Dynamic Competitive Interaction: Implications for Strategy and Competitive Intelligence

1
Dynamic Competitive Interaction Implications for
Strategy and Competitive Intelligence
2
Consequences of Cutthroat Rivalry
Lynaghs
Two Keys Tavern
Two Keys Tavern
3
Prisoners Dilemma
Criminal 2
Squeal
Clam Up
2 Serves 10 Years 1 Goes Free
Both Serve 5 Years
Squeal
Criminal 1
1 Serves 10 Years 2 Goes Free
Both Serve 1 Year
Clam Up
4
What Price a Dollar?

• 1.00 will be auctioned off
• Opening bid is 10
• Bids increase in 10 increments
• Highest bidder wins 1.00
• Top two bidders must pay auctioneer

5
Three Stooges

• Larry, Curley and Moe are in a 3-way duel and
  agree to take turns shooting each other in that
  order
• Accuracy statistics
• Larry hits intended target 20 of the time
• Curley hits intended target 80 of the time
• Moe hits intended target 100 of the time
• What should Larry do?

6
The Playbook What will they run next?
7
Complex Rivalry Where to move?
8
Competitive Outcomes
Firm 1 Actions
Competitive Interaction
Firm 2 Actions
Industry Characteristics
Organizational Characteristics
9
Competitive Dynamics

• Observe competitive moves
• Organize competitive moves
• Action/response pairs
• Action repertoires (year-end tallies)
• Competitive attacks/sequences
• Measurement/Analysis of Characteristics
• Four key action pattern characteristics that
  improve
• Market share
• Stock price
• Profitability

10
Strategy as Action

• Externally-directed, observable competitive moves
  carried out to improve relative competitive
  position

Pricing Marketing Products Service Capacity Signal
s Other
Airlines Telecom Brewing PCs Software Mutual
Funds 41 Industries
Generic Actions
Studies
Actions symbolically represented as these
11
Action-Reaction Pairs
Action Pair 1
Action Pair 2
Action Pair 3
Action Pair 4
Company 1
Company 2

• Profits
• Growth
• Mkt. Share

• Response

• Action

time
12
Action-Reaction Pairs
Action Pair 1
Action Pair 2
Action Pair 3
Action Pair 4
Company 1
Company 2
time

• Type
• Implementation Requirement
• Radicality
• Irreversibility

• Likelihood
• Speed (delay)
• Matching

13
Prior Studies Action Repertoires
Company 1
Year-End Tallies
Company 2
time

• Profits
• Growth
• Mkt. Share

• Action
• Repertoire

14
Prior Studies Action Repertoires
Company 1
Year-End Tallies
Company 2
time

• Profits
• Growth
• Mkt. Share

• Total Actions
• Complexity

15
Sequential Competitive Interaction ?
8 7 6 5 4 3 2 1
This Sequence Black Knight b4 White Pawn
c3 Black Bishop g4 White Queen b5 Black
Pawn c5

• Named Sequences
• Epaulettes Mate
• Sicilian Defense

a b c d e f
g h
16
Sequence Applications...
COMPUTER PROGRAM
data actions2 subj _n_ do i 1 to
max output matrix end run
DNA
BOXING
Jab...JabUppercut
LANGUAGE
qcheaTiueissesne. hsiT si a cesneueq. This
is a sequence.
CAGTACATAGTACGATACGA
MUSIC
17
Sequences in Competitive Interaction

• Ordered sample of things
• Temporal orderliness among elements
• Logically unified sequence
• Succession of market-based decisions
• Patterns in stream of behaviors
• Coordinated series of actions
• Actions in a sequential strategic thrust

18
Competitive Attack Sequence of Actions
Action Sequence 1
Action Sequence 2
time

• Profits
• Growth
• Mkt. Share

Competitive Attack
19
Time
Focal Firm
MKT
MKT
PRICE
MKT
PRICE
(a)
(a)
Rival Firm
SVC
PROD

• Avg. Attack Volume (a a)
• No. of Actions per Attack
• Avg. Attack Duration (a a)
• No. days firm sustains attack

20
Time Period 1
MKT
MKT
PRICE
MKT
PROD
PRICE
MKT
MKT
MKT
PRICE
SIG
PROD
PRICE
Time Period 2
Time

• Attack Unpredictability
• Resemblance of two attack sequences

21
Focal Firms Stock Price and/or Market Share Gain
MKT
MKT
PRICE
MKT
PROD
MKT
CAP
SIG
PROD
MKT
Attack a
Attack a

• Focal Firms Competitive Attack
• Attack Volume
• Attack Duration
• Attack Complexity
• Attack Unpredictability

22
Group Exercise Bud vs. Miller

• Total Actions
• Count of total actions
• Average Response Time
• Avg. number of time units between last
  competitive move and first competitive response
• Repertoire Complexity
• Extent to which repertoire is skewed vs. balanced
• Attack Unpredictability
• Lack of discernable action combinations or
  repetition

23
Action/Response Pairs
Implementation Req. Irreversibility
Radicality

• Response
• Less Likely
• Slower

Action Characteristics
Better Profitability for Attacker
24
Competitive Repertoire and Market Share Gain
Market Share Gain
More Actions Complexity
Faster Avg. Response Speed
Action Repertoire Characteristics
25
Competitive Attack and Market Share Gain
Market Share Gain
Attack Volume Attack Duration
Competitive Attack Characteristics
26
Competitive Attack and Market Share Gain
Market Share Gain
Simple
Complex
Extent of Attack Complexity
27
Competitive Attack and Market Share Gain
Market Share Gain
Predictable
Unpredictable
Extent of Attack Unpredictability
28
Results Attack Intensity
Stock Price
Sporadic, Infrequent
Intense, Sustained
Number of Actions within Sustained Attack per
Unit Time
Results reversed for relationship between focal
firms attack and rivals stock price.
29
Results Attack Complexity
Stock Price
Simple
Complex
Extent to which Focal Firms Attacks Consist of
Actions of Many Types
30
Post Hoc Attack Unpredictability
Rivals Stock Price
Predicable, Inertia
Unpredictable, Change
Extent of Change in Focal Firms Sequence of
Actions
31
Scoring the Fight
Miller Bud

• Total Actions
• Faster Responses
• More Complex
• Repertoire
• Unpredictable Attacks

32
Too much of a good thing?Lynaghs vs. Two Keys
Market Share Gains
Performance
Profitability
Competitive Aggressiveness
33
Implications for CIPredict Future Behavior of
Rivals

• Rivals prior behavior
• Patterns
• Tendencies
• Type order of moves
• Proactiveness
• Reactiveness

• Drivers of Behavior
• Management orientation
• Decision-making
• Financial constraints
• Industry characteristics

34
Implications for CIMonitor Your Own Behavior

• Objective measures of competitive behavior
• Safeguard against complacency, predictability,
  simplicity
• Keep rivals off balance / disruption
• Identify factors that facilitate aggressiveness
• What combinations of moves are effective? which
  are ineffective? smoke signals?

35
Conclusions and Implications

• Managerial Implications
• Incorporate dynamic analysis of competitive
  moves into competitive intelligence program
• Assists managers to make inform choices about the
  requisite level of competitive behavior
• Use stock returns as an important decision-making
  tool and as a messenger