
the rival with whom it has low
market commonality than the
Motivation one with whom it competes in
multiple markets.
• Given the strong competition
Ability under market commonality, it is
likely that the attacked firm will
Market
respond to its competitor’s
Commonali
ty action in an effort to protect its
position in one or more
markets.

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Drivers of Competitive Behavior
(cont’d)
Awareness
• The greater the resource
imbalance between the acting firm
Motivation and competitors or potential
responders, the greater will be the
delay in response by the firm with a
Ability resource disadvantage.
Market • When facing competitors with
Commonali greater resources or more
ty attractive market positions, firms
Resource should eventually respond, no
Dissimilarit matter how challenging the
y response.

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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.

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Strategic and Tactical Actions
• Strategic Action (or Response)
 A market-based move that involves a significant
commitment of organizational resources and is
difficult to implement and reverse.

• Tactical Action (or Response)

 A market-based move that is taken to fine-tune a
strategy:
• Usually involves fewer resources.
• Is relatively easy to implement and reverse.

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Factors Affecting Likelihood of Attack
First-Mover • First movers allocate funds for:
Incentives  Product innovation and
development
 Aggressive advertising
First Mover
A firm that takes an  Advanced research and
initial competitive action development
in order to build or
• First movers can gain:
defend its competitive
advantages or to  The loyalty of customers who may
improve its market become committed to the firm’s
position. 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
(cont’d)
First Mover • Second mover responds to the first
mover’s competitive action, typically
Second through imitation:
Mover  Studies customers’ reactions to
Incentives product innovations.
 Tries 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.

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Factors Affecting Likelihood of Attack
(cont’d)
First Mover • Late mover responds to a
competitive action only after
Second considerable time has elapsed.
Mover • Any success achieved will be slow
in coming and much less than that
achieved by first and second
Late Mover movers.
• Late mover’s competitive action
allows it to earn only average
returns and delays its
understanding of how to create
value for customers.

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Factors Affecting Likelihood of Attack
(cont’d)
First Mover • Small firms are more likely:
 To launch competitive actions.
Second  To be quicker in doing so.
Mover • Small firms are perceived as:
 Nimble and flexible competitors
Late Mover  Relying on speed and surprise to
defend competitive advantages or
Organization develop new ones while engaged in
al Size- competitive rivalry.
Small  Having the flexibility needed to
launch a greater variety of
competitive actions.

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Factors Affecting Likelihood of Attack
(cont’d)
First Mover • Large firms are likely to initiate
more competitive actions as well as
Second strategic actions during a given time
Mover period
• Large organizations commonly
Late Mover have the slack resources required
to launch a larger number of total
Organization competitive actions
al Size - • Think and act big and we’ll get
Large smaller. Think and act small and
we’ll get bigger.
Herb Kelleher
Former CEO, Southwest Airlines

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Factors Affecting Likelihood of Attack
(cont’d)
First Mover
• Quality exists when the firm’s
goods or services meet or
Second
Mover exceed customers’
expectations
Late Mover • Product quality dimensions
include:
Organization  Performance  Conformance
al Size  Features  Serviceability
 Flexibility  Aesthetics
Quality
(Product)  Durability  Perceived
quality

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Table 5.1 Quality Dimensions of Goods and Services

Product Quality Dimensions

1. Performance—Operating characteristics
2. Features—Important special characteristics
3. Flexibility—Meeting operating specifications over some
period of time
4. Durability—Amount of use before performance deteriorates
5. Conformance—Match with preestablished standards
6. Serviceability—Ease and speed of repair
7. Aesthetics—How a product looks and feels
8. Perceived quality—Subjective assessment of characteristics
(product image)

SOURCES: Adapted from J.W. Dean, Jr., & J. R. Evans, 1994, Total Quality: Management, Organization and Society,
St. Paul, MN:West Publishing Company; H.V. Roberts & B. F. Sergesketter, 1993, Quality Is Personal, New York:The
Free Press; D. Garvin, 1988, Managed Quality: The Strategic and Competitive Edge, New York:The Free Press.
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Factors Affecting Likelihood of Attack
(cont’d)
First Mover

Second
Mover • Service quality dimensions
include:
 Timeliness
Late Mover
 Courtesy
Organization  Consistency
al Size  Convenience
 Completeness
Quality
 Accuracy
(Service)

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Table 5.1 Quality Dimensions of Goods and Services (cont’d)

Service Quality Dimensions

1. Timeliness—Performed in the promised period of time
2. Courtesy—Performed cheerfully
3. Consistency—Giving all customers similar experiences each time
4. Convenience—Accessibility to customers
5. Completeness—Fully serviced, as required
6. Accuracy—Performed correctly each time

SOURCES: Adapted from J.W. Dean, Jr., & J. R. Evans, 1994, Total Quality: Management, Organization and Society,
St. Paul, MN:West Publishing Company; H.V. Roberts & B. F. Sergesketter, 1993, Quality Is Personal, New York:The
Free Press; D. Garvin, 1988, Managed Quality: The Strategic and Competitive Edge, New York:The Free Press.
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Likelihood of Response
• Responses to a competitor’s action are taken
when the action:
 Leads to better use of the competitor’s capabilities to
gain or produce stronger competitive advantages or
an improvement in its market position.
 Damages the firm’s ability to use its capabilities to
create or maintain an advantage.
 Makes the firm’s market position becomes less
defensible.

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Factors Affecting Likelihood of
Response
• Firms study three other factors to predict how a
competitor is likely to respond to competitive
actions:
 Type of competitive action
 Reputation
 Market dependence

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Factors Affecting Strategic Response
Type of • Strategic actions receive strategic
Competitive responses
Action  Strategic actions elicit fewer total
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

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Factors Affecting Strategic Response
(cont’d)
Type of • An actor is the firm taking an
Competitive action or response
Action
• Reputation is the positive or
negative attribute ascribed by one
Actor’s rival to another based on past
Reputation competitive behavior.
• The firm studies responses that a
competitor has taken previously
when attacked to predict likely
responses.

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Factors Affecting Strategic Response
(cont’d)
Type of • Market dependence is the
Competitive extent to which a firm’s
Action
revenues or profits are derived
from a particular market.
Actor’s
Reputation • In general, firms can predict that
competitors with high market
Dependence dependence are likely to
on the respond strongly to attacks
market threatening their market
position.

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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.

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Competitive Dynamics versus Rivalry
(cont’d)
• Competitive Rivalry • Competitive Dynamics
(Individual firms) (All firms)
 Market commonality  Market speed (slow-
and resource similarity cycle, fast-cycle, and
 Awareness, motivation standard-cycle
and ability  Effects of market
 First mover incentives, speed on actions and
responses of all
size and quality
competitors in the
market

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Competitive Dynamics

Slow-Cycle • Competitive advantages are

Markets shielded from 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.

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 FIGURE 5.4 Gradual Erosion of a Sustained Competitive
Advantage

SOURCE: Adapted from I. C. MacMillan, 1988, Controlling competitive dynamics

by taking strategic initiative, Academy of Management Executive, 11(2): 111–118.
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Competitive Dynamics (cont’d)
• The firm’s competitive
Slow-Cycle
Markets advantages aren’t shielded from
imitation.
• Imitation happens quickly and
Fast-Cycle
Markets somewhat expensively
• Competitive advantages aren’t
sustainable.
 Competitors use reverse
engineering to quickly imitate or
improve on the firm’s products
• Non-proprietary technology is
diffused rapidly
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 FIGURE 5.5 Developing Temporary Advantages to Create
Sustained Advantage

Source: Adapted from I. C. MacMillan, 1988, Controlling competitive dynamics by

taking strategic initiative, Academy of Management Executive, 11(2): 111–118.
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Competitive Dynamics (cont’d)

Slow-Cycle • Moderate cost of imitation may

Markets shield competitive advantages.
• Competitive advantages are
partially sustainable if their quality
Fast-Cycle
Markets is continuously upgraded.
• Firms
Standard-  Seek large market shares
Cycle  Gain customer loyalty through brand
Markets names
 Carefully control operations

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