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
Transparency
Transparency 5-1
5-1
Action
 Model of Interfirm Rivalry:
Likelihood of Attack and Response

Drivers of
Competitive
Behavior
Do managers understand
Awareness the key characteristics of
Motivation competitors?
Capability

Transparency
Transparency 5-2
5-2
 Model of Interfirm Rivalry:
Likelihood of Attack and Response

Drivers of
Competitive
Behavior
Awareness
Does the firm have
Motivation appropriate incentives to
Capability attack or respond?

Transparency
Transparency 5-3
5-3
 Model of Interfirm Rivalry:
Likelihood of Attack and Response

Drivers of
Competitive
Behavior
Awareness
Motivation
Does the firm have the
Capability necessary resources to
attack or respond?

Transparency
Transparency 5-4
5-4
 Model of Interfirm Rivalry:
Likelihood of Attack and Response

Competitor
Analysis
Market Do firms compete with each
Commonality other in multiple markets?
Resource
Similarity

Transparency
Transparency 5-5
5-5
 Model of Interfirm Rivalry:
Likelihood of Attack and Response

Competitor
Analysis Multipoint competition tends to
reduce competitive interactions,
Market but increases the likelihood of
Commonality response where interaction occurs

Resource For example, airlines price

Similarity flights similarly, but respond
quickly when competitors
introduce promotional prices

Transparency
Transparency 5-6
5-6
 Model of Interfirm Rivalry:
Likelihood of Attack and Response

Competitor
Analysis
Market
Commonality

Resource Do competitors possess similar

Similarity types or amounts of resources?

Transparency
Transparency 5-7
5-7
 Model of Interfirm Rivalry:
Likelihood of Attack and Response

Competitor
Analysis
Market
Firms are less inclined to attack a
Commonality firm that is likely to retaliate
Resource Firms with similar resources are
Similarity more likely to be aware of each
other’s competitive moves

Firms with dissimilar resources

are more likely to attack
Transparency
Transparency 5-8
5-8
 Model of Interfirm Rivalry:
Likelihood of Attack and Response

Interfirm Rivalry:
Attack & Response
Likelihood of Attack
First Mover Incentives
Likelihood of Response
Type of Competitive
Action
Actor’s Reputation
Dependence on the
Market
Resource
Transparency 5-9 Availability
Transparency 5-9
 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
Transparency
Transparency 5-10
5-10
 Second
Second Mover
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
Transparency
Transparency 5-11
5-11
 Model of Interfirm Rivalry:
Likelihood of Attack and Response

Interfirm Rivalry:
Attack & Response
Likelihood of Attack
First Mover Incentives
Likelihood of Response
Type of Competitive Whether a competitor
Action
is likely to respond
Actor’s Reputation
depends on several
Dependence on the
Market key factors
Resource
Transparency 5-12 Availability
Transparency 5-12
 Types of Competitive Actions
Significant commitments of specific &
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
Transparency
Transparency 5-13
5-13
 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
Transparency
Transparency 5-14
5-14
 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
Transparency
Transparency 5-15
5-15
 Model of Interfirm Rivalry:
Likelihood of Attack and Response

Ability for
Action and
Response
Firm size can have
Relative Size opposing effects on
competitive dynamics
Speed
Innovation

Quality
Transparency
Transparency 5-16
5-16
 Model of Interfirm Rivalry:
Likelihood of Attack and Response

Ability for Large firms may exert market

Action and power over rivals and erect
Response barriers to entry against smaller
competitors
Relative Size However, smaller competitors
Speed may be more nimble and
innovative
Innovation

Quality
Transparency
Transparency 5-17
5-17
 Model of Interfirm Rivalry:
Likelihood of Attack and Response

Ability for
Action and “Think and act big and
Response we’ll get smaller. Think
Relative Size and act small and we’ll get
bigger.”
Speed
Herb Kelleher,
Innovation CEO, Southwest Airlines

Quality
Transparency
Transparency 5-18
5-18
 Model of Interfirm Rivalry:
Likelihood of Attack and Response

Ability for
Action and
Response

Relative Size Quick response is

crucial to both the
Speed
first mover and the
Innovation fast second mover

Quality
Transparency
Transparency 5-19
5-19
 Model of Interfirm Rivalry:
Likelihood of Attack and Response

Ability for
Action and
Response

Relative Size
Speed Consistent innovation
is required for market
Innovation
leadership in many
dynamic industries
Quality
Transparency
Transparency 5-20
5-20
 Model of Interfirm Rivalry:
Likelihood of Attack and Response

Ability for
Action and
Response

Relative Size
Speed
Innovation
Exceeding customer
Quality expectations is a necessity
to compete in the 1990s
Transparency
Transparency 5-21
5-21
 Model of Interfirm Rivalry:
Likelihood of Attack and Response
Outcomes
Competitive Market Types
Slow, Standard or Fast Cycle
Competitive Outcomes
Sustained Competitive
Advantage
Temporary Advantage
Evolutionary Outcomes
Evolutionary Actions
Growth-Oriented Actions
Market-Power
Transparency
Transparency 5-22
5-22 Actions
 Model of Interfirm Rivalry:
Likelihood of Attack and Response
Outcomes
Competitive Market Types Slow cycle markets are
Slow, Standard or Fast Cycle frequently shielded by
monopoly power or very
Competitive Outcomes strong brand loyalties
Sustained Competitive
Advantage This market outcome and
Temporary Advantage lack of interfirm rivalry
may lead to sustained
Evolutionary Outcomes
competitive advantage
Evolutionary Actions
Growth-Oriented Actions
Market-Power
Transparency
Transparency 5-23
5-23 Actions
 Model of Interfirm Rivalry:
Likelihood of Attack and Response
Outcomes
Standard cycle markets
Competitive Market Types often lead to highly
Slow, Standard or Fast Cycle competitive pressures
Competitive Outcomes despite world class
products
Sustained Competitive
Advantage Firms with multimarket
Temporary Advantage competition may dampen
Evolutionary Outcomes rivalry somewhat
Evolutionary Outcomes
Evolutionary Actions Sustained competitive
Growth-Oriented Actions advantage is a possible
Market-Power
Transparency
Transparency 5-24
5-24 Actions outcome in this instance
 Model of Interfirm Rivalry:
Likelihood of Attack and Response
Outcomes
Fast cycle markets are
Competitive Market Types
intensely dynamic and a
Slow, Standard or Fast Cycle first mover advantage is
Competitive Outcomes often unsustainable
Sustained Competitive Firms may cannibalize
Advantage older generation products
Temporary Advantage while introducing new
Evolutionary Outcomes innovative premium
products
Evolutionary Actions
Growth-Oriented Actions Sustainable competitive
Market-Power
Transparency
Transparency 5-25
5-25 Actions advantage is unilkely
 Sustained Competitive Advantage
which Eventually Erodes

Returns
from a
Sustained
Competitive
Advantage Exploitation
Counterattack

Launch

Time (years)
Transparency
Transparency 5-26
5-26
10
 Some Firms Maintain Competitive Advantage
in Fast-Cycle Markets by Seizing the Initiative

Disrupting the Status Quo

1 Identify new opportuntites to serve the customer by shifting
the rules of competition through speed and variety

Creating Temporary Advantage

2 Use superior knowledge of the customer, technology and the
future to enhance customer orientation and empower workers

Seizing the Initiative

3 Move aggressively into new areas of competition to create
new advantage and undermine a competitor’s old advantage
Sustaining the Momentum
4 Take several actions in a row in order to seize the initiative
and create momentum to develop new advantages
Transparency
Transparency 5-27
5-27
 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

Transparency
Transparency 5-28
5-28
5 Time (years) 10 15
 Obtaining Temporary Advantages
to Create Sustained Advantage

Returns
from a
Sustained
Competitive Firm continues to move
Advantage on to the next Advantage

Exploitation Counterattack
Launch

Transparency
Transparency 5-29
5-29
5 Time (years) 10 15
 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

Transparency
Transparency 5-30
5-30 Time