姝 Academy of Management Executive, 2004, Vol. 18, No.

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Improving firm performance by

matching strategic decision-
making processes to
competitive dynamics
David J. Ketchen, Jr., Charles C. Snow, and Vera L. Street

Executive Overview
In the effort to improve a firm’s profitability, managers continuously make decisions
about whether to launch new strategic initiatives as well as how to respond to other
firms’ moves. Managers are more likely to make effective decisions if they fully
understand the firm’s competitive environment. We examine four key questions that
managers regularly confront: How should a firm decide (1) Whether to enter a new
market? (2) How to respond to a competitive attack? (3) If and how to pursue growth in
existing markets? and (4) Whether to compete or cooperate? We suggest that firm success
is enhanced when managers base the amount of participation and comprehensiveness in
the decision process on the competitive dynamics surrounding these questions.
........................................................................................................................................................................

In 2003, Delta Airlines made several strategic de-
cisions designed to cut costs, including offering self-
service check-in kiosks, test marketing the in-flight
sale of food, and creating a low-cost subsidiary air-
line. Delta executives made these moves based, at
least in part, on the growing success enjoyed by
smaller, low-fare rivals JetBlue and AirTran in pen-
etrating the East Coast airline market. Meanwhile,
JetBlue and AirTran gradually expanded the number
of cities they serve, raising the stakes for Delta and
other large carriers. As this example suggests, to-
day’s increasing competitive pressures require man-
agers to continuously seek opportunities for new in-
itiatives, to be aware of what reactions such
initiatives will incite from rivals, and to be prepared
to defend their own interests when rivals attack their
strongholds. Such moves and countermoves are re-
ferred to as ‘competitive dynamics.’1
Knowing what your competitors are doing, and
how to respond, is clearly important to a firm’s
success.2 Indeed, most managers recognize that
competitive dynamics heavily influence the nature
or ‘content’ of a firm’s strategies and its outcomes.
But these competitive moves and countermoves do
not just spontaneously happen. Managers’ deci-
sions lead to these actions, and the particular pro-
cesses by which decisions are made may need to
29
differ based on the move in question. In this article,
we discuss four important moves: entering a mar-
ket in which the company does not currently com-
pete, responding to attacks by competitors, pursu-
ing growth in existing markets, and deciding
whether to cooperate or compete. In detailing con-
cepts and findings concerning these actions, we
explain how matching decision-process character-
istics to competitive dynamics can benefit firms.
Knowing what your competitors are
doing, and how to respond, is clearly
important to a firm’s success.
We focus on two key process characteristics. Par-
ticipation is the extent to which a variety of opin-
ions are incorporated into a decision process.3 The
least amount of participation, for example, in-
cludes only the CEO’s opinions in a strategic de-
cision. Most strategic decisions, however, are the
product of a group process that includes the views
of other key executives. Some strategic decisions
call for considerably more participation, such as
the entire top management team, mid-level man-
agers, competitive intelligence professionals,
and/or outside consultants. Our position is that the
30 Academy of Management Executive
need for participation depends on the competitive
dynamics surrounding a decision.
The second process characteristic, comprehen-
siveness, is the degree to which managers attempt
to conduct exhaustive analysis during strategic
decision-making.4 A highly comprehensive pro-
cess might involve, for example, detailed scenario
planning, competitor analysis, and internal as-
sessment. High comprehensiveness helps ensure a
thorough consideration of important issues but
may slow decision-making. Managers must weigh
this trade-off carefully. We propose that the rele-
vant competitive dynamics can help tip the scale
in favor of a more or less comprehensive process.
In making the decisions listed above, for example,
industry conditions allowed Delta managers to
carefully and thoroughly consider their options.5
Thus, firms benefit if managers understand the
implications of competitive dynamics for the stra-
tegic decision-making process.
Our overall purpose in this article is to describe
how concepts and findings from competitive dy-
namics research can assist managers in making
decisions about market entry, competitive re-
sponse, growth direction, and possible interfirm
cooperation. We hope to provide managers with
tools and insights that will help their firms to keep
pace with, if not move ahead of, their competitors.
Deciding Whether To Enter a New Market
The quest for improved firm performance often
leads managers to consider market entry opportu-
nities. Such opportunities involve either pioneer-
ing a market or entering a market that is already
occupied by other firms.
Pioneering
A famous aphorism contends that “the early bird
gets the worm.” This folklore can hold true in the
corporate context when firms profit from pioneer-
ing new products, markets, or processes. Appropri-
ate use of participation and comprehensiveness in
the decision process surrounding a potential first
move can help a firm to capitalize on potential
first-mover advantages while minimizing the asso-
ciated risks. As described below, participation
should initially be high in order to generate ideas
concerning a first move but should then decrease
to more easily facilitate the implementation of a
first move. Additionally, high comprehensiveness
is needed. Not only are the stakes usually high, but
there are many crucial factors to consider, includ-
ing whether a first move can create a sustainable
competitive advantage, planning for the prospect
November
of an eventual first-mover disadvantage, under-
standing the commitment needed for first-move
success, and accounting for competitors’ reactions
to the positioning of a product or service.
Pioneering opportunities are inherently appealing
in part because they can lead to very desirable out-
comes. For example, Apple’s creation of a user-
friendly small computer in the early 1980s helped
fuel a reputation for creativity and innovation that
persists today. Kentucky Fried Chicken (KFC) was
able to develop a strong bond with Chinese officials
by being the first Western restaurant chain to enter
China. Today, KFC is the leading Western fast-food
chain in this rapidly growing market. Genentech’s
early development of biotechnology allowed it to
overcome many of the pharmaceutical industry’s tra-
ditional entry barriers (such as financial capital and
distribution networks) and become a profitable firm.
Decisions to pioneer helped all three firms to be
successful in their respective industries.
On the other hand, a pioneer cannot be sure that
the market will accept its offering, making a first
move inherently risky. Apple’s attempt to pioneer
the personal digital assistant market, through its
Newton, was a financial disaster. The first mover
also bears the costs of developing the product and
educating customers. Others may learn from the
first mover’s successes and failures, allowing them
to cheaply copy and/or improve the product. In
creating the Palm Pilot, for example, 3 Com was
able to build on Apple’s earlier mistakes. Matsu-
shita often refines consumer electronic products,
such as compact disc players and projection tele-
visions, after Sony or another pioneer establishes
demand. In many industries, knowledge diffusion
and public-information requirements are making
such imitation increasingly easy.
A pioneer cannot be sure that the market
will accept its offering, making a first
move inherently risky.
In addition, initial success may make a first
mover complacent. For example, managers at mi-
crocomputer pioneer DEC focused so much on the
success of their engineering talent that they lost
sight of customers’ desire for a user-friendly inter-
face. Finally, first movers must be willing to com-
mit sufficient resources to support their pioneering
efforts.6 RCA and Westinghouse were the first
firms to develop active-matrix LCD display tech-
nology, but their managers did not provide the
resources needed to sustain the products spawned
by this technology. Today, they are not even play-
2004 Ketchen, Snow, and Street
ers in this growing segment that supplies screens
for notebook computers, camcorders, medical in-
struments, and many other products.
As these examples illustrate, first moves are of-
ten the highest risk and highest potential options
that managers consider. This duality presents a
dilemma for managing the decision process. De-
vising a first move is typically a very creative
effort. Tapping a variety of opinions through a
highly participative process can provide a greater
array of ideas and thereby enhance creativity.
However, gaining consensus throughout a large
group around risky projects is difficult. As a result,
highly participative processes generally select in-
cremental, low-risk innovations rather than bold
initiatives.7 A possible solution is to maximize par-
ticipation early in a process when ideas are gen-
erated but then entrust further development of
each promising idea primarily to an individual or
small group of people. Selecting those people via a
participative process can help ensure that no one
feels left out as examination of a potential first
move progresses. We also recommend a compre-
hensive decision process, given the high risk/high
reward nature of first moves. These recommenda-
tions and others developed in this article are sum-
marized in Table 1.
The dilemma surrounding potential first moves
is particularly challenging when a move is a dis-
ruptive innovation–a pioneering move that con-
flicts with traditional approaches to competing
within an industry. Examples include Wal-Mart’s
early focus on small towns that other retailers
viewed as unprofitable, and the emergence of on-
line security trading in the late 1990s.8 Although
these two disruptive innovations were very suc-
cessful, such innovations rarely gain wide accep-
tance quickly. Typically, a small group of custom-
ers act as early adopters, and a critical mass of
buyers then builds over time. Thus, a company
deciding whether to pursue a disruptive innova-
tion must first make sure it can sustain itself dur-
ing the initial period of slow growth. The longer
this period lasts, the longer competitors have to
react to the disruption. Given the high stakes and
the complexity of the competitive dynamics in-
volved, the benefits of high participation and com-
prehensiveness may be particularly valuable
when devising disruptive innovations.9
Studies of pioneering’s effects on subsequent
firm performance provide an important input to
investigation of potential first moves. To date, the
evidence is mixed regarding the overall question
of whether pioneering produces consistently posi-
tive outcomes. Some studies suggest that first mov-
ing offers little advantage or offers only short-term
31
advantages, while others have found that first
movers enjoy higher survival rates and superior
performance.10 A study of 1,226 businesses over a
55-year period found that first movers typically
enjoy an advantage over second movers and late
movers for about a decade. Specifically, sales and
profit advantages are enjoyed for an average of
about ten years for consumer goods and twelve
years for industrial goods at which time they are
eroded by cost disadvantages.11
Given such lengthy time horizons, top executives
should develop thorough long-range goals and strat-
egies as part of the strategic decision-making pro-
cess. Studies have found that thorough planning en-
hances firm performance, particularly in turbulent
industries.12 Meanwhile, first moving has great vis-
ceral appeal, and it is easy to be seduced by the
initial ‘buzz’ surrounding a move. Our suggestion is
that managers temper the inherent excitement of a
first move by planning ahead for the need to either
improve a product (to renew the product life cycle) or
to re-evaluate the market as the ten-year anniver-
sary of introduction approaches.
First moving has great visceral appeal,
and it is easy to be seduced by the initial
‘buzz’ surrounding a move.
Such planning should also take into account cer-
tain contingency factors. First movers can enhance
their returns by matching their tactics to environ-
mental conditions. Environmental hostility is one
key factor. Hostile environments are settings char-
acterized by high failure rates, intense price com-
petition, and limited customer loyalty (e.g., the air-
line industry). One study found that in hostile
environments, pioneers’ sales growth increases
when they charge higher prices and limit their
product-line breadth.13 Despite the fierce competi-
tion inherent in hostile environments, the per-
ceived distinctiveness of the first mover’s products
allows it to charge higher prices. Indeed, a higher
price signals customers that a uniquely valuable
product is being offered. Also, first movers can
target their product line toward the highest-poten-
tial areas, forcing later entrants to either attack an
established foe or focus on less lucrative niches. In
contrast, distribution is critical in more benign en-
vironments (such as the retail gasoline industry)
where many market opportunities exist. In such
settings, first movers can fuel sales growth by
blanketing and filling product space via wide-
spread distribution. Later entrants must then fight
to steal market share by dislodging the first mover.
32 Academy of Management Executive November

Table 1
Recommendations for Matching Strategic Decision-Making Processes to Competitive Dynamics

Recommendations About Recommendations About

Issue Participation Comprehensiveness Other Recommendations

I. Deciding whether to
enter a new market
Pioneering Use high participation during the
idea-generation stage, but
entrust idea development to an
individual or small group
Entering an occupied Enlist a variety of managers in the Use strategic groups to
market mapping of strategic groups
Involve many managers in
competitor analysis and
scenario planning
If new entry creates multipoint
competition, involve the
relevant division managers
II. Deciding how to Consider a competitor’s disruptive Consider a competitor’s
respond to a innovation using a process
competitive attack that is high in participation
Minimize participation in order to
respond as quickly as possible
to simple competitive attacks
III. Deciding if and how to Build an overall process that is
pursue growth in high in participation, perhaps
existing markets relying heavily on competitive
intelligence professionals
IV. Deciding whether to Use a highly participative process, Integrate the concept of co-
compete or cooperate perhaps including outside
consultants, to evaluate the
firm’s readiness to pursue co- Identify opportunities for
opetition
High participation is not needed
for analysis of the value chain Use competitor analysis and
Thoroughly analyze potential first Focus on whether a first move
moves can create a sustainable
Thoroughly plan for possible first- competitive advantage
move disadvantages in the Account for environmental
future hostility when positioning
the product or service
systematically identify
occupied and unoccupied
niches
Anticipate and plan for strong
counterattacks if attacking an
occupied niche
If applicable to your firm,
incorporate the concept of
regional clusters into the
traditional SWOT analysis
Use competitor analysis and
scenario planning to
understand incumbents’ likely
responses
In the wake of a disruptive
disruptive innovation using a innovation, use devil’s
process that is high in advocacy to consider a
comprehensiveness single possible response
Minimize comprehensiveness in or dialectical inquiry to
order to respond as quickly as consider two or more
possible to simple competitive possible responses
attacks Rely on emotional intelligence
when choosing responses
Analyze members of your firm’s
strategic group, and members
of other key strategic groups,
to clarify the viability of
potential growth strategies
Use strategic groups to anticipate
how growth initiatives and
rivals’ responses may reshape
the industry
Analyze whether potential or
actual regional clusters can
fuel growth
Conduct competitor analysis for
each direct rival, focused on
its awareness, motivation,
and capability
Enact co-opetition only if self-
opetition into the strategic assessment, value chain
decision-making process analysis, and competitor
analysis are all supportive
cooperation, if any, through
analysis of the value chain
scenario planning to evaluate
potential collaborative
partners, especially multipoint
rivals
2004 Ketchen, Snow, and Street
FIGURE 1
Strategic Groups in Department Store Retailing (Early 2000s)
Perhaps the most useful question managers can
ask themselves when deciding whether to pioneer
is: How likely is this move to provide my firm with
a sustainable competitive advantage? First moves
that build on unique resources such as patented
technology (e.g., Pfizer’s creation of Viagra) are
difficult for rivals to imitate and thus are likely to
succeed (Viagra’s market share remains dominant
despite massive promotion efforts for rival prod-
ucts). In contrast, E-Trade Group’s creation in 2003
of the portable mortgage seemed doomed to fail
because it did not leverage unique resources.14
This innovation allowed customers to keep an ex-
isting mortgage when they move to a new home.
Bigger banks could easily copy the portable mort-
gage if it gained customer acceptance, undermin-
ing E-Trade’s ability to profit from its move. Indeed,
33
lower profits for all lenders may be the net effect of
E-Trade’s pioneering because lenders will forgo
future origination fees, and customers will be
locked in at historically low interest rates. First
moving is often a source of corporate pride, but
initiatives that threaten industry profits (such as
the portable mortgage) should be avoided.
Entering an Occupied Market
Examining a market’s strategic groups can be an
effective launching point for the process of identi-
fying opportunities in a market that already has
established participants. A strategic group is a
subset of industry rivals that have similar charac-
teristics to each other but differ from firms outside
the group.15 For example, Figure 1 presents strate-
34 Academy of Management Executive
gic groups of department stores based on the price
and perceived quality of merchandise offered.
A map of an industry’s strategic groups makes
clear what niches industry incumbents occupy.
Such niches may offer opportunities to new en-
trants, but managers should expect existing play-
ers to staunchly defend their domains. In the 1970s,
for example, Southwest Airlines’ effort to establish
itself as a Texas-focused carrier was met by vigor-
ous legal and market retaliation by Braniff, Texas
International, and Continental Airlines—three ma-
jor players in the Texas market. More recently,
AirTran’s entry into the southeastern U.S. inspired
significant price cuts on many routes by incumbent
Delta. Both of these new entrants were successful,
but many other entry moves fail. Thus, a decision
to enter an occupied niche should be based on a
decision process that is comprehensive and, in
particular, assumes that existing players will
make strong countermoves.
Another valuable aspect of strategic groups is that
they may lead managers to discover an unfilled,
lucrative market segment. Kohl’s Illinois, Inc., for ex-
ample, was able to find such a niche. As shown in
Figure 1, Kohl’s offers products that are perceived to
be of higher quality than those of Wal-Mart Stores,
Inc. and Kmart at similar prices. This positioning
helped Kohl’s enjoy 35 percent compounded earn-
ings growth from 1998 to 2002.16 Ironically, much of
Wal-Mart’s own success in the 1970s and 1980s was
due to targeting an untapped opportunity–small
Southern towns that retailers such as Kmart and
Sears, Roebuck & Co. viewed as unprofitable.
Certainly, unoccupied niches can be identified
without using strategic groups. However, strategic
groups provide a tool for more systematically con-
sidering the competitive landscape, including the
generation of a wider array of decision options.
Although researchers use complex statistical pro-
grams to identify strategic groups, we suggest that
managers simply classify firms along key compet-
itive dimensions, such as market share, perceived
product quality, geographic scope, or level of ser-
vice provided to customers. We also recommend
using several different groupings when analyzing
an industry because alternative groupings will
highlight different opportunities. For example, an
analysis of department stores based on geography
and product scope (rather than price and quality as
in Figure 1) would emphasize the unique opportu-
nities and challenges faced by a regional and ap-
parel-focused operator such as Kohl’s. Creative
thinking is an asset in this context, suggesting that
executives should enlist a variety of managers to
participate in the mapping of strategic groups.
A firm’s ability to capitalize on new market op-
November
portunities is a second issue that must be consid-
ered. For decades, managers have been advised to
use SWOT analysis, which involves juxtaposing a
firm’s strengths and weaknesses with the opportu-
nities and threats present in the environment. This
process helps managers discern a firm’s likelihood
of exploiting opportunities and avoiding threats.
Although a basic SWOT analysis offers a good first
step in assessing entry options, a concept from the
competitive dynamics literature–regional clusters–
may provide deeper insights.
The presence of a regional cluster (i.e., a set of
firms that locate near each other) influences firms’
ability to enter some markets. There are two main
types of clusters. In ‘exporting’ clusters, multiple
firms in the same industry locate production facil-
ities near each other.17 The firms sell their prod-
ucts, for the most part, outside of the region in
which production occurs. The wine industry, for
example, works this way. Similarly, many pharma-
ceutical companies are centered in the greater
Philadelphia area, but their products have wide
distribution. Ideally, suppliers and partners sur-
round the focal group of competitors, and local and
regional supporting institutions are well fitted to
the cluster. The second cluster type occurs when
rivals locate retail outlets near each other. Such
‘retailing’ clusters often occur in service industries
(e.g., hotels, restaurants), but they also arise in
product distribution settings (e.g., groups of auto-
mobile dealers).18
The presence of a regional cluster (i.e., a
set of firms that locate near each other)
influences firms’ ability to enter some
markets.
The evidence to date suggests that, in industries
that have clusters, firms within clusters perform
better than stand-alone firms.19 It has also been
found that firms with less knowledge of the market
may benefit from cluster participation more than
others, increasing the attractiveness of cluster
membership to many new entrants.20 However,
there can be too much of a good thing. As the
number of clustered firms grows, the chances in-
crease that firms will cannibalize each other’s
business.21
The research findings on clusters suggest that
the decision process surrounding potential market
entry should consider both the availability of re-
gional clusters and the costs and benefits of align-
ing with a cluster. We advise making examination
of a cluster’s history a central element of this anal-
2004 Ketchen, Snow, and Street
ysis. A study of 315 textile firms suggests that with-
in-cluster competition takes two forms.22 In some
clusters, firms are very independent and competi-
tion is fierce. Competition can be particularly
daunting in a regional cluster because close prox-
imity makes it easy for firms to monitor each oth-
er’s competitive moves and steal each other’s em-
ployees. In other clusters, firms develop a high
degree of social integration that leads to an em-
phasis on mutual gain. To the extent that a cluster
matches the latter profile, a new entrant is more
likely to become established.
The decision process surrounding
potential market entry should consider
both the availability of regional clusters
and the costs and benefits of aligning
with a cluster.
Finally, managers must consider the outcomes
of pursuing a market-entry opportunity. One key
issue is whether existing players view an entrant’s
intended domain as central and valuable.23 If not,
entry and subsequent growth are easier. As Wal-
Mart expanded, major retailers such as Sears,
Kmart, and J.C. Penney Company, Inc. did not con-
sider the small Southern towns that served as Wal-
Mart’s core market to be important. This belief pre-
vented the more established retailers from
responding to Wal-Mart’s expansion until it was
too late.24 Today, in contrast, industry leader Wal-
Mart is clearly taking its upstart competitors seri-
ously. A sign outside CEO Lee Scott’s office says,
“Who is taking our business? Kohl’s!” Wal-Mart
responded to Kohl’s success by offering clothing
from Levi’s and Carter’s for the first time, at lower
prices than Kohl’s for the same brands.25 Wal-
Mart’s managers clearly view Kohl’s apparel do-
main as valuable and are taking steps to limit
their rival’s growth.
In making new-entry decisions, managers need to
understand how likely it is that existing players will
view their intended domain as central and thus how
likely it is that they will retaliate. Such determina-
tions can be made more effective through detailed
competitor analysis and scenario planning. In com-
petitor analysis, managers examine a rival’s
strengths, weaknesses, and history in order to pre-
dict its probable behavior. Scenario planning fo-
cuses on mapping out the probabilities of certain
events occurring (such as retaliation) and the conse-
quences of those events. Because these tools involve
complex information that can be interpreted in dif-
35
ferent ways, a highly participative process is recom-
mended. To the extent that these tools lead manag-
ers to believe that incumbents will retaliate, the
strategic decision-making process should map out
how to protect a new niche as well as how to fill it.
Managers must be aware that entering new mar-
kets has the potential to create multipoint compe-
tition—a situation where a firm faces the same
rival in more than one market. For some firms,
multipoint competition harms performance. For ex-
ample, in the early 1990s, R.J. Reynolds (RJR)
started using lower-priced cigarette brands in the
U.S. in an effort to gain customers. Philip Morris
responded with price cuts in the U.S. (launching a
price war that ultimately hurt both companies) and
by building market share in Eastern Europe where
RJR had been establishing a strong position. RJR
was forced to protect its market share in the U.S.
and neglect Eastern Europe.26
Other firms are able to establish, and benefit
from, mutual forbearance–a situation where rivals
do not act aggressively because each recognizes
that the other can retaliate in multiple markets. In
the late 1990s, Southwest Airlines and United Air-
lines competed in some but not all markets. United
announced plans to form a new division that
would move into some of Southwest’s other routes.
Southwest CEO Herb Kelleher publicly threatened
to retaliate in several shared markets. United then
backed down and Southwest had no reason to at-
tack.27 The result was better performance for both
firms. Similarly, in hindsight, both RJR and Philip
Morris probably would have been more profitable
had RJR not tried to steal market share in the first
place. Thus, recognizing and acting on potential
forbearance can lead to better performance
through firms not competing away their profits,
while failure to do so can be costly.
The prospect of establishing or enhancing mul-
tipoint competition through new market entry
makes strategic decision-making more complex
because predicting competitors’ responses to a
move is more difficult when there are multiple
competitive contexts to consider. Given the de-
structive potential of multipoint competition, we
recommend that managers rely on a comprehen-
sive and participative decision process if a new
entry would build multipoint contact. In particular,
we suggest involving the division managers of the
units involved in multipoint contact. The decision
process should not only devote substantial time
and resources to environmental scanning, compet-
itor analysis, and scenario planning, but should
also encourage the debate of disparate views.
36 Academy of Management Executive
Deciding How To Respond To a Competitive
Attack
Figuring out how to react, if at all, to a compet-
itor’s move ranks among the most challenging de-
cisions managers must make. The results of a se-
ries of moves and countermoves are often difficult
to predict, and miscalculations can be very costly.
The slow response by Kmart and other retailers to
Wal-Mart’s growth in the late 1970s illustrates this
point. In discussing Kmart’s parent corporation
(Kresge), an analyst at that time wrote, “While we
don’t expect Kresge to stage any massive invasion
of Wal-Mart’s existing territory, Kresge could logi-
cally act to contain Wal-Mart’s geographical ex-
pansion. . . . Assuming some containment policy on
Kresge’s part, Wal-Mart could run into serious
problems in the next few years.”28 While the need
for some form of containment was apparent to ob-
servers, Kmart never pursued it.
Figuring out how to react, if at all, to a
competitor’s move ranks among the most
challenging decisions managers must
make.
When a firm makes a disruptive innovation
which conflicts with the industry’s current compet-
itive practices, as was the case with Wal-Mart,
responses to such attacks may take one of three
main forms.29 First, managers may believe that the
innovation will not replace established offerings
entirely and thus may choose to focus on their
traditional modes of business while ignoring the
disruption. For example, A.G. Edwards avoided on-
line trading because the firm views its personal
relations with brokerage clients as central to its
strategy. Second, a firm can counter the challenge
by attacking along a different dimension. For ex-
ample, Apple responded to the direct sales of
cheap computers by Dell and Gateway by adding
power and versatility to its products. The third
possible response is to simply match the competi-
tor’s move. Merrill Lynch, for example, confronted
on-line trading by forming its own Web-based unit.
Here the firm risks cannibalizing its traditional
business but may find that the response attracts an
entirely new segment of customers.
As noted earlier, disruptive innovations are of-
ten slow to be widely accepted by customers. This
gives managers the time needed to carefully ana-
lyze the options described above. Given this dis-
cretion, and the possibility that a disruptive inno-
vation can reshape an industry, we recommend a
decision process that is highly comprehensive and
November
participative. In particular, managers should give
thorough consideration to minority viewpoints. For
example, Kmart executives received but ignored
early internal warnings about Wal-Mart. In the
late 1980s, a former Kmart board of directors’ mem-
ber lamented, “I tried to advise the company’s
management of just what a serious threat I thought
[Sam Walton, founder of Wal-Mart] was. But it
wasn’t until fairly recently that they took him seri-
ously.”30 In retrospect, a strategic decision-making
process that not only allowed for but even encour-
aged dissenting opinions might have significantly
altered Kmart’s course.
Accordingly, we recommend that managers use
techniques that generate constructive conflict
among decision participants when choosing how
to respond to a disruptive innovation. Specifically,
dialectical inquiry and devil’s advocacy are two
decision-making tools that exploit differences in
opinion in order to help managers make better
decisions. In this context, dialectical inquiry in-
volves two opposite responses being argued, with
each side questioning the assumptions and con-
clusions of the other. To add a dynamic element to
the process, some participants can be assigned to
play the role of the disruptive competitor, thus
helping the group to anticipate the competitor’s
future behavior. In devil’s advocacy, only one op-
tion is discussed– one side presents a case in sup-
port of the option while the other side attempts to
undermine the case by questioning the first
group’s ideas and premises. Any major disruptive
move or response merits a thorough critique as
provided by these methods. Both techniques are
built on the belief that better decisions result when
intense give and take and formalized debate occur
among a group of decision-makers. Research has
found that these techniques lead decision-makers
toward better assumptions and decisions than un-
structured discussions.31
The choice of which technique to use should be
determined by the type of decision. If initial anal-
ysis reveals one option as the clear-cut favorite,
devil’s advocacy focused on that option is recom-
mended. If two options emerge as viable, dialecti-
cal inquiry should be preferred. If more than two
options are viable, dialectical inquiry can be ex-
tended beyond two groups. Managers should be
aware, however, that using either technique might
exact an interpersonal price. In one study, mem-
bers of decision groups that used dialectical in-
quiry and devil’s advocacy reported less satisfac-
tion, less desire to continue working with group
members, and less acceptance of the groups’ deci-
sions than did people making decisions in unstruc-
tured groups.32 Any conflict, even the constructive
2004 Ketchen, Snow, and Street
variety, can create ill will, and managers should
remind participants throughout the decision pro-
cess that the conflict created needs to be construc-
tive and targeted at improving the firm’s success.
Particularly contentious group processes can be
followed by a team-building exercise in order to
soothe any lingering wounds. Also, these tech-
niques should not be overused. Every management
team has its own comfort zone regarding the use of
highly structured decision methods.
While disruptive innovations are an infrequent oc-
currence, simple competitive attacks such as head-
to-head advertising campaigns, price cuts, attempts
to grab key customers, and so on are a frequent
activity in many markets. Research has found that
the lag between a competitive attack and a response
is tied to marketplace advantages.33 A long lag be-
tween an attack and a response generally provides
the attacker with an edge.
The lag between a competitive attack
and a response is tied to marketplace
advantages. A long lag between an
attack and a response generally provides
the attacker with an edge.
For example, PepsiCo made the mistake of wait-
ing fifteen months to copy Coca-Cola’s May 2002
introduction of Vanilla Coke. In the interim, Va-
nilla Coke carved out a significant market niche;
29 per cent of U.S. households had purchased the
beverage by August 2003, and 90 million cases had
been sold.34 In contrast, fast responses tend to pre-
vent such an edge. Pepsi’s spring 2004 announce-
ment of a mid-calorie cola introduction was
quickly followed by a similar announcement by
Coke, signaling that it intended to preclude niche
dominance by its long-time rival.
Thus, as former General Electric CEO Jack
Welch noted in his autobiography, success in most
competitive interactions “is less a function of gran-
diose predictions than it is a result of being able to
respond rapidly to real changes as they occur.
That’s why strategy has to be dynamic and antic-
ipatory.”35 In situations requiring a fast response,
there is less opportunity to use a comprehensive,
participative decision process. Just as law enforce-
ment organizations use specialized units to re-
spond rapidly to crisis situations, managers can
create ‘SWAT teams’ that are charged with formu-
lating competitive responses. Such teams have to
work quickly and intensely to gather needed ideas
and recommendations.
37
Finally, in the heat of competitive battles, it is
easy for pride or other emotions to cloud decision-
making. Business history is replete with examples
of managers who, in retrospect, wished they had
acted on the basis of facts and logic rather than on
their emotions. In describing one particularly di-
sastrous decision, Jack Welch noted, “There’s only
a razor’s edge between self-confidence and hubris.
This time, hubris won and taught me a lesson I’d
never forget.”36 Also, a firm should not copy a ri-
val’s strategy out of envy—as perhaps Kmart did in
the late 1990s in seeking to emulate Wal-Mart’s
low-cost strategy, a move that was the final nail in
Kmart’s coffin of bankruptcy. Similarly, managers
should not let anger drive them to retaliate in one
market against a multipoint rival’s move in another
market. A competitive move or response should only
be taken if it is grounded in sound logic.
Indeed, competitive dynamics favor managers
who rely on emotional intelligence when making
strategic decisions. Emotional intelligence is the
“ability to monitor one’s own and others’ emotions,
to discriminate among them, and to use the infor-
mation to guide one’s thinking and actions.”37
Managers who possess high levels of emotional
intelligence are better able to discriminate be-
tween useful information and that which is largely
an emotional response from themselves or others.
This is a particularly valuable skill in highly par-
ticipative processes, where diverse ideas emerge
rapidly and unpredictably. Emotional intelligence
can also aid efforts to develop comprehensive pro-
cesses. Emotionally intelligent managers are able
to truly consider all ideas. In contrast, managers
with lower emotional intelligence may only pre-
tend to consider all information while letting their
emotions block out certain ideas that conflict with
preconceived notions.
Deciding If And How To Pursue Growth In
Existing Markets
The quest for increased profits leads all manag-
ers at some point to consider whether and how to
expand their firms’ share of markets they occupy.
Devising growth strategies that will lead to in-
creased profits requires a thorough understanding
of the competitive landscape and the ability to
anticipate rivals’ responses to growth initiatives.
Analyzing the strategic groups in an industry can
provide significant insights to growth-minded
managers. After mapping out strategic groups as
described above, we advise managers to first use
other firms within their group as reference points
for assessing strengths, weaknesses, and perfor-
mance.38 Such comparisons can clarify whether
38 Academy of Management Executive
changes are needed and shed light on the feasi-
bility of possible new strategies for growth.
We also recommend that managers look to other
strategic groups in the industry for insights on how
to grow. Fundamentally changing a firm’s ap-
proach to an industry is usually difficult and ex-
pensive and indeed may be impossible. However,
adopting ideas from other groups to supplement
an existing strategy may help a firm expand its
market share by differentiating it from members of
its own group. For example, in the early 2000s,
Sears introduced shopping carts and centralized
checkouts⫺features long offered by Kmart and Wal-
Mart. Taking another cue from the discounters, in
2003 Sears test marketed a large-store format called
Sears Grand that offers food.39 Sears hoped its efforts
to improve customers’ experience would provide an
advantage over direct rivals such as J.C. Penney. In
looking to adopt growth ideas from other strategic
groups, managers should consider (a) whether the
borrowed idea is compatible with the firm’s overall
strategy and (b) whether the firm possesses the
needed resources to implement the borrowed idea.
FIGURE 2
Strategic Groups in the Book Selling Industry (Late 1990s)
November
To address the first issue, customers’ perceptions
should be studied carefully to ensure that a change
in strategy will not leave the firm without a clear
identity in the market.
Customers’ perceptions should be studied
carefully to ensure that a change in
strategy will not leave the firm without a
clear identity in the market.
Using strategic groups to anticipate how rivals’
moves may reshape industries can also inform de-
cisions. For example, Amazon.com began in 1995
as an online bookseller, but by the end of the 1990s
it had expanded into the e-retailing of CDs, toys,
and electronics as well as online auctions and
Web-based services for other retail firms. Criticism
of the breadth and variety of Amazon’s new ven-
tures may be valid,40 but Figure 2 illustrates that
the decision to move beyond book selling had
merit. When Amazon first appeared, traditional
2004 Ketchen, Snow, and Street
chain bookstores such as Barnes & Noble had no
online offerings. However, online retailing had
minimal entry barriers, so the bookstore chains
could quickly develop an online business if Ama-
zon demonstrated its viability. As shown in Figure
2, this would give the chains a “bricks and clicks”
strategy with service-enhancing features that Am-
azon could not duplicate, such as allowing returns
of online purchases at stores. Thus, a strategic-
groups analysis of the bookselling industry re-
veals that its competitive dynamics were poten-
tially adverse enough that Amazon’s managers
were shrewd to pursue diversification.41 Today, the
firms compete in several markets, including re-
corded music and video. When Barnes & Noble
followed Amazon into these other settings, both
firms enjoyed growth by becoming more attractive
to customers as ‘one-stop shopping’ destinations.
These multipoint rivals deftly avoid attempting to
aggressively grow at each other’s expense.42
In addition to strategic groups, firms that com-
pete in industries that contain (or could contain)
regional clusters can use these groupings to in-
form decisions surrounding growth strategies. We
suggest that managers analyze whether clustering
can help meet the supply and/or demand needs
that accompany growth. The presence of high-
quality factor inputs that increase efficiency, qual-
ity, and specialization can help cluster members
increase productivity and innovation. Factor in-
puts include physical assets (natural resources
and physical infrastructure), informational assets
(scientific and technological infrastructure), finan-
cial assets, and intangible assets (human and in-
tellectual capital). For example, many Silicon Val-
ley firms benefit from the proximity of Stanford
University. Similarly, Hsinchu Park in Taiwan is
near two major technical universities.43 In both
cases, the universities support cluster firms’
growth with a steady flow of skilled labor and
basic scientific research.
For firms in some industries, belonging to retail-
ing clusters can fuel growth. By providing custom-
ers with a variety of choices, a retailing cluster
may attract a bigger set of customers collectively
than the sum that could be attracted to individual
locations. In addition, potential spillover effects
can enhance success. If a desired play is sold out,
a restaurant overcrowded, or a hotel overbooked,
many customers simply patronize another cluster
member. Recognizing this benefit, savvy managers
of some established firms have begun to create
wholly owned clusters. For example, Brinker Inter-
national often sites outlets of the multiple chains it
owns (e.g., Chili’s, Corner Bakery, On the Border,
Maggiano’s, Romano’s Macaroni Grill) in the same
39
location. Marriott’s Courtyard and Fairfield Inn of-
ten sit side by side. Yum! Brands takes this clus-
tering strategy one step further by locating more
than one of its brands (A&W All-American Food,
Long John Silver’s, Taco Bell, KFC, and Pizza Hut)
within a single store. These approaches are in-
tended to grow demand just like a retailing cluster,
but with minimal competition and with one firm
enjoying all of the rewards.
Beyond industry features, managers who are
considering growth strategies must try to predict
whether each rival firm in a market will retaliate.
Research indicates that three fators determine the
likelihood that a firm will respond to a competitive
move: awareness, motivation, and capability.44 An
analysis of the ‘razor wars’ illustrates the roles that
these factors play. Consider Schick’s attempt to
grow in the razor-system market with its introduc-
tion of the Quattro. This move was widely publi-
cized and supported by a $120 million advertising
budget. Therefore, its main competitor, Gillette, was
well aware of the move. Gillette’s motivation to re-
spond was also high. Shaving products are a vital
market for Gillette, and Schick has become an in-
creasingly formidable competitor since its acquisi-
tion by Energizer. Finally, Gillette was very capable
of responding, given its vast resources and its dom-
inant role in the industry. Because all three factors
were high, a strong response was likely. Indeed, Gil-
lette made a pre-emptive strike with the introduction
of the Sensor 3 and Venus Devine a month before the
Schick Quattro’s projected introduction.
Managers who are considering growth
strategies must try to predict whether
each rival firm in a market will retaliate.
We suggest that the decision process surround-
ing potential growth should include a competitor
analysis for each rival focused on these three fac-
tors (awareness, motivation, and capability). Such
a process can rely largely on publicly available
information such as annual reports, 10-Ks, and
press releases to understand rivals’ beliefs, goals,
and past behaviors.45 The result should be an un-
derstanding of each firm’s propensity to respond to
a growth initiative. From there, well-grounded
strategy formulation can begin. Managers wishing
to avoid or minimize retaliation can focus their
firms’ strategy on undermining rivals along one or
more of the three key factors. Specifically, manag-
ers can devise strategies that rivals will not notice
until it is too late to recover, that avoid market
segments treasured by rivals, and/or that attack
40 Academy of Management Executive
areas where rivals lack the resources to respond.
Some managers may find that rivals’ strong stand-
ing with respect to awareness, motivation, and
capability precludes certain growth initiatives.
As the above discussion illustrates, the issues
surrounding growth within an existing market are
numerous, interwoven, and complex. The stakes
are high—a well-devised growth strategy can
build success, while a misstep may fundamentally
undermine a firm’s competitive position. Mean-
while, time is not usually a major concern when
considering if and how to initiate a growth strat-
egy.
The issues surrounding growth within an
existing market are numerous,
interwoven, and complex.
Based on these considerations, we suggest that
the decision process surrounding potential growth
in existing industries be highly participative and
comprehensive. In particular, the need to diagnose
key features of the competitive landscape (such as
strategic groups and regional clusters) and to an-
ticipate rivals’ responses to growth strategies sug-
gests that many firms should reevaluate how they
use their competitive intelligence professionals
(CIPs). Most firms ask CIPs to monitor certain kinds
of factors and situations, and to conduct analyses
for specific projects. However, these specialists are
in an ideal position to contribute much more to the
analysis of competitive dynamics. CIPs are close
to the data that are the basis of much strategic
decision-making and have been exposed to the
concepts discussed in this article. To the extent
that they learn about and exploit the latest find-
ings involving these concepts, they can better in-
tegrate competitive data into the decision-making
process. Integration can take the form of writing
position papers, conducting scenario analyses of
the future behavior of competitors, being members
of the strategic planning team, and so on.
Deciding Whether to Compete or Cooperate
One hallmark of the modern economy is the in-
creased role of inter-firm cooperation in managers’
efforts to enhance firm performance. Arrange-
ments such as strategic alliances, joint ventures,
and organizational networks enable firms to share
(rather than duplicate) resources and learn from
each other’s strengths. Firms that enter such rela-
tionships take on certain risks, however, including
the loss of control over operations, possible trans-
November
fer of valuable secrets to other firms, and potential
exploitative behavior by partners. Focusing solely
on competing with other firms avoids such prob-
lems, but it also forces firms to continually inno-
vate and efficiently manage resources. Thus, de-
ciding whether to cooperate or go it alone in a
given competitive situation is a daunting choice.
We suggest that managers approach this choice
by embracing the concept of co-opetition. Although
competition and cooperation are usually viewed
as separate processes, co-opetition highlights a
complex interaction that is becoming increasingly
popular in many industries. Novell founder Ray
Noorda coined the term in the early 1990s to refer to
a blending of competition and cooperation that
arises as a logical response to both the need to
innovate and the desire to share resources.46 Ide-
ally, a firm devises a mix of cooperation and com-
petition that enhances its performance.
For example, Toyota and General Motors have
benefited from co-opetition since the mid-1980s.
Toyota and GM vehicles are produced side-by-side
at the jointly owned New United Motor Manufac-
turing Incorporated (NUMMI) in Fremont, Califor-
nia. While Honda and Nissan used wholly owned
plants to begin producing cars in the United
States, NUMMI offered Toyota a lower-risk means
of entering the U.S. market. This entry mode was
desirable because top Toyota executives were not
confident that Japanese-style management would
work in the U.S. The venture offered GM the chance
to learn Japanese management and production
techniques—skills that were later used at GM’s
Saturn unit. NUMMI offers both companies econo-
mies of scale in manufacturing and the chance to
collaborate on automobile designs. Meanwhile,
Toyota and GM compete for market share around
the world. A more complex example comes from
Southeast Asia. In that region, NEC (a Japanese
company) has three different relationships with
Hewlett-Packard Co.: customer, supplier, and com-
petitor. Some units of each company work cooper-
atively with the other company, while other units
are direct competitors.
Blending cooperation and competition is a chal-
lenging task that not every firm can meet. Thus, a
thorough and honest self-assessment is a needed
first step of the decision process. Executives’ levels
of commitment to co-opetition, and their ability to
communicate their commitment throughout the
firm, are critical determinants of co-opetition’s suc-
cess or failure.47 Executives must be committed to
the idea of having both cooperative and competi-
tive relationships with another firm. If a coopera-
tive relationship is created, but executives are se-
cretly plotting how to eventually take advantage of
2004 Ketchen, Snow, and Street
the other firm, the relationship could easily degen-
erate into fierce competition fueled as much by
anger as by profit motives. Executives must also
create a culture that is supportive of co-opetition.
Co-opetition requires employees to strike a bal-
ance between sharing and protecting information;
thus employees must be educated about why co-
opetition is valuable and how it is being pursued.
The process of gauging a firm’s readiness for co-
opetition can be tricky. Most managers would like to
believe that their organization possesses the skills
and culture needed to pursue a cutting-edge ap-
proach to the market. As a result, executives must
guard against overly optimistic projections about the
firm’s ability to balance competition and coopera-
tion. We suggest marshalling a diverse group of
thinkers to consider this issue. This might involve not
only high participation from a variety of organiza-
tional members, but perhaps also the use of outside
consultants. Consultants can usually offer more ob-
jective opinions and recommendations than firm
members themselves.
Cooperation is generally best suited for
“creating a pie” while competition is
best suited for “dividing it up.”
Assuming that a firm overcomes this first hurdle,
a logical next step in considering co-opetition is
analysis of the collaborative opportunities avail-
able in the value chain. This straightforward anal-
ysis does not require high levels of participation.
However, because the stakes are high and because
speed is not a major concern, we recommend a
comprehensive analysis. A possible guiding prin-
ciple for this analysis is that firms tend to cooper-
ate in activities located far from the customer
while competition generally occurs close to the
customer. The NUMMI example illustrates these
tendencies, and they also appear to apply to many
other industries. A Scandinavian study, for exam-
ple, found that in the mining equipment industry,
firms cooperated in material development, but
they competed in product development and mar-
keting. In the brewing industry, firms worked to-
gether on the return of used bottles, but not in
distribution.48 On a practical note, governments
may view cooperation close to customers as collu-
sion and act to end it. Thus, as Brandenberger and
Nalebuff suggest, cooperation is generally best
suited for “creating a pie” while competition is
best suited for “dividing it up.”49
If analysis of the value chain identifies opportu-
nities for cooperation, managers should then eval-
41
uate potential collaborative partners. Careful
study of a firm’s track record of behavior can offer
a good portrait of its merits as a partner. For ex-
ample, Federal Express is a firm that has managed
complex intra-industry relationships well. FedEx’s
main rivals are the United States Postal Service
(USPS) and United Parcel Service (UPS). Competi-
tion in the delivery industry has long been very
intense, but FedEx has maintained such good re-
lations with its rivals that mutually beneficial col-
laboration has been possible. In 2001, FedEx and
the USPS agreed on an alliance that permitted
each to use the other’s distribution channels. Also,
FedEx and UPS jointly lobbied the U.S. government
in 2003 to prevent DHL Airways from operating in
the U.S.50 The competitor analysis performed to
assess potential partners should focus on critical
incidents such as these and should use scenario
planning to map out likely future behaviors.
A multipoint rival can be a particularly intriguing
partner. Indeed, many airline alliances are com-
posed of firms that compete along some routes and
collaborate on other routes. The code-sharing alli-
ances linking Delta, Northwest, and Continental Air-
lines as well as those linking U.S. Airways and
United Airlines are two examples. The fear that a
partner will take advantage of a firm represents a
significant deterrent to cooperative activities. Work-
ing with a multipoint rival can reduce this fear be-
cause managers can respond to aggressive behavior
not only by leaving the partnership but also through
their actions in other markets. This should make
partners less likely to try to exploit each other. If
rivals have established mutual forbearance, a part-
nership may be particularly successful. Specifically,
to the extent that the respective managers have de-
veloped a tacit understanding that they will not ag-
gressively attack each other, they have a basis for
creating trust and a sense of mutual gain that helps
maintain co-opetitive relationships.
In summary, the decision process regarding
whether to compete or collaborate must consider
three key issues. First, self-assessment reveals
whether the firm has the ability to pursue collabora-
tion. Second, analysis of the value chain identifies
any opportunities for collaboration. Third, potential
partners are scrutinized. We recommend that unless
all three analyses suggest that collaboration is a
viable option, a firm should act on its own.
A Final Thought
No manager can ever be certain of a strategy’s
results until after a decision is implemented. This
is especially true in today’s ever-changing busi-
ness environment. However, careful analysis of the
42 Academy of Management Executive
setting in which a firm competes, combined with
consideration of process issues such as compre-
hensiveness and participation, can help reduce
uncertainty and lead to better decision quality.
Implementing the concepts and guidelines offered
by recent research can help managers lead their
firms to greater levels of success.
Endnotes
1
Additional definitional and background information on
competitive dynamics can be found in Grimm, C. M., & Smith,
K. G. 1997. Strategy as action—Industry rivalry and coordina-
tion. Cincinnati, OH: South-Western College Publishing; and
Smith, K. G., Ferrier, W. J., & Ndofor, H. 2001. Competitive dy-
namics research: Critique and future directions. In M. A. Hitt,
R. E. Freeman, & J. S. Harrison (Eds.). The Blackwell handbook of
strategic management. Oxford: Blackwell Publishers, Ltd.
2
For a detailed discussion of what is required for firms to be
successful in the modern dynamic economy, see Ireland, R. D.,
& Hitt, M. A. 1999. Achieving and maintaining strategic compet-
itiveness in the 21st century: The role of strategic leadership.
The Academy of Management Executive, 13(1): 43–57.
3
Miller, C., Burke, L., & Glick. W. 1998. Cognitive diversity
among upper-echelon executives: Implications for strategic de-
cision processes. Strategic Management Journal, 19: 39 –58.
4
Fredrickson, J., & Mitchell, T. 1984. Strategic decision pro-
cesses: Comprehensiveness and performance in an industry
with an unstable environment. Academy of Management Jour-
nal, 27(2): 399 – 423.
5
Delta’s flight to self-service. Business Week, 7 July 2003.
6
Isobe, T., Makino, S., & Montgomery, D. B. 2000. Resource
commitment, entry timing, and market performance of foreign
direct investments in emerging economies: The case of Japa-
nese international joint ventures in China. Academy of Man-
agement Journal, 43(3): 468 – 484.
7 glomeration, and foreign manufacturing investment in the UK.
For detailed discussions, see Wielemaker, M. W., Elfring, T.,
& Volberda, H. W. 2000. Strategic renewal in large European
firms: Investigating viable trajectories of change. Organization
Development Journal, 18(4): 49 – 68; and Hamel, G., & Prahalad,
C. K. 1991. Corporate imagination and expeditionary marketing.
Harvard Business Review, 69(4): 81–92.
8 988; and Shaver, J. M., & Flyer, F. 2000. Agglomeration econo-
For a discussion of disruptive innovations, see Charitou,
C. D., & Markides, C. C. 2003. Responses to disruptive strategic
innovation. MIT Sloan Management Review, 45(Winter): 55– 63.
9
An insightful discussion of various inertial forces that keep firms
from responding to competitive moves can be found in MacMillan,
I. C. 1988. Controlling competitive dynamics by taking strategic ini-
tiative. The Academy of Management Executive, 2(2): 1–11.
10
For evidence of less advantage from first moves, see Du-
rand, R., & Coeurderoy, R. 2001. Age, order of entry, strategic
orientation, and organizational performance. Journal of Busi-
ness Venturing, 16(5): 471– 494. For evidence of greater advan-
tage from first moves, see Isobe, Makino, & Montgomery, op. cit.;
Robinson, W. T., & Chiang, J. W. 2002. Product development
strategies for established market pioneers, early followers, and
late entrants. Strategic Management Journal, 23(9): 855– 866; and
Lee, H., et al. 2000. Timing, order and durability of new product
advantages with imitation. Strategic Management Journal,
21(1): 23–30.
11
A brief overview of this study is given in Boulding, W., &
Christen, M. 2001. First-mover disadvantage. Harvard Business
Review, 79(9): 20 –21.
12
Miller, et al., op. cit.
13
Covin, J. G., Slevin, D. P., & Heeley, M. B. 2000. Pioneers and
November
followers: Competitive tactics, environment, and firm growth.
Journal of Business Venturing, 15(2): 175–210.
14
A description of E-Trade Group’s foray into the portable
mortgage market is given on-line at: E-trade offering first por-
table mortgage. money.cnn.com.
15
For the original conceptualization of strategic groups, see
Hunt, M. S. 1972. Competition in the major home appliance
industry 1960-1970. Doctoral dissertation, Harvard University. A
recent review of accomplishments in the strategic-groups area
is offered in McNamara, G. M., Deephouse, D. L. , & Luce, R. A.
2003. Competitive positioning within and across strategic group
structure: The performance of core, secondary, and solitary
firms. Strategic Management Journal, 24(2): 161–181.
16
Is Kohl’s coming unbuttoned? www.businessweek.com, 28
July 2003.
17
Insightful treatments of the benefits of regional clusters, as
well as many good examples, are given in Porter, M. E. 1998.
Clusters and the new economics of competition. Harvard Busi-
ness Review, 76(6): 77–90; and Tallman, S., et al. 2004. Knowl-
edge, clusters, and competitive advantage. Academy of Man-
agement Review, 29(2): 258 –271.
18
Although at first glance a regional cluster may seem sim-
ply to be a strategic group based on geography, there is a key
difference between these concepts. The members of a regional
cluster have the potential to benefit from belonging to the
cluster. These benefits can include, for example, concentration
of demand (e.g., New York City’s Broadway attracts a bigger
collective audience than would be attracted by a series of
playhouses located in different cities) or concentration of key
suppliers (e.g., Hollywood studios can all draw on a large pool
of actors and writers that are drawn to the cluster of studios). No
such benefits are expected to accrue within a strategic group.
19
For examples, see DeCarolis, D. M., & Deeds, D. L. 1999. The
impact of stocks and flows of organizational knowledge on firm
performance: An empirical investigation of the biotechnology
industry. Strategic Management Journal, 20(10): 953–968; and
Driffield, N., & Munday, M. 2000. Industrial performance, ag-
Journal of International Business Studies, 31(1): 21–37.
20
Some effects of firms locating near one another (agglom-
eration effects) are detailed in Chung, W., & Kalnins, A. 2001.
Agglomeration effects and performance: A test of the Texas
lodging industry. Strategic Management Journal, 22(10): 969 –
mies, firm heterogeneity, and foreign direct investment in the
United States. Strategic Management Journal, 21(12): 1175–1193.
21
Deeds, D. L., DeCarolis, D., & Coombs, J. 2000. Dynamic
capabilities and new product development in high technology
ventures: An empirical analysis of new biotechnology firms.
Journal of Business Venturing, 15(3): 211–229.
22
Staber, U. 1998. Inter-firm co-operation and competition in
industrial districts. Organization Studies, 19(4): 701–724.
23
Chen, M. J. 1996. Competitor analysis and interfirm rivalry:
Toward a theoretical integration. Academy of Management Re-
view, 21(1): 100 –134.
24
We appreciate an anonymous reviewer highlighting for us
this aspect of competitive dynamics in the retailing industry.
25
Kaiser, E. Wal-Mart poised to take on apparel sector. Re-
uters, 26 June 2003.
26
McGrath, R. G., Chen, M. J., & MacMillan, I. C. 1998. Multi-
market maneuvering in uncertain spheres of influence: Re-
source diversion strategies. Academy of Management Review,
23(4): 724 –740.
27
Gimeno, J. 1999. Reciprocal threats in multimarket rivalry:
Staking out spheres of influence in the US airline industry.
Strategic Management Journal, 20(2): 101–128.
2004 Ketchen, Snow, and Street 43

28 42
Walton, S. 1992. Sam Walton: Made in America. New York: McGrath, et al., op. cit.
43
Doubleday: 191. Mathews, J. A. 1997. A silicon valley of the east: Creating
29
Charitou & Markides, op. cit. Taiwan’s semiconductor industry. California Management Re-
30
Walton, op. cit., 191. view, 39(4): 26 –54.
31 44
Schwenk, C. 1989. A meta-analysis of the comparative ef- Chen, M. J., & Miller, D. 1994. Competitive attack, retalia-
fectiveness of devil’s advocacy and dialectical inquiry, Strate- tion, and performance. Strategic Management Journal, 15: 85–
gic Management Journal, 10(3): 303–306. 102.; Chen, op. cit.
32 45
Schweiger, D. M., Sandberg, W. R., & Ragab, J. W. 1986. See Chapter 8 of Grimm & Smith, op. cit., for a detailed
Group approaches for improving strategic decision making: A description of how to predict competitors’ behavior.
46
comparative analysis of dialectical inquiry, devil’s advocacy, A description of the dynamics of co-opetition in the health-
and consensus. Academy of Management Journal, 29(1): 51–71; care industry is given in Gee, E. P. 2000. Co-opetition: The new
Schweiger, D. M., Sandberg, W. R., & Rechner, P. L. 1989. Expe- market milieu. Journal of Healthcare Management, 45(6): 359 –
riential effects of dialectical inquiry, devil’s advocacy, and con- 363.
47
sensus approaches to strategic decision making. Academy of For more detail on the organizational characteristics influ-
Management Journal, 32(4): 745–772. encing co-opetition, see Lado, A. A., Boyd, N. G., & Hanlon, S. C.
33
For a detailed description of these relationships, see 1997. Competition, cooperation, and the search for economic
Grimm & Smith, op. cit. For a specific discussion of competitive rents: A syncretic model. Academy of Management Review,
attacks and responses between market leaders and followers, 22(1): 110 –141.
48
see Smith, K., Ferrier, W., & Grimm, C. 2001. King of the hill: To better understand the details of how co-opetition works,
Dethroning the industry leader. The Academy of Management Maria Bengtsson and Sorenson Kock undertook a case study
Executive, 15(2): 59 –70. explained in Bengtsson, M., & Kock, S. 2000. “Coopetition” in
34
Joy of (Vanilla) Pepsi? money.cnn.com. business networks—to cooperate and compete simultaneously.
35
Welch, J. 2001. Jack: Straight from the gut. New York: Industrial Marketing Management, 29(5): 411– 426.
49
Warner Business Books: 390. Brandenberger, A. M., & Nalebuff, B. J. 1996. Co-opetition.
36
Ibid., 229. New York: Doubleday: 4.
37 50
This definition is given on page 433 of an article describing Haddad, C. Dogfight in air cargo. Business Week, 16 June
emotional intelligence: Mayer, J. D., & Salovey, P. 1993. The 2003: 78 –79.
intelligence of emotional intelligence. Intelligence, 17:433– 442.
For more on emotional intelligence, see Goleman, D. 1995. Emo-
tional intelligence. New York: Bantam Books.
38
Articles citing strategic groups as reference points include David J. Ketchen, Jr. is the Carl
Fiegenbaum, A., & Thomas, H. 1995. Strategic groups as refer- DeSantis Professor of Manage-
ence groups: Theory, modeling and empirical examination of ment and the director of the Cen-
industry and competitive strategy. Strategic Management Jour- ter for Human Resource Manage-
nal, 16(6): 461– 476; Ketchen, D. J, & Palmer, T. B. 1999. Strategic ment at Florida State University.
responses to poor organizational performance: A test of com- He earned a doctorate at The
peting perspectives. Journal of Management, 25(5): 683–706; and Pennsylvania State University.
Nair, A., & Filer, L. 2003. Cointegration of firm strategies within His research interests include
groups: A long-run analysis of firm behavior in the Japanese uncovering the multi-level deter-
steel industry. Strategic Management Journal, 24(2): 145–159. minants of superior organiza-
39
Berner, R. Really big Sears stores. www.businessweek.com, tional performance, franchising,
16 June 2003. and the intersection of strategy
40
For example, see Hof, R., et al. Can Amazon make it? and supply chain management.
BusinessWeek, 10 July 2000: 38 – 43. Contact: dketchen@fsu.edu.
41
Afuah, A., & Tucci, C. L. 2001. Internet business models and
strategies: Text and cases. Boston: Irwin/McGraw Hill.

Charles C. Snow is the Mellon

Foundation Professor of Busi-
ness Administration at The
Pennsylvania State University.
His doctorate is from the Uni- Vera L. Street is a Ph.D. student
versity of California, Berkeley. in management at Florida State
His research interests are in the University. Her research inter-
areas of global competitive ests include first moves, compet-
strategy and new organiza- itive dynamics, the resource-
tional forms. He is the co-author based view, and entrepreneurial
of Collaborative Entrepreneur- stategies. Contact: vlh6654@fsu.
ship: How Groups of Networked edu.
Firms Use Continuous Innova-
tion to Create Economic Wealth.
Contact: csnow@psu.edu.