FREE online courses on Competitive Strategies - A Model of Competitive Rivalry - Competitive Rivalry Outcomes

 

Recall that previous Figure illustrates the potential outcomes of competitive rivalry. Because one of the key determinants of whether or not a company's competitive advantage is sustainable is the extent to which its products are imitable, it is useful to review various market types and the extent to which product is imitable is either shielded or not shielded.

 

In slow-cycle markets, resources and capabilities are very difficult to imitate and products or services reflect strongly shielded resource positions.  Therefore, competitive pressures do not readily penetrate a company's sources of strategic competitiveness and profitability.  This means that a company might hold a monopoly position or a unique set of product attributes or complex product design. Examples include the IBM's historical dominance of the mainframe computer industry, Boeing's dominant position in larger, commercial jet aircraft (especially if the Airbus super-jumbo jet initiative is unsuccessful) and Microsoft's dominant position in the market for personal computer operating system software (though diminished by recent court decisions and a swell of new competitors).

 

The sustainability of competitive actions in slow-cycle markets is illustrated in Figure below:

 

FIGURE: Erosion of Sustained Competitive Advantage in a Slow-Cycle Market

 

As indicated above, a company operating in a slow-cycle market may be able to retain its competitive advantage over time. Returns from the competitive action increase during the early, launch years of the strategy. When returns level out, the company exploits its position. Competitors counterattack or launch strategies that cause the first company's bases for competitive advantage to erode. As a result, returns are competed away.

 

In standard cycle markets, a company's strategy and organization are designed to serve high volume or mass markets.   The focus is on co-ordination and market control, such as in the automobile industries. Extended market dominance (or even global leadership) is possible through continuing capital investment and superior learning. Generally, it is difficult to enter standard-cycle markets because of competitive intensity.  However, competitors may be able to imitate a company's source of advantage and increase the level of competition.

 

To this point, the focus has been on creating and sustaining a competitive advantage in slow- and standard-cycle markets.  As described earlier, this process consists of an entrepreneurial or launch stage, a period of exploitation, and finally, a period of counterattack where the source of competitive advantage erodes.

 

In fast-cycle markets, attempting to sustain a competitive advantage based on one set of resources and competencies may lead to competitive inertia (or result in the company nurturing inappropriate competencies) and the company's position may be overrun by aggressive global competitors.

 

In fast-cycle markets, the key to successfully sustaining a competitive advantage may be to take small steps and launch a counterattack before the source of advantage is eroded. For example, even though Maruti Udyog has economies of scale, a huge advertising budget, an efficient distribution system, a depreciated plant and slack resources, many of its advantages have been eroded by global competitors. 

 

The focus of this basis of competition is competitive disruption, an approach where competition is based on one set of resources and then shifted to another.  In other words, using price as a first step toward sustaining a competitive advantage, then shifting to quality, then to speed, then to innovation, and so on.  The principle is that the primary basis of the competitive advantage is shifted as the company disrupts--and changes--the rules of the game.

 

FIGURE: Temporary Advantages Leading to Sustained Advantage Over Time

 

As illustrated in figure above one way in which companies might sustain a competitive advantage is to move continuously from advantage to advantage.  This is accomplished by moving from one source of advantage to another, never allowing competitors to catch up.

 

There are four steps to implementing the step-by-step or incremental approach to sustaining competitive advantage.

1.       Disrupt the status quo: a company should identify new opportunities to meet customer needs, thereby shifting or changing the basis of competition.

 

2.       Create a temporary advantage: the temporary advantage should be based on improved knowledge of customers' needs, innovative application of technology, and an attempt to define the future basis of customer satisfaction.

 

3.       Seize the initiative: move aggressively and rapidly, forcing competitors to play catch up; taking a proactive approach while leaving competitors to be reactive.

 

4.       Sustain the momentum: continue to develop new sources of advantage; don't wait for competitors to catch up; stay one step ahead.

 

As industries evolve or move through their life cycle, the structure of the industry changes. And, because industry structure changes, so do the competitive dynamics and competitive strategies necessary for success. Three stages of the industry life cycle are particularly relevant to the study of competitive dynamics: new emerging entrepreneurial industries, larger growth-oriented industries, and mature industries.  Relationships between company resources and market strength, time, and stage-of-industry evolution are illustrated in Figure 7.6.

 

FIGURE: An Action-Based Model of the Industry Life Cycle

 

The model in Figure above illustrates that as an industry emerges, in its earliest stage, it is characterised by slow growth; the key task is to discover and exploit un-served market niches and competitive uncertainty. As time progresses and the growth rate increases, the industry enters a rapid growth phase; the key task is to exploit the factors of production and take growth-oriented actions. After a longer period, growth slows and begins to flatten as the industry enters the mature phase; the key task is to exploit the company's market position by taking market power actions.

 

There are several inferences that can be drawn from it. We can say that new, emerging entrepreneurial industries are characterised by companies battling to establish a niche or a form of market dominance. This means that there is a strong competitive rivalry for customer loyalty as companies attempt to establish product quality, technology, and/or advantageous relationships with suppliers to establish a competitive advantage that can be sustained. This enables the companies build a reputation by using a variety of competitive strategies, making direct competition less common and enabling niche-dominance.

 

While speed is important, access to capital is critical. As a result, strategic alliances may develop between a new company entering the market and an established company seeking a foothold in the new industry.

 

Larger growth-oriented industries are made up of companies that have survived the emerging entrepreneurial phase.  These companies are well established in the industry and because of this there is a decrease in the variety of competitive strategies being implemented. These groups of companies implement similar strategies and directly competing with each other (as a strategic group) and there is rivalry among groups of companies that have implemented dissimilar strategies. If there is a great deal of within-strategic group and between-strategic group rivalry, most companies in the industry are generally less profitable.

 

Some growth industries can be classified as fragmented, with no dominant company, such as the fast food industry.  Competition generally will be based on offering standardised facilities and products at low cost, with value added through service provided.  Franchising (with local decision making) provides companies with the ability to standardise facilities, products, and operations, something that is yet to pick-up in India.

 

Mature industries are those where growth has slowed or flattened. Generally, surviving companies are fewer in number and larger. Competition is characterised by actions that are related to market power.  Here the emphasis is placed on producing fewer products, especially those that are profitable. Process innovation takes priority over product innovation (to maintain production-related cost efficiencies and product quality). These industries are likely to see international expansion or increased emphasis on international sales and operations to extend product life.

 

As strategies develops at corporate to business to competitive levels, the implementation of strategies starts coming into focus. This focus is essential for the implementation gives you the real taste of the medicine that the company has developed.  Implementation also tells you whether the strategies that the company has developed are workable or not.  We now turn our attention to key issues in implementation and control.