Strategic Management Concepts and Cases. Building and Sustaining Competitive Advantage.

Strategic Management Concepts and Cases

• Building and Sustaining Competitive Advantage

CompetitorsCompetitors

Competitive rivalryCompetitive rivalry

Competitive behaviorCompetitive behavior

Competitor Competitor AnalysisAnalysis

Resource Similarity

Market Commonality

Model of Interfirm Rivalry:Model of Interfirm Rivalry:Likelihood of Attack and ResponseLikelihood of Attack and Response

Do firms compete with each Do firms compete with each other in multiple markets?other in multiple markets?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, but reduce competitive interactions, but increases the likelihood of response increases the likelihood of response where interaction occurswhere interaction occurs

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



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


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


SustainedOutcomesOutcomes

CompetitiveAdvantageTemporaryAdvantageEvolutionaryEvolutionaryOutcomesOutcomes

Entrepreneurial

or Market-PowerGrowth-Oriented

Actions

FeedbackFeedback



Likelihood of AttackLikelihood of Attack

First Mover IncentivesLikelihood of ResponseLikelihood of Response

Type of CompetitiveAction





Likelihood of AttackLikelihood of Attack

First Mover IncentivesFirst Mover IncentivesFirst Mover advantage First Mover advantage can be substantialcan be substantial

First MoverFirst Mover

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

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

Speed of response often dictates successSpeed of response often dictates success

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

Must possess necessary capabilities to imitateMust possess necessary capabilities to imitate

TacticalTacticalActionsActionsTacticalTacticalActionsActions

Major AcquisitionMajor AcquisitionExampleExample

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

Strategic Strategic ActionsActionsStrategic Strategic ActionsActions

Price cutPrice cutExampleExample

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

Difficult to implementDifficult to implement

Difficult to reverseDifficult to reverse

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

Gauging the Likelihood of ResponseGauging the Likelihood of Response

Actor’s ReputationActor’s ReputationMarket 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

Easier to respond toEasier to respond to

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

Market DependenceMarket Dependence

Competitor ResourcesCompetitor ResourcesSmaller 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

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

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

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

Creating Temporary AdvantageCreating Temporary AdvantageUse superior knowledge of the customer, technology and the Use superior knowledge of the customer, technology and the future to enhance customer orientation and empower future to enhance customer orientation and empower workersworkersSeizing the InitiativeSeizing the InitiativeMove aggressively into new areas of competition to create Move aggressively into new areas of competition to create new advantage and undermine a competitor’s old advantagenew advantage and undermine a competitor’s old advantage

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22

33

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

Strategies may be deter-Strategies may be deter-mined by the life cycle of mined by the life cycle of the industrythe industry

Younger firms and Younger firms and emerging industries are emerging industries are generally characterized by generally characterized by entrepreneurial actionsentrepreneurial actions

Growth-oriented and Growth-oriented and Market-power strategies Market-power strategies dominate established or dominate established or mature industriesmature industries

Sustained Competitive

OutcomesOutcomes

Competitive Market TypesCompetitive Market TypesSlow, Standard or Fast Cycle

Competitive OutcomesCompetitive Outcomes

Advantage

Temporary Advantage

Evolutionary ActionsGrowth-Oriented Actions Market-Power Actions

Evolutionary ActionsGrowth-Oriented Actions Market-Power Actions

Evolutionary OutcomesEvolutionary Outcomes


Relative SizeSpeed

InnovationQuality

Ability for Ability for Action and Action and ResponseResponse

OutcomesOutcomesDrivers of Drivers of

Competitive Competitive BehaviorBehaviorAwarenessMotivationCapability

Competitor Competitor AnalysisAnalysisMarket

Commonality

ResourceSimilarity


Likelihood of AttackLikelihood of AttackFirst Mover Incentives

Likelihood of ResponseLikelihood of ResponseType of Competitive

Action





Slow, Standardor Fast Cycle

Market TypesMarket Types


SustainedOutcomesOutcomes

CompetitiveAdvantageTemporaryAdvantageEvolutionaryEvolutionaryOutcomesOutcomes

Entrepreneurial

or Market-PowerGrowth-Oriented

Actions

FeedbackFeedback


An Action-Based Model of the An Action-Based Model of the Industry Life CycleIndustry Life Cycle

Key TaskKey Task

Exploiting Open Exploiting Open Niches (Blind Spots) Niches (Blind Spots)

and Competitive and Competitive UncertaintyUncertainty

Entrepreneurial Entrepreneurial ActionsActions

Key TaskKey Task

Growth-OrientedGrowth-OrientedActionsActions

Exploiting Factors Exploiting Factors of Productionof Production

Key TaskKey Task

Market-PowerMarket-PowerActionsActions

Exploiting Market Exploiting Market PositionPosition

Firm Resource Firm Resource &&

Market StrengthMarket Strength

Emerging StageEmerging Stage Growth StageGrowth Stage Mature StageMature Stage

TimeTime

Strategic Management Concepts and Cases. Building and Sustaining Competitive Advantage.

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