FREE online courses on Competitive Strategies - A Model of Competitive
Rivalry - Abilities That Enables Response
As discussed, the characteristics of
individual companies affect the probability of competitive responses to actions
taken. Four other factors influence
an industry's competitive rivalry and competitive dynamics:
- Relative size of a company within a market or industry
- Speed of competitive actions and responses
- The extent of innovation by companies in the industry
- Quality of the company's products
The relationship between company size and
competitive dynamics at first may appear to be contradictory: the larger the company, the greater the
company's market power relative to its competitors.
Size usually reflects more than market power
since a company's market share often reflects the general level of its
resources. These resources may even include its R&D capabilities and the
perceived quality of its products. Market power and resources of competitors also shape a focal
company's responses.
A lack of innovation often makes it
difficult for large companies to be first movers or to respond quickly to a
competitor's actions because it may take the company a long time to develop and
implement a competitive response. More importantly, complex bureaucratic
structures may stifle innovation and result in slower decision making. As a result, more nimble entrepreneurial
first movers--such as Dell Computer, and Compaq--have gained share at the
expense of IBM as the latter has been slow to develop and implement competitive
responses.
Herbert Kelleher, co-founder and CEO of
Southwest Airlines, says that large companies need to think and act small to get
bigger, rather than thinking and acting big, which often leads to company
getting smaller. In other words,
large companies should use their size to build market power, but they must think
and act like a small company (e.g., move quickly and be innovative) in order to
achieve strategic competitiveness and earn above-average returns over the long
run.
However, large companies are trying to become more entrepreneurial by
recognising the value of individuals and adopting organisational structures that
encourage individuals to demonstrate initiative.
Time to market and speed are of increasing
importance in the new global marketplace.
The speed with which companies are able to initiate competitive
actions--to be a first mover-and responses--to be a fast second mover--appear to
play a major part in their success. To establish a competitive advantage and
earn above-average profits in global markets, it is critical that companies are
able to reduce the time required to develop new products and bring them to
market.
For example, Japanese automakers have shown
that it is possible to develop and bring a new model to market in 2 to 3 years. In the past, U.S. companies often have
required 5 to 8 years. This means
that Japanese companies often have been able to design and bring 2 or 3 new
automobiles to market while U.S. manufacturers were still developing their first
new model. However, U.S. automakers are improving, thus reducing the Japanese's
time-to-market advantage.
While speed and the compression of time may
represent new sources of competitive advantage and above-average returns in the
global marketplace, speed is more than just working faster. Speed implies
working smarter and may require different, less bureaucratic organisational
structures. Therefore, time-to-completion must be a primary work-related
objective.
Speed has become increasingly important as
companies battle to take strategic actions and/or respond to competitive
actions. By being able to act or
respond quickly, a company may be able to gain a competitive advantage (over
slower competitors) or to delay or forestall any advantage a competitor might
gain. And the speed of strategic decision-making is affected by decision makers'
cognitive ability, use of intuition, risk tolerance, propensity or inclination
to act. This means that companies
are positioned to make strategic decisions faster when its managers possess the
ability to think, are willing to use intuition, are not afraid of taking risks,
and are willing to take the necessary action.
In large companies, it also is important
that faster decision making be supported by more rapid communications within the
organization to offset the disadvantages of formal organisational approval
processes and bureaucracy. It may
be critical that large companies with significant market power follow the advice
offered by Herb Kelleher (CEO of Southwest Airlines) and Jack Welch (CEO of
General Electric): Think (and act) small in order to become large. Achieving
strategic competitiveness requires agility, speed, innovation and rapid
communications to both make and implement strategic decisions rapidly.
Research indicates that product and process
innovations are also important for strategic competitiveness. If the company is competing in a
high-technology industry, it may be critical to the company's long-term success
to make significant allocations to its research and development (R&D) function.
And as the number of competitors increases in an industry, so does the level of
innovation.
However, implementing innovations
effectively is difficult. While R&D may result in new ideas and/or new products,
the company must be able to derive competitive benefits from their innovations.
This means that a company's mangers must be able to integrate the company's
innovation strategy with its other strategies (such as its business-level
strategy) and be able to recruit and retain high-technology workers.
It also may be important for companies
facing dominant competitors to focus on market niches (a focused differentiation
strategy) rather than confront dominant companies head-on. This is likely to be especially true for
smaller competitors.
Product quality shapes the competitive
dynamics in many industries. In fact, product quality is no longer a competitive
issue but a necessary or mandatory product attribute if companies expect to
successfully implement any of the generic business strategies discussed in
Course 4 - low cost, differentiation, focus, or integrated cost
leadership/differentiation. Quality involves meeting or exceeding customer
expectations in the products and/or services offered. In the long run, it costs less to make quality products or to
offer quality services than it does to make or offer defective ones (because of
the costs related to repairing defects or correcting service errors).
While quality is necessary, it is not a
sufficient product attribute for companies to achieve strategic competitiveness.
An acceptable level of quality merely provides companies with the opportunity to
compete. Products and services must continue to
meet customer preferences.
Although it may not be obvious from the
discussion to this point, quality is as important in the services sector as it
is in manufacturing. For the
importance of quality to permeate the entire organization (and affect all of its
processes and value-creating activities), a dedication to quality must come from
the organization's top-level executives.
Therefore, Top-level executives must create
(and reinforce) values for quality throughout the organization and
Quality-related values should be integrated into strategies that reflect a
long-term commitment to all stakeholders (customers, owners, employees, and
other important stakeholders).
This is what has happened at Dell Computer
as top management, especially Michael Dell is obsessed with maintaining high
levels of product quality and continuous quality improvements. At Dell, a total quality management
process is found throughout the company's activities and processes.
The quality dimensions of products and
services differ slightly from each other as shown in the figure 7.3.
Figure: Quality Dimensions of Products and
Services
Figure: Quality Dimensions of Products and
Services
Several guidelines or standards are
available to companies as they strive for quality and global strategic
competitiveness.
Total quality management (TQM) represents a
managerial innovation that emphasises an organization's total commitment to the
customer and to continuous improvement of every process through the use of
data-driven problem-solving approaches based on the empowerment of employee
groups and teams.
TQM thus represents a total, company-wide
effort that includes all employees, suppliers and customers and that seeks to
continuously improve the quality of products and processes to meet the needs and
expectations of customers.
TQM combines W. Edward Deming's and Joseph
Juran's teachings on Statistical Process Control (SPC is a technique used to
continually upgrade the quality of goods or services that a company produces)
with group problem-solving processes and Japanese values related to quality and
continuous improvement.
A key attribute of SPC is the early (as
compared to waiting until a product is completed) detection and elimination of
variations in the processes used to manufacture a good or service.
The principal goals of TQM are increasing
customer satisfaction with the company's goods and/or services, compressing
product introduction time (time-to-market) and reducing cost.
To reach these goals, the organization must
provide employees (including top-level executives) with effective training that
improves the skills necessary to effectively practice TQM. But perhaps most important, companies
are likely to excel in TQM when they empower employees to achieve continuous
improvements in all aspects of their tasks.
It is interesting to note that Japanese
companies adapted and implemented Deming's and Juran's quality management
techniques long before they were recognised as important by U.S. companies.
This lag by U.S. companies explains how Japanese companies were able to achieve
a competitive advantage based on product quality that forced U.S. companies to
play catch up. Same thing is going on in India right
now as companies learn that there is no substitute for quality.
Newer methods of TQM use benchmarking and
emphasise organisational learning for companies attempting to gain competitive
advantage. Benchmarking facilitates
TQM by developing information on the best practices of other organizations and
industries to guide the company's own TQM efforts.
Companies also must recognise the
relationships between the four general factors (size, speed, innovation, and
quality) that influence the competitive dynamics of an industry and company
performance, and anticipate that competitors may initiate competitive actions
(and responses) to exploit these relationships.
The relationships between company size,
speed of decision making and related actions, innovation, and quality on the
company's ability to sustain competitive actions and outcomes is given below:
Company size has a neutral effect on the
sustainability of competitive actions and outcomes because, while large
companies have greater market power (a positive effect on the sustainability of
competitive actions and outcomes), large companies also generally have
bureaucratic structures that prevent them from taking rapid action (a negative
effect on the sustainability of competitive actions and outcomes).
Speed, or the ability to make strategic decisions rapidly, has a positive
effect on the sustainability of competitive actions and outcomes.
Innovation, resulting in market leadership, has a positive effect on the
sustainability of competitive actions and outcomes.
Quality, achieved by implementing TQM, has a positive effect on the
sustainability of competitive actions and outcomes.
