An Action Sequencingbased View of Dynamic Competitive Interaction

1
An Action Sequencing-based View of Dynamic
Competitive Interaction

• WALTER J. FERRIER
• University of Kentucky

November 1999
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Competitive Outcomes
Competitive Interaction
Firm As Actions
Firm Bs Actions
Industry Characteristics
Organizational Characteristics
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Prior Studies Action-Reaction Dyads
Event Dyad 1
Event Dyad 2
Event Dyad 3
Event Dyad 4
Actor 1
Actor 2
time

• Action Char.
• Irreversibility
• Magnitude
• Radicality

• Reaction Char.
• Likelihood
• Type
• Speed

4
Prior Studies Action Repertoires
Actor 1
Year-End Measures
Actor 2
time

• Firm Performance
• Profitability
• Sales growth
• Market share

• Repertoire Char.
• Total actions
• Simplicity
• Avg. Timing

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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
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Sequences in Strategy Research?

• 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

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Action Sequences
Event Sequence 1
Event Sequence 2
time

• Sequence Structure
• Predictability
• Complexity
• Timing
• Duration

• Firm Performance
• Profitability
• Sales growth
• Market share

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Competing Forces for Strategic Change and
Adaptation
Enabling Forces
Timing
Constraining Forces
Action Type(s)
Predictability
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Factors Influencing Sequence Structure
TMT Heterogeneity Slack
Complexity Unpredictability Differentiation
Response Timing Duration
Awareness Motivation Ability
Rivals Actions Industry Growth Barriers
to Entry
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Sequence Structure and Performance
Sequence Structure Complexity Unpredictability
Differentiation Fast Response Timing Long
Duration
Firm Performance Sales Growth Profitability
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Sample and Data

• Matched pairs
• Single-/Dominant-business firms (S.R. gt .70)
• U.S. market share leaders and challenger (No.2)
• 1987-1993 Cross-sectional time series panel
• Actions
• News reports in FS Predicasts, 1987-93
• Structured content analysis
• Reliable set of key words

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Action Sequence

• Ordered sample of action events

Time

• Competitive actions
• Externally-directed, specific, observable moves
• Smith, Grimm, Gannon Chen, 1991
• Miller Chen, 1996
• Hambrick, Cho Chen, 1996
• Young, Smith Grimm, 1996
• Ferrier, Smith Grimm, 1999

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Definitions of Action Types
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Sequence Structure
Time
MKT
MKT
PRICE
SIG
MKT
PROD
PRICE

• Elemental Complexity
• Herfindahl Index of within-sequence action
  diversity
• Low Scores Complex sequence
• High Scores Simple sequence

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Inter-sequence Dissimilarity
Time
Sequence 1
MKT
MKT
PRICE
MKT
PROD
PRICE
MKT
MKT
MKT
PRICE
SIG
PROD
PRICE
Sequence 2

• Unpredictability (focal firm)
• Differentiated (vis-à-vis rival firm)
• Optimal Matching Index of resemblance of two
  sequences, INDEL costs
• High scores Sequences are different
• Low scores Sequences are similar

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Sequence Chronology
Time
Focal Firm
MKT
MKT
PRICE
MKT
PRICE
(a)
(a)
(b)
Rival Firm
SVC
PROD

• Average Sequence Duration (a)
• Greater No. days Firm sustains attack
• Average Sequence Response Lag (b)
• Smaller No. days Firm fast to respond/attack

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TMT Heterogeneity Variables

• Educational Background
• Blaus index of heterogeneity for degree types
  (BBA, BSME, JD, etc.)
• Industry Tenure
• Coefficient of variation of TMT members years
  spent in the focal industry

Data Source DB Reference Book of Corporate
Management, 1987-93
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Industry Variables

• Industry Growth
• Simple growth rate yeart ? yeart1
• Industry Concentration
• Herfindahl index
• Barriers to Entry
• Sum of industry means for RD, SGA, and total
  assets

Data Source COMPUSTAT Industry Segment Files,
1987-93
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Influence of Firm and Industry Characteristics on
Sequence Structure
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Rivalry and Sequence Structure
Unpredictable Faster Timing
Differentiated
Similar
Extent of Rivalrous Differentiation
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TMT Heterogeneity and Sequence Structure
Industry Heterogeneity
Unpredictable Complexity
Educational Heterogeneity
Heterogeneous
Homogeneous
Extent of TMT Heterogeneity
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Industry Context and Sequence Structure
Unpredictable
Low Growth Low Barriers
High Growth High Barriers
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Influence of Sequence Structure on Performance
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Strategic Repertoire Complexity and Performance
Performance
Simple
Complex
Extent of Elemental Complexity
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Strategic Unpredictability and Performance
Performance
Routine
Erratic
Extent of Sequence Predictability
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Strategic Pattern Differentiation and Performance
Performance
Similar
Different
Extent of Sequence Differentiation
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Duration of Strategic Attack and Performance
Performance
Sustained
Short
Extent of Subsequence Duration
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ConclusionsSequence Matters
Focal Firm
Rival Firm

• Sequence Structure
• Predictability
• Complexity
• Timing
• Duration

• Firm Performance
• Profitability
• Sales growth
• Market share

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ImplicationsSynthesized Perspectives
Competitive Dynamics
Action Sequences
Learning Change
Upper Echelons
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Sequence Applications...
COMPUTER PROGRAM
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max output matrix end run
DNA
BOXING
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LANGUAGE
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MUSIC