Chapter 5

Competitive Rivalry and

Competitive Dynamics
Michael A. Hitt
R. Duane Ireland
Robert E. Hoskisson
2003 Southwestern Publishing Company

Strategic Inputs

Chapter 2
The External
Environment
Strategic Intent
Strategic Mission
Chapter 3
The Internal
Environment

Strategic Outcomes

Strategic Actions

Strategy Formulation
Chapter 5
Chapter 4
Competitive Rivalry
Business-Level
and Competitive
Strategy
Dynamics

The Strategic
Management
Process
Strategy Implementation
Chapter 10
Corporate
Governance

Chapter 11
Organizational
Structure and
Controls

Chapter 12
Strategic
Leadership

Chapter 13
Strategic
Entrepreneurship

Strategic
Competitiveness
Above-Average
Returns

Feedback

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
3

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

From Competitors to
Competitive Dynamics
Competitors
Engage in

Why?
Competitive
rivalry
What results?

How?

To gain an advantageous
market position
Through competitive
behavior
Competitive actions
Competitive responses
What results?

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

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.

A Model of Competitive
Rivalry
Outcomes

Competitive Analysis
Market commonality
Resource similarity

Drivers of Competitive
Behavior
Awareness
Motivation
Ability

feedback

Market position
Financial performance

Interim Rivalry
Likelihood of Attack
First mover incentives
Organizational size
Quality
Likelihood of Response
Type of competitive action
Reputation
Market dependence
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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
8

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

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

10

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
II I
III IV

Market
Commonality
Low
KEY
The shaded area represents
degree of market commonality
between two firms

Low

Resource
Similarity

High

Resource endowment A
Resource endowment B

12

Drivers of Competitive Actions

and Responses: Awareness

Drivers of competitive behavior

Awareness

Awareness is the extent to which

competitors recognize the degree of
their mutual interdependence
mutual interdependence results
from
market commonality
resource similarity

13

Drivers of Competitive Actions

and Responses: Motivation

Drivers of competitive behavior

Awareness
Motivation

Motivation concerns the firms

incentive
to take action
or to respond to a competitors
attack
and relates to perceived gains and
losses

14

Drivers of Competitive Actions

and Responses: Ability

Drivers of competitive behavior

Awareness
Motivation

Ability

Ability relates
to each firms resources
the flexibility these resources
provide
Without available resources the firm
lacks the ability
to attack a competitor
to respond to the competitors
actions
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Drivers of Competitive Actions

and Responses: Market Commonality

Drivers of competitive behavior influenced by

Market
commonality

A firm is more likely to attack the

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
16

Drivers of Competitive Actions

and Responses: Resource Similarity

Drivers of competitive behavior influenced by

Market
commonality

Resource
similarity

The greater the resource imbalance

between the acting firm and
competitors or potential responders,
the greater will be the delay in
response by the firm with a resource
disadvantage
When facing competitors with
greater resources or more attractive
market positions, firms should
eventually respond, no matter how
challenging the 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 competitors
competitive action

18

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

market-based move that is taken to fine-tune a

strategy; it involves fewer resources and is
relatively easy to implement and reverse
19

Factors Affecting Likelihood of

Attack: First Mover Incentives
First mover
incentives

First movers allocate funds for

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

20

Factors Affecting Likelihood of

Attack: Size
First mover
incentives

Size

Small firms are more likely

to launch competitive actions
to be quicker in doing so
Small firms are perceived as
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

21

Factors Affecting Likelihood of

Attack: Size
First mover
incentives

Size

Large firms are likely to initiate more

competitive actions as well as
strategic actions during a given time
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

22

Factors Affecting Likelihood of

Attack: Quality
First mover
incentives

Size

Quality

Quality exists when the firms goods

or services meet or exceed
customers expectations
Product quality dimensions include

Performance
Features
Flexibility
Durability
Conformance
Serviceability
Aesthetics
Perceived quality

23

Factors Affecting Likelihood of

Attack: Quality
First mover
incentives

Size

Quality

Quality exists when the firms goods

or services meet or exceed
customers expectations
Service quality dimensions include

Timeliness
Courtesy
Consistency
Convenience
Completeness
Accuracy

24

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

25

Factors Affecting Likelihood of

Response: Type of Competitive Action
Type of
competitive
action

Strategic actions receive strategic

responses
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
competitive
action

Reputation

An actor is the firm taking an action

or response
Reputation is the positive or negative
attribute ascribed by one rival to
another based on past competitive
behavior
The firm studies responses that a
competitor has taken previously when
attacked to predict likely responses

27

Factors Affecting Likelihood of

Response: Market Dependence
Type of
competitive
action
Reputation
Market
dependence

Market dependence is
the extent to which a firms
revenues or profits are derived
from a particular market
In general, firms can predict that
competitors with high market
dependence are likely to respond
strongly to attacks threatening their
market position

28

Competition
Competitive Dynamics

competitive dynamics concerns the ongoing

actions and responses taking place among all
firms competing within a market for
advantageous positions
Competitive Rivalry

building and sustaining competitive advantages

are at the core of competitive rivalry
competitive advantages are the link to an
advantageous market position

29

Strategic Conduct is Dynamic

A firms strategic conduct is dynamic in
nature
Actions and responses shape the
competitive positions of each firms
business level strategy
Firm A

Firm B

30

Strategic Conduct is Dynamic

Actions taken by one firm elicits
responses from competitors
Competitive responses lead to additional
actions from the firm that acted
originally
Firm A

Actions
New
Actions
New
Response
Response

Firm B

31

Competitive Dynamics:
Slow-Cycle Markets

Slow-cycle
markets

Slow-cycle 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
32

Returns from a Sustainable

Competitive Advantage

Gradual Erosion of a Sustainable

Competitive Advantage

Exploitation

Counterattack

Launch

Time (Years)

10
33

Competitive Dynamics:
Fast-Cycle Markets

Slow-cycle
markets

Fast-cycle
markets

Fast-cycle markets
the firms competitive advantages
arent shielded from imitation
imitation happens quickly and
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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Returns from a Series

of Replicable Actions

Obtaining Temporary Advantages to

Create Sustained Advantage
Firm has already moved
Exploitation to next advantage
Launch
Counterattack

10

Time (Years)

15
35

Competitive Dynamics:
Standard-Cycle Markets

Slow-cycle
markets
Fast-cycle
markets
Standard-cycle
markets

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

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