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How do rivals compete: strategy, technology and tactics

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This paper reports the results of an exploratory analysis of the actions taken by rivalious firms to create competitive advantage in 13 US product market segments. Twenty-four actions taken by competitors to achieve competitive advantage were identified. These were examined in greater detail through use of a survey that identified the common and unique actions used by the rivals. The findings indicate that a focused approach to the market together with increased use of product and process technology throughout market growth and concentration phases of industry maturity are important elements of successful competition.
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249
How do rivals compete: strategy, technology
and tactics T
Philip H. Birnbaum-More *,a, Andrew R. Weiss b and Russell W. Wright a
a Department of Management and Organization, Graduate School of Business Administration, University of Southern California,
Los Angeles, CA 90274-1421, USA
h Department of Economics and Business, Monmouth College, Monmouth, IL 61462, USA
Final version received February 1993
This paper reports the results of an exploratory analysis of
the actions taken by rivalious firms to create competitive
advantage in 13 US product market segments. Twenty-four
actions taken by competitors to achieve competitive advantage
were identified. These were examined in greater detail through
use of a survey that identified the common and unique actions
used by the rivals. The findings indicate that a focused ap-
proach to the market together with increased use of product
and process technology throughout market growth and con-
centration phases of industry maturity are important elements
of successful competition.
Introduction
A firm’s strategy can be defined in terms of its
actions to achieve and sustain competitive advan-
tage. Competitive advantage is created by the
firm’s actions that create unique and sustainable
product or service attributes that are valued by
customers. Understanding competitive advantage
has become a major area of interest for re-
searchers in strategic management as well as in-
dustrial organizational economics [.5,20,23]. Sour-
ces of competitive advantage include resources
*
+ Corresponding author.
This research was supported by the U.S. National Science
Foundation (ISI-8411299). The views expressed are the
authors’ and do not necessarily reflect those of the National
Science Foundation. We wish to express our appreciation
to the anonymous reviewers for helping to strengthen the
presentation. In addition, we want to thank Jesus Ponce de
Leon and Carolyn Erdener for their help in conducting
some of the interviews reported. We are responsible for any
errors or omissions.
Research Policy 23 (1994) 249-265
North-Holland
and actions that result in customer valued differ-
ences in products and services.
This article reports on the actions that lead to
competitive advantage. We empirically derive
specific types of strategic actions associated with
different levels of competition between products
and services. We identify those types of strategic
actions common to all firms competing within the
specific market segment. Then we identify those
strategic actions that are unique to the outlying
successful firms. Finally, we develop propositions
for further research. These findings and proposi-
tions are from a study of competition in US
industrial product markets between 1974 and
1984.
Background and conceptual framework
One approach for understanding competitive
advantage derives from economics and is becom-
ing known as the resource based view. From a
resource based view, a firm is an integrated col-
lection of resources and capabilities required for
competition [2,10,18,19,28,34,36]. In this view, it
is the hard-to-copy attributes of the firm’s re-
sources that create competitive advantage [1,6,24].
However, despite the importance of specific re-
sources to a firm’s potential for developing a
competitive advantage, they represent an inani-
mate potential for action and not a realized com-
petitive advantage. Action is what transforms re-
sources into realized competitive advantage. What
we mean by action is observable behavior, in-
tended or unintended [16], that creates attributes
of value to customers.
0048-7333/94/$07.00 0 1994 - Elsevier Science B.V. All rights reserved
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250 P.H. Birnbaum-More et al. / How do rivals compete
Observable behavior is, however, still based on
available resources. These resources need not be
owned by the firm, but can be borrowed in whole
or in part. For example, some pharmaceutical
firms design/ synthesize and manufacture their
own drugs but subcontract the distribution func-
tion. Some semiconductor firms design and dis-
tribute their chips but subcontract the fabrication
to outside suppliers. Some firms in the plain
paper copier industry use their name and reputa-
tion to distribute products manufactured by their
competitors. For example, Pitney Bowes and
Savin relabel and distribute copiers manufactured
by Ricoh who compete with them in copiers.
Whether owned or borrowed, resources only rep-
resent a potential for creating a competitive ad-
vantage. Actions by firms to employ these re-
sources lead to attributes of products or services
that are valued by customers.
sured, frozen, plastic bags directly to hospital
wards, thereby saving hospital handling costs.
Basis of competition
Competitive advantage
Firms or groups of firms do not compete; their
products or services compete within specific mar-
kets. When the products or services are compet-
ing for the same customer, competitive advantage
refers to the unique attributes of the product or
service that are valued by the customers. That is,
a competitive advantage is a significant difference
in a competing product or service that meets a
customer’s key buying criteria [7]. The sustain-
ability of a firm’s competitive advantage is a
function of the competitors’ difficulty in imitating
or innovating around the incumbent’s unique
product or service attributes.
Schumpeter [27] was one of the earliest schol-
ars to describe competition as a dynamic process
in which a strategic innovation establishes a com-
petitive advantage which is eroded by imitation or
displaced by another competitive innovation. In
other words, firms seek to erode competitors’
advantages by actions to imitate their product or
service attributes or by generating strategic inno-
vation that meets the customers’ needs. When the
attributes of value and positioning are replicated
by competitors, they lose their ability to differen-
tiate and cease being sources of competitive ad-
vantage. These attributes, however, often become
a basis for further competition. We refer to those
attributes which all competitive products or ser-
vices must possess to compete in a specific mar-
ket as the ‘basis of competition.’ For example,
ethical pharmaceutical firms offering drugs for
sale in the US market must all possess attributes
of safety and efficacy that meet U.S. Food and
Drug Administration (FDA) requirements before
being introduced. Therefore, all companies who
successfully introduce a drug in the US must be
able to take the actions necessary in using their
resources to produce the drug, test it, and pre-
sent its safety and efficacy results for review by
the FDA.
A competitive advantage is both a supply and
demand concept since the unique attributes are
provided by the supplying firm and valued by the
demanding customer. In addition, attribute
uniqueness that customer’s value can occur be-
cause of the intrinsic or the extrinsic characteris-
tics of the product or service. Increased efficacy
and reduced side-effects are intrinsically valued
attributes of patented pharmaceuticals. Commod-
ity products from different suppliers, such as
saline solutions, may all have the same intrinsic
properties but may be differentiated extrinsically
by the producing organization so they meet hos-
pital buying criteria of cost savings. For example,
Baxter Travenol successfully differentiates saline,
a commodity product, by delivering it in premea-
This base of common attributes among com-
peting products and services broaden over time
as resources and skills in creating these attributes
diffuse through the competitors. Three factors
help the diffusion of resources and skills. First,
expertise that uniquely meets customers’ pur-
chase criteria confers a relative advantage to its
possessor and therefore encourages rapid diffu-
sion [22]. Second, imitation of the resources and
skills that drive competitive advantage is difficult
to prevent. Even the imitation of resources and
expertise afforded the legal protection of intellec-
tual property rights has been difficult to prevent
[31]. The arguments [ll,lS] and findings [12,13,
It remains to be seen whether the traditional enforcement
difficulty in semiconductors will persist after recent settle-
ments such as those received by Texas Instruments from
eight Japanese and Korean firms for DRAM patent in-
fringement, the IBM/Fujitsu settlement, and the Intel/
NEC settlements.
P.H. Birnbaum-More et al. / How do rivals compete 251
14,15,25] show that detailed info~ation on new
products and processes is available to competitors
very rapidly, sometimes within 12 months of in-
troduction. Third, whenever the implementation
of a strategy involves resource acquisition, a
strategic factor market develops [l]. For example,
firms seeking to imitate a competitor’s technolog-
ical innovation might seek the required research
and development skills in the labor market for
research scientists. This diffusion of first mover
resources and expertise means that the common
attributes of competing products increases over
time.
As we noted previously, the sustainability of a
first mover advantage depends on the follower’s
difficulty in imitating or innovating around the
first mover’s unique product or service attributes.
In the early stages of a market, the customer’s
knowledge of the new product is usually limited
and customer expectations are not well estab-
lished. During this early stage of rapid growth,
first movers are most vulnerable to attack from
innovating rivals. However, as the market ma-
tures, customer expectations evolve and the base
of common attributes required to meet those
customer expectations broadens. First movers who
continue to pursue attribute uniqueness while
also providing the basis of competition should be
able to minimize their vulnerability. However,
Table 1
Product market segments a
those first movers who do not continue to pursue
uniqueness could be vulnerable to attack. Second
moving firms should be successful in attacking a
first mover during this period if they change or
exceed the customer’s expectation. This assumes
that in the early stages, the first mover is setting
the customer expectations.
So far, research has focused primarily on re-
sources [61 and not on the actions necessary to
translate resources into competitive advantage
through creating customer valued attributes to
products and services. One difficulty has been
identifying the set of actions taken to create
competitive advantage. Because of the dearth of
research on actions, this study uses an ex-
ploratory framework to classify the actions taken
by competitors to identify any patterns in their
use.
Method
Stages of data collection
The data were collected in five stages and
from multiple sources. First, public information
was collected on each of 13 market sectors from
1964 to 1984. Based on this information, histories
covering the 20-year period were written in order
Industrial
sector Compound
annual
growth
rate
(CAGR)
1974-1984
(o/o)
4-Firm
concen-
tration
Level
(%I
Manufacturing
type
No.
firms No.
inform.
&Bit microprocessor 94.60 41 Lg batch 20 3
PROMS 37.14 62 Lg batch 12 3
Plain copiers
paper 82.37 60 Lg batch 17 3
Fire retardant chemical 49.81 98 Lg batch 5 3
Class-8 diesel truck engines 9.21 9s Lg batch 4 10
Crawler tractor diesel engines 4.35 90 Lg batch 9 3
Machining centers 0.29 46 Lg batch 22 4
Gate arrays 149.03 23 Sm batch 8 3
Spot-welding robots 53.04 29 Sm batch 9 5
Material handling-machine loading robots 56.44 34 Sm batch 13 5
Water treatment chemicals 11.91 55 Sm batch 8 2
Antihypertensive drugs 4.87 76 Sm batch 11 3
B&M spectrum antibiotic drugs 34.29 49 Sm batch 20 2
a Only 49 out of the 72 separate interviews (95 individuals) were analyzed because they dealt with specific industrial sectors. The 22
unanalyzed interviews were not sector specific.
252 P.H. Birnbaum-More et al. / How do rivals compete
to better understand each market segment. Sec-
ond, we conducted semi-structured open-ended
interviews lasting from one to three hours with
market experts using an ethnographic approach
[33]. Third, we constructed a cross-sectional sur-
vey questionnaire based on the histories and in-
terviews to assess the competitive actions of each
firm in the three surveyed segments. Forth, we
used a three-step judgmental sampling plan to
select the market segments and participants for
the study. Finally, we administered the question-
naire and collected archival data on market
shares, resource allocations, executive back-
grounds, patent applications, and publications for
each firm between 1974 and 1984.
Interviews
We conducted 72 separate interviews in the
United States, Great Britain, The Netherlands,
the Federal Republic of Germany, and Belgium.
The interviews sought to identify the specific
actions that competing firms were taking in 1984.
The interview approach we used focused on the
activity under study as if it were a play and asked
who the actors were, when they moved on and off
stage, what their script was, and so on. (See
Appendix A for the interview protocol.) This
provided us with detailed qualitative descriptions
of the most common actions taken by firms in the
various market segments.
The interview informants were experts in that
market segment based on their reputations, work
experience, and training. We identified these ex-
perts by contacting the trade associations repre-
senting each industry, leading consulting firms,
academics, trade publications, and the Institu-
tional Investor’s ‘All American Team’ of leading
security analysts. Table 1 shows the industry sec-
tors and their characteristics together with the
number of informants and their affiliation. We
recorded 49 out of the 72 interviews (68%).
Transcribed computer readable answers to the
interview questions were content analyzed using
Logic-Line 2 [29], to identify a dictionary of syn-
onyms. Logic-Line 2 is an artificial intelligence
expert system which enables a synonym dictionary
to be built up by using a key word and identifying
words which are statistically related to it. This set
of 24 words, synonyms, and phrases identified
through Logic-Line 2 was then analyzed for word
and phrase frequency within each separate inter-
view using Textpack V [17], a quantitative content
analysis program [32, p. 71. The overall procedure
has been described in detail elsewhere [4].
Cross-sectional survey questionnaire
Based on the results of the content analysis of
the interviews, we identified 24 general action
areas (Appendix B). The 24 general action areas
were used to create 24 multiple-item scales. Each
of the 24 multiple-item scales consisted of 111
specific, representative actions. We developed
and pre-tested a cross-sectional questionnaire
containing the 111 representative actions. The
111 items were randomly ordered and reversed to
prevent response bias (Appendix C). In addition,
the questionnaire asked for a list of the ten issues
most critical for competitive success and for gen-
eral comments.
Sample selection
The first step in constructing a judgmental
sample involved selecting the market segments
for study. Based on the advice of key interview
informants, we first selected industrial market
segments that varied by rate of growth, concen-
tration level, and manufacturing technology. Fur-
ther, we limited the sample to industrial products
in order to observe more clearly the effects of
product and process technology without excessive
advertising. We only selected industrial market
segments in which competition was confined
within a single industry, expert opinion was acces-
sible, and archival data were available at the
product level. In addition, we only selected indus-
trial market segments that had existed through-
out the 1974-1984 period.
In the second step of the judgmental sampling
plan we selected firms with at least 1% of the
world market share in 1984. This criterion helped
insure meaningful ratings of the firms’ market
segment activities in 1984. The third and final
step of the sample selection involved selecting
three of the market segments suitable for a
cross-sectional questionnaire survey and adminis-
tering the questionnaire. The three market seg-
ments selected varied by technology, concentra-
tion levels, and growth rates and represented the
range of market segments on which the inter-
views were based.
P.H. Birnbaum-More et al. / How do rivals compete 253
g-bit microprocessor market segment
Semiconductors are classified into two major
groups: semiconductors and integrated circuits
(ICs). Microprocessors (MPUs) are ICs and are
grouped by word length into 8-bit, 16-bit, and
32-bit MPUs. The S-bit MPU represented the
largest sector of MPUs in 1984. These S-bit MPUs
accounted for 88% unit market share by word
length and more than 51% of the market rev-
enues in 1984 [8]. The g-bit MPU sector was high
growth with a compound annual growth rate
(CAGR) of 94.6% from 1974-1984. It was also an
oligopolistic sector producing its product through
large batch manufacturing.
Water treatment chemicals market segment
The water treatment sector supplies specialty
chemicals for sealed boiler and cooling water
systems to prevent rust and scale build-ups that
decrease system performance. This sector experi-
enced steady growth from $345 to $926 million in
sales between 1975 and 1984 except a decline in
1982. The overall water treatment chemical
CAGR was 11.91% between 1974 and 1984. The
four largest firms controlled 55% of the total
market. Therefore, this sector was more concen-
trated than the 8-bit MPUs, but less concentrated
than the diesel engine sector.
Class-8 diesel truck engine market segment
Class-8 trucks, the largest of the on-highway
trucks are almost all diesel powered. Weighing
over 33000 pounds, these trucks require engines
with at least 250 hp. Although only a small part
of the entire truck, the engine is one of the most
important components. Truck owners and manu-
facturers often specify the type of engine they
want in their vehicle. For example, in 1983
Freightliner bought 76% of its engines from
Cummins, 18% from Caterpillar (Cat), and 6%
from Detroit Diesel Allison (DDA). This segment
of the diesel engine industry is highly concen-
trated with the four largest firms (Cummins, Cat,
DDA, and Mack) accounting for 95% of the
market share.
During the interview stage of data collection,
the interview informants helped us to identify
experts in the various market segments who would
be the most appropriate choices for participation
in the study. In every case, the interview infor-
mants and the expert raters (questionnaire re-
sponders) were different people. Expert raters
identified by the interview informants in the in-
terview stage were surveyed in the S-bit MPU,
water treatment chemicals, and class-8 truck
diesel engine sectors. Each rater was promised
anonymity and was asked to rate up to five firms
in a sector as of 1984.
For each of the firms in the sample we also
collected archival data on market shares, re-
source allocations, executive backgrounds, patent
applications, and publications between 1974 and
1984. This information was compiled from sources
such as financial reports, industry journals, Dia-
log database, confidential reports, Standard and
Poors annual reports, and so on.
Truck sales are cyclical, following the GNP In addition, the questionnaire asked for a list
with a six to twelve month lag. From 1964-1974 of the ten issues most critical for competitive
the diesel engine sector experienced slow steady success and for general comments. 2 Rater re-
growth as diesel increased its penetration into
heavy trucks from 56% to 87%. This growth in
product demand was accompanied by increased
power, ease of use and installation as the engine
manufacturers responded to customer require-
ments. However, the 1973 oil embargo together
with increased environmental concerns caused a
severe slowdown in the sector in 1974 that lasted
through 1976. The competitors responded with
engines with increased fuel efficiency, lighter
weight, and less air and noise pollution. As slow
growth returned to the sector, the competitors
expanded into international markets. However, in
1980 the recession, soaring interest rates, and
slowing of construction caused major cutbacks in
truck and engine demand. The demand for trucks
dropped by 40%, the largest single year drop in
20 years. The result was plant closing and lay off
of many workers. This downturn was followed in
1983 by a resurgence in demand of more than
40% of the 1982 total. Workers were recalled and
competitors continued to pursue international di-
versification as well as improved fuel economy.
Questionnaire administration and archival data
collection
254 P.H. Birnbaum-More et al. / How do rivals compete
sponses were averaged after insuring within group
homogeneity of variance [21] and 16 multiple-item
scales applicable across the sectors were con-
structed. We analyzed the agreed upon competi-
tive actions to identify the bases of competition
and competitive advantages and which of these
were related to market share performance. Ap-
pendix C lists the 16 scales and their reliabilities.
Results
Basis of competition and competitive advantage in
three sectors
Table 2 shows the questionnaire response rates.
Table 3 presents the common actions or basis
of competition for each market segment derived
from the questionnaire data.
Three points are particularly worth noting in
Table 3. First, note that the most rapidly growing
market segment (&bit MPUs) has the fewest
number of common actions. In contrast, the mar-
ket segments experiencing the lowest sales growth
rates (e.g. diesel engines and water treatment
market segments), have the greatest number of
common actions forming their bases of competi-
tion. Finally, the market segment with the slowest
sales growth rate and highest concentration (e.g.
diesel engines), has the greatest number of com-
mon actions or the largest basis of competition.
Figure 1 presents the changes in market share
for selected firms from the three sectors. In each
case we selected the firm that had achieved the
strongest market share performance as well as
the firm with the weakest market share perfor-
mance. The 8bit MPU sector chart shows market
shares for Nippon Electric Corp. (NEC), Intel,
and Texas Instruments (TI) over the period. Intel
remained the market share leader from the start
of f&bit MPU availability in 1975 until 1983, al-
though they lost share each year. In 1983, NEC
became the leader in this sector after gradually
increasing their share in almost every year. TI, on
the other hand remained a negligible competitor
in this sector apart from their initial surge in
1976.
* The ten critical issues were inconsistent across segments
and, therefore, were not used.
Table 2
Three product market segment response rates
Questionnaires Total usable Response
out in usable response rate a
rate (%I
(%o)
&bit micro-
processors 95 69 45 72.6 47.4
Class-8 truck
diesel engines 44 25 21 56.8 47.7
Water treatment
chemicals 69 44 44 63.8 63.8
Overall 208 138 110 66 53
a Only response rates for the data reported are included
here.
Figure 1 also shows the market shares of Betz,
Nalco, Drew, and Chemlink in the water treat-
ment chemical sector. Nalco and Betz were the
1984 market share leaders, retaining less than
20% of the market throughout the period, while
Drew steadily lost share until 1981 when it stabi-
lized near 4%. Chemlink, on the other hand
steadily increased its share, but only slightly more
than 1% of the market by 1984. Finally, Fig. 1
presents the market share changes for selected
manufacturers in the class-8 truck diesel engine
sector. Cummins’ share fluctuated over the pe-
riod, but gained more often than it lost. Cat
gained share throughout the period, while DDA
usually lost share (except 1977-1979). Cummins
remained the market share leader throughout
with over 60% of the market in 1984 while Cat
grew the fastest in market share.
Sector bases of competition
The questionnaire provided us with a list of
the ten issues most critical for competitive suc-
cess as perceived by each of the expert raters.
These rater responses were averaged after insur-
ing within group homogeneity of variance [21].
Using these rater response averages, the 16 most
critical multiple-item scales applicable across the
sectors were identified. We analyzed the agreed
upon competitive actions to identify the common
and unique actions. We also examined which of
these actions were related to market share per-
formance. Appendix D lists the 16 scales and
their reliabilities.
P.H. Birnbaum-More et al,
,/ How do rivals compete
In order to evaluate the relative size of the
competitive actions taken by each competitor, we
computed the overall market segment mean of
each scale and then took the standard deviation
between the sector mean and each competitor’s
score for each scale. Then we arrayed the scales
from left to right based on the largest difference
between the market segment mean and the 1984
market share leader’s score. We placed the scale
with the largest negative difference at the left end
and the scale with the largest positive difference
at the right end.
Figure 2 shows the competitive actions for-all
three sectors. The g-bit MPU results show that
NEC exceeded the sector average in 12 areas and
exceeded both Intel and TI in ten out of the 16
competitive actions. Specifically, NEC exceeded
Intel and TI in focused distribution, finance, la-
Table 3
Actions that create the basis of competition
Competitive actions b-Bit
MPU “20
chemicals Diesel
engines
255
Shared manufacturing costs
Used common inputs across products
Trained a skilled labor force
Acquired financial capita1 on good terms
Setviced products it sold
Developed career sales personnel
Recruited R/D/E managers from industry
Insured others paid for distribution costs
Made deliveries when requested
Reduced production worker turnover
Selected suppliers that provided flexible delivery
Reduced salesmen turnover
Recruited line managers from industry
Recruited from stable salesmen labor market
Made fast deliveries
Minimized direct labor costs
Created good reputation for products
Trained expert service personnel
Trained expert salesforce
Priced to include service
Controlled inventory costs
Recruited salesmanagers from industry
Company used flexible manufacturing
Products designed to minimize labor
Developed career R/D/E managers
Worked to extend reputation to each product
Developed career salesmanagers
Financed operations internally
Maintained minimum safety stocks
Maintained good outside links for new products
Responded to service calls quickly
Developed career R/D/E personnel
Avoided stockouts
Enforced strict quality control limits
Purchased centrally
Offered systems-level applications
Proprietary product technologies
Maintained confidence of customers in firm’s longevity
Trained customers
Solved customer’s problems fast
On good terms with work force
Sales managers had industry experience
Totals
x
X X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X X
X
X X
X X
X
X
X
X
X
X
X
X
X
X X
X
X
4 24
X
X
X
X
X
X
X
X
X
X
X
27
256 P.H. Bimbaum-More et al. / How do rivals compete
bor skill, service, product focus, labor cost, manu-
facturing, distribution cost, product quality, and
product cost. Product price was important, but
NEC and TI both had lower prices than the
sector average and Intel showing that, by itself,
low product price was not enough for competitive
success.
Figure 2 also shows that in the water treat-
ment chemical sector, Betz exceeded the sector
average in only four areas: labor cost, delivery,
product focus, and distribution cost and exceeded
Nalco in 11 of the 16 actions. These 11 actions
help account for Betz’s taking the lead in water
treatment chemicals in 1982 (cf. Fig. 1). Nalco
only exceeded the market segment average in
delivery and labor cost. Chemlink, the fastest
growing firm exceeded Betz, Nalco, and the mar-
ket segment mean in 13 of the 16 action areas
and exceeded Drew in nine out of the 16 action
areas. Drew, which has steadily lost share
throughout the 1974-1984 period exceeds the
sector average, Betz, Nalco, and Chemlink in only
six of the 16 areas including input cost control,
manufacturing cost control, service, price, labor
skill, and product focus. These results imply that
product and process technology are less impor-
tant competitive advantages than labor cost con-
trol and delivery.
Finally, Fig. 2 shows the same comparison for
class-8 diesel truck engines. Again we include the
fastest growing and least significant competitor
for comparison with the market leader. In this
Fig. 1. Sector market shares of select firms.
P.H. Bimbaum-More et al. / How do rivals compete 257
mature, highly concentrated sector, the market ten actions and exceeded Cummins and DDA in
share leader exceeded the sector mean in eight eight out of the 16 actions. These data and the
out of the 16 areas and both Cat and DDA in reports of our informants show that Cummins’
only three out of the 16 areas tying at least one of success in maintaining share was related not only
them in another three areas. Specifically, Cum- to product technology, delivery, and labor skill
mins exceeded the sector mean, Cat, and DDA but also to the customer group that it targeted to
in: product innovation, delivery, and labor skill focus these advantages on. Cummins focused its
while tying DDA in product quality and Cat in advantages on the largest market segment, the
product network. The fastest growing firm, Cat large fleet end-user. Recently, they have begun to
on the other hand, exceeded the sector mean in direct their efforts toward the OEM assembler
Standard Devlatlons 0.6
from the H**n 0.6
-0.6
-0.6 DLPPPDMLPPSL
: E P p : F
,COCFAFRESN D
DNSAOQSO IRKENI
Standard Dwlatlone Ii20 Treatment
from the M*an Chemicals
0.6
-1.6 IFMLPSFPPPLPDPDL
NIFPIEDNCRSQCFEA
-0.6 id, , , , , , , , , , , , , , ,I
PSDPPFLYLPL 1”::: yECCFDPFSNANE
ROSOIDOKEBPLNAN
Fig. 2. Actions of select firms by sector. DCO, distribution cost control; DEL, delivery; FDI, Foducse distribution; FIN, finance;
INP, input cost control; LAB, labor cost control; LPD, labor productivity; LSK, labor skill; MFG, manufacture cost control; PCS,
product cost control; PFO product focus; PIN, product innovation; PNE, product network; PQA, product quality; PRI, product
price; SER, service.
258 P.H. Birnbaum-More et al. / How do rivals compete
with a matched component approach through
joint planning and production that minimizes the
OEM assembler’s costs of engineering redesign.
DDA’s poor performance was attributable to its
below average performance on 11 out of the 16
actions.
Examining the three sectors in Fig. 2 together,
we find that the attacking firms, NEC, Chemlink,
and Cat exceed the competitive action mean more
often than the defending firms of Intel, Betz, and
Cummins. Further, the attackers also exceed the
action means by a larger amount than the de-
fenders. Finally, the attacking firms all exceeded
the action means in product focus, manufacturing
cost control, product cost control, lower price,
financial support, and service while defenders did
not in these same actions (except for water treat-
ment in product focus and diesel engines in fi-
nancial support). In addition, the attacking firm
only succeeded in overtaking the market leader
during a period of high growth and low industry
concentration. This finding is consistent with pre-
vious work [351 in the consumer cigarette market.
In order to explore more fully the use of
product and process technology we examined
60%
r 50%
f
A
I 40%
c
0
Ill
P
F 30%
I
t
I
e 20%
A
c
t
I
0
n 10%
S
0 %
their use on the basis of competition and as
unique competitive actions. Figure 3 shows the
results of this comparison by arraying the sectors
from left to right in order of increasing concen-
tration and decreasing compound annual growth
rate (CAGR). This comparison shows that the
percent of competitive actions based on process
and product technology increases with increased
concentration (r = +0.91) and decreased CAGR
(r = -0.95). Further, the process technology ba-
sis of competition also increases with increasing
concentration (r = + 0.96) and decreases with
CAGR (r = - 0.88). The process technology com-
petitive actions also increase with concentration
(r = +0.98) and decreases with CAGR (r =
- 0.84).
However, even though overall technological
actions and process technology increase with in-
creased concentration and reduced CAGR, the
product technology basis of competition remains
a small portion of the total actions across changes
in concentration and CAGR appears to be an
‘inverted U’ shape. The unique product technol-
ogy competitive actions are more, but appear to
be ‘U’ shaped in relation to increasing concentra-
Class-8 Diesel
r-
Process Comp. Advant
/ Process Base of Comp
m Product Comp. Advant
m Product Base of Comp I Engines
H20 Treatment
Chemicals I I
. Increasing CAGR l
l Increasing Concentration l
Fig. 3. The basis of competition and competitive advantage in process and product technology.
P.H. Birnbaum-More et ul. / How do riuals compete 2.59
tion and decreasing CAGR. This comparison
supports the findings by Utterback and Aber-
nathy [30] that major process innovation increases
with industry maturity (e.g. concentration), but
contradicts their findings that major product in-
novation decreases with maturity. Product tech-
nology was not found decreasing with industry
maturity, but changes as a non-linear function.
Discussion and conclusions
Through quantitative content analysis of tran-
scribed interviews 24 competitive actions were
found to be in use across 13 industrial sectors.
Based on these 24 actions, we constructed a sur-
vey questionnaire and obtained responses in three
representative sectors.
The results showed that actions leading to the
basis of competition and competitive advantage
varied by industry structure and manufacturing
process and that this variation was systematic and
not random. These data support the argument
that actions leading to the basis of competition
should be a function of the market sector’s sales
growth rate and the number of competitors. In
rapidly growing market sectors, common actions
should be fewer than in slower growing sectors
because of the difficulty competitors face at-
tempting to identify and then imitate the actions
leading some to superior performance [9]. Fur-
ther, competitive uncertainty is low [3] because
competitors are numerous and unable to affect
each other’s prices and therefore competitors are
less likely to seek new competitive actions so long
as their sales are growing with the market. Rapid
sales growth implies that new customers are be-
ing attracted to the product or service with the
general expectation that this innovation will bet-
ter satisfy their needs. In this early stage of
market growth, customer uncertainty over having
their needs met helps account for the advantage
gained by first movers able to reduce the uncer-
tainty and gain the trust of these new customers
WI.
actions increases and with it, the basis of compe-
tition level. Further, with maturity comes increas-
ing consolidation of competitors which moves the
market structure from more purely competitive to
more oligopolistic. The reduced number of com-
petitors affects each other’s competitive behavior
more, increasing uncertainty over which competi-
tive moves to make and the incentive to adopt the
successful actions of others. Combined with in-
creased competitive uncertainty and visibility of
the competitor’s move is an increased standard-
ization of customer needs around a de facto
performance standard. The combination of struc-
tural consolidation and customer need standard-
ization leads competitors to identify more easily
their competition and the successful actions each
is taking. This, combined with the increased need
to reduce uncertainty, results in a strong incen-
tive to adopt the successful practices of others.
This argument leads to our first two proposition:
Pi: Lower market concentration and faster com-
pound annual growth will be positively associated
with greater numbers of unique competitive ac-
tions.
P,: Greater market concentration and slower
compound annual growth will be positively asso-
ciated with a larger common set of competitive
actions.
Not only is change in competitive action non-
random, but the adoption of specific actions is
non-random as well. These preliminary data show
that attacking firms exceeded the sector average
for both the number and size of actions they took
in comparison to the defending firms. Further,
these data show that across all three market
sectors the attacking firms centered their advance
on actions that both reduced price and increased
service. Attackers, for example, achieved above
average performance on product focus, service,
and financial assistance to customers and lower
cost manufacturing, product cost, and average
sales price. These findings suggest the following
propositions:
However, as the sales growth rate slows and
the sector matures, the actions change. With
slower growth and sector maturity, competitive
uncertainty increases [3] and with it the incentive
to adopt the successful practices of others. So,
the rate of diffusion of the common competitive
P,: Attacking firms that increase their market
share will exceed the market average for the
number of actions taken.
P4: Attacking firms that increase their market
share will exceed the market average for the size
of actions taken.
260 P.H. Birnbaum-More et a How do rivals compete
PS: Attacking firms that increase their market
share will compete by above average service and
lower than average price.
P6: Defending firms than have smaller loss of
market share will minimize the difference be-
tween the number and size of their actions and
those of the attacking firms.
The preliminary data shows that even in tech-
nology intensive industries such as semiconduc-
tors, competitive advantages based on either
product or process technology are less than 20%
of the total competitive actions used. As the
sector concentration increases and sales growth
declines, technology becomes a larger proportion
of total competitive actions with the common
actions increasing in process technology but not
in product technology. This implies that process
technology which provides competitors with a
temporary advantage will be rapidly copied by
watchful competitors to the extent that it is visi-
ble and unambiguous [22]. This implies our sev-
enth and eighth propositions:
P,: Unambiguous process technology that is ob-
served to confer competitive advantage will be
rapidly copied by competitors.
Pa: A competitive strategy based on process tech-
nology by itself will not be associated with market
share growth.
These propositions deserve further study since
they directly contradict the prevailing arguments
concerning benefits from economies of scale and
first mover advantages. The first mover in S-bit
MPUs, Intel, was unsuccessful in maintaining a
dominant position despite initial economies of
scale and first mover advantages. In class-8 diesel
truck engines, Cummins, the market share leader
held onto its lead, but not through the use of
economies of scale. Betz and Nalco are similar
stories in water treatment chemicals. In all of the
sectors intensively studied so far, market share
leadership was achieved by focusing on a particu-
lar group of customers and providing them with a
product or service that was non-reproducible by
the competition. This requires a thorough under-
standing of the customer and their needs and the
ability to translate that understanding into coher-
ent action through internal coordination between
functional areas.
Further work is needed to identify the func-
tional forms of the relationships and how these
change over time. Further, the actions of each
competitor within each sector need to be ana-
lyzed within the context of the total firm’s strat-
egy in order to decide whether competition within
these sectors benefited from the firm’s technolog-
ical actions in another sector or whether these
sectors provided benefits for competition in an-
other sector.
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Appendix A: interview protocol
1. Define the sector.
2. Identify the companies that do business in
the sector.
3. Estimates of market shares of competitors
(a) % market now
(b) No. of competitors that account for
50%
cc> No. of competitors that account for
75%
(d) changes in shares or position of firms
with largest shares over the past ten
years (1974-1984)
4. Nature of competition
(a> how do firms compete?
(b) what are the things that a firm has to
do well to be a serious competitor?
(1) prompt list if needed
(c) what are the things that the market
leaders have done to distinguish them-
selves from the other companies?
(1) prompt list if needed
(d) What are the things that it would be
useful to be able to do, but which are
not necessary for, effective competi-
tion?
(1) prompt list if needed
Appendix C: competitive advantage scales
DC0 = Distribution Cost Control (3-item
scale Alpha = 0.40).
The company did not use distributors that
carried other companies products for the
same application.
The company had been able to shift costs of
distribution to distributors or customers.
The company did not make use of indepen-
dent distributors.
DEL = Delivery (3-item scale Alpha = 0.72).
The company’s deliveries to its customers
were reliable.
The company was good at making deliveries
when the customer requested them.
The company was able to make fast deliveries
to its customers.
Appendix B: sample questionnaire items
The strategic management of industrial technology study
Please indicate the extent to which the statements accurately describe each company’s activities as of 1984 in the specific product market indicated. If the statement is not
applicable in this product market, indicate NA. If you do not know the degree of the statement’s accuracy, indicate DK.
1 2 3
The statement The statement The statement
accurately describes the does not
describes company to accurately describe
the company some extent the company
NA
The statement is
not applicable
in the industry
DK
Do not know if
the statement
applies to
the company
Product Market
1.
2.
3.
4.
5.
6.
I.
8.
The company’s deliveries to its customers
were unreliable
The company shared its manufacturing
costs in this product
market with other divisions
The company had stable access to acceptable
inputs for its manufacturing process
The productivity of the company’s sales
force was generally high
The company had difficulty acquiring
adequate capital in this business
The company used the same or similar
inputs in different products
The company had hired and/or trained
a highly skilled labor force in its operations
in this business
The productivity of the production workers
was high in the company’s operations
in the business
123NADK 123NADK 123NADK 123NADK 123NADK
123NADK 123NADK 233NADK 123NADK 123NADK
123NADK 123NADK 123NADK 123NADK 123NADK
123NADK 123NADK 123NADK 123NADK 123NADK
123NADK 123NADK 123NADK 123NADK 123NADK
123NADK 123NADK 123NADK 123NADK 123NADK
123NADK 123NADK 123NADK 123NADK 123NADK
123NADK 123NADK 123NADK 123NADK 123NADK
9.
10.
Il.
12.
13.
14.
15.
16.
17.
18.
19.
20.
The company had to acquire capital
at unfavorable terms 123NADK
Setvice for the company’s products
was provided by third parties 123NADK
The company used distributors that
carried other companies products for
the same applications 123NADK
The company had not concentrated
on specific appli~at~ons/areas 123NADK
The sales personnel who work for the
company tend to stay with the company
for most of their careers 123NADK
The company had minimized its indirect
labor c&s in this business 123NADK
Research/development/engineering
managers were drawn from within
the industry 123NADK
The company had been able to shift
costs of distribution to distributors
or customers 123NADK
The company had been able to control
costs of the materials/components
it used as inputs 123NADK
The company provided financing for its
customers purchases of its products 123NADK
The company was good at making
deliveries when the customer requested them 123NADK
Turn over of the production workers
was low in the company’s
123NADK
123NADR
123NADK 123NADK 123NADK
X23NADK 123NADK 123NADK
123NADK 123NADK f23NADK 123NADK
123NADK 123NADK 123NADK 123NADK
123NADK
123NADK
123NADK 123NADK 123NADK
123NADK 123NADK 123NADK
$
123NADK 123NADK 123NADK
123NADK 123NADK 123NADK
123NADK 123NADK 123NADK
123NADK 123NADK 123NADK
123NADK 123NADK 123NADK
123NADK E?
3
x
$
123NADK 8
2
3.
123NADK a
2
\
t23NADK ‘s
“F
f23NADK aa
2,
k
P.H. Birnbaum-More et al. / How do rivals compete
264
3.
4.
5.
6.
7.
FDI = Focused Distribution (2-item scale Al-
pha = 0.52). 8. LSK = Labor Skill (6item scale Alpha =
0.85).
The company had different specialized distri- The company had hired and/or trained a
bution systems for different groups of cus- highly skilled labor force in its operations in
tomers. this business.
The company focused its distribution system
on a specific group of customers.
FIN = Finance (3-item scale Alpha = 0.82).
The company had difficulty acquiring ade-
quate capital in this business.
The company provided financing for its cus-
tomers’ purchases of its products.
The company had a reputation for paying its
suppliers on time.
Research/development/engineering manag-
ers were drawn from within the industry.
Line managers in the company were drawn
from within the industry.
The company had extensive training pro-
grams for its sales force.
INP = Input Cost Control (3-item scale Al-
pha = 0.82).
The company’s suppliers provided it with
flexible delivery schedules.
The inputs the company used met tight speci-
fications.
MFG = Manufacturing Cost Control (3-item
scale Alpha = 0.83).
The company’s overhead was low relative to
the other companies that compete in this
product market.
Relative to the industry, retooling took the
company less time or was less expensive.
The company was able to keep work in pro-
cess inventories small.
Purchasing and negotiations with suppliers
were handled centrally within the company.
LAB = Labor Cost Control (6-item scale Al-
pha = 0.82).
The company had minimized its indirect la-
bor costs in this business.
The turnover among the company’s salesmen
was relatively low for this business.
The company was able to minimize its direct
labor cost in its production activities in this
business.
PCS = Product Cost Control (3-item scale Al-
pha = 0.70).
The company’s products had been designed
for easy servicing/minimum maintenance
costs.
The company’s products had been designed
to minimize the cost of manufacture.
The company’s products had been designed
to minimize labor costs in producing them.
The company obtained the direct labor it
needed from stable labor markets.
Research/development/engineering man-
agers tended to stay with the company for
their entire career.
LPD = Labor Productivity (3-item scale Al-
pha = 0.88).
The productivity of the company’s salesforce
was high.
The productivity of the production workers
was high in the company’s operations in this
business.
The productivity of the company’s research/
engineering/development personnel was
generally high.
9.
10.
11
12.
PFO = Product Focus (3-item scale Alpha =
0.70).
The company designed products to meet the
specific performance standards of specific
customers.
The turn-over of production employees was
high, relative to the industry average.
The company tied its products or services to
a specific group of customers or applications.
The company targeted its products for spe-
cialized sub-markets.
PIN = Product Innovation (3-item scale Al-
pha = 0.73).
The firm did not lag behind the industry in
introducing product modifications.
The company worked with other companies
or the government on new product develop-
ment.
The company had introduced new products
more quickly than average for the industry.
i?H. Birnbaum-More et al. / How do rii:als compete 265
13.
14.
PNE = Product Network (2-item scale Alpha
= 0.37).
The company had worked with other compa-
nies or the government on new product de-
velopment.
The company was on good working relation-
ships with outside sources of product technol-
ogy.
15.
PQA = Product Quality (3-item scale Alpha
= 0.67).
The company’s products tended to have lower
than average mean time between failure.
The company’s products had better than av-
erage mean times between failure.
The company’s products had better than av-
erage mean times between replacement.
16.
ranties only on a contract basis.
The mean time to repair the company’s prod-
ucts was lower than the average in the indus-
try.
PRI = Product Price (2-item scale Alpha =
0.33).
The company’s prices were consistently lower
than its direct competitors.
The company had been able to keep the
prices of its products stable.
SER = Service (3-item scale Alpha = 0.76).
The company trained its customers to service
the products it sold them.
Routine service and maintenance was in-
cluded in the cost of the product.
The company offered service beyond war-
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