Strategizing with Competitive Asymmetry
In competitive dynamics field inside business strategy discipline, MCRS (Market Commonality — Resource Similarity) and AMC (Awareness — Motivation — Capability) frameworks help managers defining their competitive strategy. Both request several inputs to depict a firm’s competitive scenario according to the framework in order to make visible the key questions that managers have to ask. But they do not give managers any suggestion on what to do. The responsibility runs on their shoulders. The aim of this technical note is to make one more twist to the frameworks in order to get the optimal strategy to undertake in the presence of competitive asymmetry.
Competitive Asymmetry
Competitive asymmetry is the phenomenon where two competitors do not coincide in its competitive standpoint between each other. Company 1 could have company 2 as its main rival while company 2 could have company 1 as a secondary competitor. If both companies coincided, e.g. main rival versus main rival, then there would be competitive symmetry.
Awareness
In this technical note awareness is taken as information symmetry/asymmetry. The focal firm will have complete information regarding itself and the competitor so with both standpoints. If the competitor has incomplete information, so the competitor is assuming competitive symmetry, then this competitor will be deemed unaware. While if the competitor also has complete information from both standpoints, it will be deemed an aware competitor.
Motivation
In this technical note motivation will be the best movement given the standpoints dyad coming from the MCRS framework. Due to competitive asymmetry, each of the 4 possible categories for the competitor from the focal firm standpoint could be paired with any of them from the competitor’s standpoint. So giving 16 possible combinations or dyads.
Capability
In this technical note both the focal firm and the competitor will be deemed capable of attacking or retaliating. The lack of this assumption would make competitive asymmetry just irrelevant.
Actions
The set of possible actions undertaken by a firm will be to ignore (passive), retaliate (reactive) or attack (proactive).
MCRS
A competitor can fall in one of the 4 possible categories. To define the implications for the focal firm, MCRS framework needs to be pushed a bit further.
Quadrant I represents a competitor with high market commonality and high resource similarity from the focal firm standpoint. Simplifying but without loss of generality, the focal firm and the competitor are competing in the same markets with similar products to satisfy the same need. Hence competition between them can only be in price and competition brings margins down. This quadrant will be called “Mutual Forbearance” and the competitor in it “twin”. A focal firm with the competitor in this quadrant will not want to attack the competitor but will retaliate if the competitor attacks.
Quadrant II represents a competitor with high market commonality and low resource similarity from the focal firm standpoint. Simplifying but without loss of generality, the focal firm and the competitor are competing in the same markets with different products to satisfy the same need. Hence competition between them is about different value propositions. This quadrant will be called “Differentiation” and the competitor in it “different”. A focal firm with the competitor in this quadrant will want to attack the competitor.
Quadrant III represents a competitor with low market commonality and low resource similarity from the focal firm standpoint. Simplifying but without loss of generality, the focal firm and the competitor are competing in different markets with different products to satisfy the same need. Hence any action undertaken by them is not deemed a threat or a direct attack. This quadrant will be called “Perfect Competition” and the competitor in it “common”. A focal firm with the competitor in this quadrant will neither want to attack the competitor nor retaliate for any action the competitor undertakes.
Quadrant IV represents a competitor with low market commonality and high resource similarity from the focal firm standpoint. Simplifying but without loss of generality, the focal firm and the competitor are competing in different markets with similar products to satisfy the same need. Hence competition between them is deemed as a threat or a direct attack since the competitor could easily enter focal firm’s markets. The same way that the focal firm could enter the competitor’s markets. This quadrant will be called “Ocean” and the competitor in it “future”. A focal firm with the competitor in this quadrant will want to attack the competitor.
Dyads
The initial analysis is done assuming the competitor is unaware. So from the competitor’s standpoint there is only competitive symmetry. While for the focal firm there is competitive asymmetry. The focal firm will accommodate its ideal action to the optimal one given the expected action from the competitor.
Optimal Actions Map
The graphic representation of the optimal focal firm actions is shown below. The quadrant represents focal firm’s standpoint of its competitor and the arrow points to the quadrant representing competitor’s standpoint.
50% of actions trigger competition, 38% of actions respond to a threat and the remaining 12% will not compete at all. Since financial and material resources are scarce there has to be a priority order between attack actions. The criterion to determine this priority order will be as follows:
1st. Intra-quadrant war: this is the case of competitive symmetry. War within a group of equals (so within a quadrant) tends to be harder than between groups of equals (so between quadrants).
2nd. Inter-quadrant war: if there is a quadrant that wants to attack and another one that does not, the quadrant that wants to attack has priority.
3rd. Attacking a quadrant where the competitor will not retaliate.
4th. Attacking a quadrant where the competitor will retaliate with sparse resources.
5th. Attacking a quadrant where the competitor will retaliate with plenty of resources.
The highest probability to observe competition is between companies that find one of the two dimensions high and the other low. And the lowest probability to observe competition is between companies around Mutual Forbearance quadrant.
Symmetric information
If the competitor is fully aware, then the information is symmetric. Hence in the optimal actions map each pair of counter posed arrows represents the optimal actions of both the focal firm and the aware competitor. So both firms can see what the intentions of the other are in each dyad. This changes the optimal actions map to the following:
Perfect information releases competitive tension in dyads 3 & 9 (PC-MF) turning this pair of arrows to Ignore-Ignore. The firm seeing the competitor as “common” knows that the competitor wants to ignore any action taken by the competitor, so there is not any need to retaliate any longer. And the firm seeing the competitor as “twin” prefers an Ignore-Ignore situation than a Retaliate-Retaliate one, because it would release resources for other battles.
It also introduces competitive tension in dyads 7 & 10 (PC-D) and 12 & 15 (PC-O). Now the firms know that attacking bears retaliation everywhere.
With this new status quo, the possible fronts in Perfect Competition quadrant are reduced but the ones in Mutual Forbearance quadrant are kept. Making the latter more likely to have resources dispersed among all the fronts. Hence more vulnerable in relative terms. This switches the interest of possible attacks from Perfect Competition to Mutual Forbearance quadrant. Following the attack priority criterion, the priority between Perfect Competition and Mutual Forbearance quadrants is interchanged.
This outcome is aligned with the common practice in competitive dynamics to exclude companies in quadrant III (with low market commonality and low resource similarity) from the set of significant competitors. Usually competition is framed inside the quadrants I, II and IV area. Inside the competition area, it still holds that the lowest probability to observe competition is between companies around Mutual Forbearance quadrant.