Chapter 2

Strategic External
Environment
The Strategic
Inputs
Strategic Intent
Strategic Mission
Management
Chapter 3
Internal Process
Environment

Strategy Formulation Strategy Implementation

Chapter 4 Chapter 5 Chapter 6 Chapter 10 Chapter 11

Business-Level Competitive Corporate-Level Corporate Structure
Strategic
Actions

Strategy Dynamics Strategy Governance & Control

Chapter 7 Chapter 8 Chapter 9 Chapter 12 Chapter 13

Acquisitions & International Cooperative Strategic Entrepreneurship
Restructuring Strategy Strategies Leadership & Innovation
Outcomes
Strategic

Strategic
Competitiveness
Feedback Above Average
Returns
Ch5-1
 Chapter 5

Competitive Dynamics

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

©2000 South-Western College Publishing

Ch5-2
Ch5-3
Competitors
Are firms competing in the same market, offering
similar products, and targeting similar customers

Multimarket Competition
occurs when firms compete against each other in several
product or geographic markets

Ch5-4
Competitive Rivalry
Is the ongoing set of competitive actions and
competitive responses occurring between competitors
as they compete against each other for an
advantageous market position.

Competitive Behavior
The set of competitive actions and responses it takes
while engaged in competitive rivalry

Ch5-5
 Competitive Dynamics

Refer to all competitive behaviors—that is, the

total set of actions and responses taken by all
firms competing within a market
It is also the analysis of competition at the
action and response level to predict how a firm
will act or react against opponents.

Ch5-6
 A firm’s
strategic conduct
is dynamic in
nature

Competitive
Actions taken
responses lead
by one firm Competitive to additional
elicit responses
Dynamics actions from the
from
firm that acted
competitors
originally

Actions and
responses shape the
competitive positions
of each firm’s
business level
strategy
Ch5-7
Ch5-8
Ch5-9
 Model of Interfirm Rivalry:
Likelihood of Attack and Response
Drivers of
Competitive Outcomes
Ability for
Behavior Interfirm Rivalry: Action and Competitive
Awareness Attack & Response Market Types
Response
Motivation Slow, Standard
Capability Likelihood of Attack Relative Size or Fast Cycle
First Mover Incentives Speed Competitive
Likelihood of Response Innovation Outcomes
Type of Competitive Quality Sustained
Competitive
Competitor Action Advantage
Actor’s Reputation
Analysis Temporary
Dependence on the Advantage
Market Market
Commonality Resource Availability Evolutionary
Resource Outcomes
Similarity Entrepreneurial
Growth-Oriented
Feedback or Market-Power
Actions Ch5-10
 Competitors Analysis

Market commonality Resource similarity

is concerned with the is the extent to which the

number of markets with firm’s tangible and
which the firm and a intangible resources
competitor are jointly are comparable to a
involved and the degree of competitor’s in terms of
importance of the both type and amount.
individual
markets to each.
Ch5-11
Ch5-12
 Drivers of Competitive Actions
and Responses
1. Awareness - refers to the extent to which
competitors recognize the degree of their mutual
interdependence that results from market
commonality and resource similarity.
2. Motivation – is concerns the firm’s incentive to
take action or to respond to a competitor’s attack,
relates to perceived gains and losses.
3. Ability - relates to each firm’s resources and the
flexibility they provide.
Ch5-13
 Interfirm Rivalry

First mover Second Mover

is a firm that takes an is a firm

initial competitive that responds to the first
action in order to build or mover’s competitive
defend its competitive action,
advantages or to improve typically through imitation
its market position.

Ch5-14
 First Mover
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
Ch5-15
 Second Mover
Firms that respond to a First Mover’s actions
Second Movers frequently imitate First Movers
Speed of response often dictates success

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
Must possess necessary capabilities to imitate
Ch5-16
 Organizational Size and Quality

• An organization’s size affects the likelihood

that it will take competitive actions as well as
the types of actions it will take and their
timing.
• Quality exists when the firm’s goods or
services meet or exceed customers’
expectations.

Ch5-17
 Ability for Action and Response

1. Actor’s Reputation
an actor is the firm taking an action or a response
while reputation is “the positive or negative attribute
ascribed by one rival to another based on past
competitive behavior.”
2. Dependence on the market
denotes the extent to which a firm’s revenues or
profits are derived from a particular market.

Ch5-18
 Competitive Rivalry
Strategic Tactical
Action/Response Action/Response

is a market-based move is a market-based move

that involves a significant that is taken to fine-tune a
commitment of strategy; it involves fewer
organizational resources resources and is relatively
and is difficult to easy to implement and
implement and reverse reverse.

Ch5-19
 Types of Competitive Actions
Significant commitments of specific and
Strategic distinctive organizational resources
Actions Difficult to implement
Difficult to reverse

Example Major Acquisition

Undertaken to “fine tune” strategy

Tactical
Actions Relatively easy to implement
Relatively easy to reverse
Example Price cut Ch5-20
 Gauging the Likelihood of Response
Type of Competitive Action -Tactical or Strategic
Easier to respond to
Require fewer resources to mount a response

Actor’s 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
Ch5-21
 Gauging the Likelihood of Response
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
Ch5-22
 Quality Dimensions of Goods & Services
Product Quality Dimensions:
Performance Operating characteristics
Features Important special characteristics
Flexibility Meeting operating specifications over time
Durability Amount of use before performance
deteriorates
Conformance Match with pre-established standards
Serviceability Ease and speed of repair or normal service
Aesthetics How a product looks and feels
Perceived quality Subjective assessment of
characteristics (product image)
Ch5-23
Quality Dimensions of Goods & Services
Service Quality Dimensions:

Timeliness Performed in promised period of time

Courtesy Performed cheerfully
Consistency Giving all customers similar experiences
Convenience Accessibility to customers
Completeness Fully serviced, as required
Accuracy Performed correctly each time

Ch5-24
 3 Types of Markets

1. Slow-cycle markets - finds firms taking actions and

responses that are intended to protect, maintain, and
extend their proprietary advantages.
2. Fast-cycle markets - competition is almost frenzied
as firms concentrate on developing a series of
temporary competitive advantages.
3. Competitors in standard-cycle markets - serve
mass markets and try to develop economies of scale
to enhance their profitability

Ch5-25
 Gradual Erosion of a
Sustained Competitive Advantage
Returns
from a
Sustained
Competitive
Advantage Exploitation
Counterattack

Launch

Time (years) 10 Ch5-26

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

1 Disrupting the Status Quo

Identify new opportuntites 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 competitor’s 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
Ch5-27
 Obtaining Temporary Advantages
to Create Sustained Advantage

Returns
from a
Sustained
Competitive
Advantage

Exploitation Counterattack
Launch

5 Time (years) 10 15 Ch5-28

 Obtaining Temporary Advantages
to Create Sustained Advantage

Returns
from a
Sustained
Competitive Firm has already moved
Advantage on to Advantage No. 2

Exploitation Counterattack
Launch

5 Time (years) 10 15 Ch5-29

 An Action-Based Model of the
Industry Life Cycle
Key Task Key Task Key Task

Exploiting Open Exploiting Factors Exploiting Market

Niches (Blind Spots) of Production Position
Firm Resource and Competitive
& Uncertainty
Market Strength Market-Power
Actions

Growth-Oriented
Actions
Entrepreneurial
Actions

Emerging Stage Growth Stage Mature Stage

Time Ch5-30