Table Of ContentSTRATEGY AS ACTION
STRATEGIC MANAGEMENT SERIES
Editors
Michael A. Hitt, R. Duane Ireland, and Robert E. Hoskisson
Strategy as Action: Competitive Dynamics and Competitive Advantage
Curtis M. Grimm, Hun Lee, and Ken G. Smith
Strategy as Action
Competitive Dynamics and
Competitive Advantage
Edited by
Curtis M. Grimm
Hun Lee
Ken G. Smith
1
2006
1
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Strategyasaction:competitivedynamicsandcompetitive
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PREFACE
Curtis Grimm and Ken Smith arrived at the Robert H. Smith
School of Business at the University of Maryland in August
1983, fresh Ph.D. degrees in hand. Although from different disciplinary
backgrounds—Grimm from industrial organization economics and Smith
from strategic management—we shared a keen interest in challenging
current ways of thinking about strategy and competitive interaction. We
wereespeciallyconcernedwithscholars’conceptionofstrategyasinactive.
Tous,strategywasaction!Itwasahigh-stakesraceofactionandreaction,
where timingofactioniscrucial tosuccess. Wesubsequentlydevelopeda
body of research on the actual competitive actions and reactions of real
firmsacrossabroadrangeofindustries.Theideaspresentedinthisbookare
drawn from that research, which has been reported in a wide variety of
academicjournals.
When should a firm be innovative or entrepreneurial, when should it
aggressively take on rivals from a position of strength, and when should
it cooperate? What is the right way to attack a rival, or the best way to
defend an established position? When is it important to act quickly?
We have explored those questions over our 20-year collaboration, in-
cluding the last several years with a former Ph.D. student, Hun Lee, As-
sociateProfessorofStrategicManagementatGeorgeMasonUniversity.The
threeofushavesynthesizedandadvancedtheseideasinaformatdesigned
toserveasasupplementtoabasicstrategytextforanMBAcourseorthe
undergraduatecapstonecourse.Thebookwouldalsobeappropriateinan
electivecourseonindustryandcompetitoranalysis.Theideasareofgreat
relevancetocurrentandfuturemanagersintoday’scompetitiveandfast-
pacedbusinessenvironment.Researchersinstrategywillalsofindvaluein
readingthetext.
Morespecifically,inchapter1wehighlighttheintensityofcompetition
today, and stress the urgency of using an action perspective to gain com-
petitive advantage. Chapter 2 reviews the different economic perspectives
of competition and introduces game theory as an approach for investi-
gating competitive advantage. Chapters 3 and 4 present frameworks that
facilitate the analysis of a firm’s relative market and resource position.
Chapter 5 introduces the action model of advantage and shows how ac-
tions both consume and develop firm resources while influencing a firm’s
market position and performance. The chapter points out that actions
provokereactions,andthatitisinthecontextofactionandreactionthat
advantages are developed and eroded.
Chapters 6 through 8 all focus on engaging competitors to ‘‘win the
battle’’ and improve the firm’s resource and market position. In partic-
ular, chapter 6 examines the case of the firm with limited resources and
a poor market position and argues that such firms must undertake en-
trepreneurial actions that delay reaction by exploiting competitive un-
certainty and blind spots. Chapter 7 considers the case of the firm with a
relative internal resource advantage over rivals and shows how it can
exploit such a resource advantage through Ricardian actions. Ricardian
actions based on resource advantages delay reaction because of resource
scarcity. Chapter 8 presents the case of the market leader and explains
how such a firm can use market power and intimidation to defend its
markets through actions that deter competitors and delay reaction. In
contrast to chapters 6 through 8, chapter 9 examines how firms can
engage in cooperative actions when ‘‘winning the battle’’ is precluded by
resource and market parity among firms. Competitive reaction is not as
likely with cooperative actions. Chapter 10 demonstrates more specifi-
cally how managers can use the model and discusses the types and
sources of information needed to do so. The final chapter summarizes the
book’s arguments and considers linkages across the resource positions
presented in chapters 6 through 9. Attention is focused on firm evolu-
tion. A stage model of organizational development is offered as an in-
tegrative device to summarize and explain how firms build advantage
over time.
We have used earlier versions of this material very effectively in the
classroom and recommend that instructors of strategy consider its adop-
tion.Importantly,thebookisintegrative,presentingafreshperspectiveon
strategy but one that fully incorporates and can be used with more tra-
ditionalviews.Porter’svaluechain,industryandSWOTanalysis,andthe
resource-basedviewarealldiscussedwithinourframework.Ourapproach
helps those ideas to come alive in an up-to-date and dynamic action
context that has great practical relevance.
vi PREFACE
The book also integrates material on the legal, regulatory, and ethical
environment of business. An instructor using the text can address those
important issues completely within a strategy context rather than pre-
senting them separately after fundamental strategy ideas have been cov-
ered.Forexample,theopeningchapterdiscussestheevolvingcompetitive
environment, includingthephenomenaofderegulation andprivatization,
globalization, and technological change that motivate and necessitate the
action-oriented approach we present. The chapters on co-opting actions
anddeterrentactionsincorporatetheantitrustlawsandethicalstandards
withwhichmanagersmustgrapple.Ratherthanavoidingthoseissues,we
face head-on the difficult tradeoffs managers often must make when an
action that will improve firm profitability, and the manager’s salary and
status, is in a gray area of legality and ethics.
Many people contributed in important ways to this book. Duane Ire-
land,MikeHitt,andBobHoskissonaskedustowriteabookoncompetitive
dynamics for the Oxford University Press Series on Strategic Management
and provided excellent assistance throughout, including detailed com-
ments on a preliminary version of the manuscript. We thank John Rau-
schenbergandKeithFaivre,oureditorsatOxfordUniversityPress,fortheir
assistance and patience during the course of the project.
We gained much from our earlier collaboration with Martin Gannon
in developing the ideas presented here. Several former doctoral students
worked with us and sharpened our thinking, including Ming-Jer Chen,
August Schomberg, Greg Young, Tom Quasney, Pam Derfus, and Wally
Ferrier.WealsothankMBAstudentsAnthonyAiroso,SarahBartholomen,
James Parker, Kristi Vigil, and Elizabeth Welch and graduate research as-
sistantDharmeshTrivedifortheirresearch,someofwhichispresentedin
chapter 10.
We owe a particular debt of gratitude to Pamela Derfus, a former doc-
toral student, who served as our research assistant and in-house editor.
Pam contributed substantially to the clarity of our prose as well as to the
substance of the material.
We have all received strong institutional backing in writing this book.
The Robert H. Smith School of Business offered a uniquely supportive
environment for writing this book. Dean Howard Frank has taught us
much about leadership and the importance of taking action. Former As-
sociate Dean Judy Olian provided consistent support and encouragement.
George Mason University and Dean Rich Klimoski provided support by
funding summer research and a study leave.
Many colleagues contributed comments, ideas, and inspiration, in-
cluding Steve Carroll, Tom Corsi, Ed Locke, Lee Preston, Rhonda Reger,
Brian Shaffer, Hank Sims,and SusanTaylor. Numerousdoctoral students
PREFACE vii
at Maryland, including Dax Basdeo, Kevin Clark, Yan Dong, Don Knight,
Patrick Maggitti, Ayesha Malhotra, Cormac Mac Fhionnlaoich, Chris Lin,
Daniel Simon, and Kefeng Xu, provided research assistance and helpful
comments.
Lastbutnotleast,weextendspecialthankstoourfamilies,whoinspire,
support, and motivate our efforts.
viii PREFACE
CONTENTS
Part I. The New Competitive Advantage
1: Disruptive Competition: Intensifying Actions
and Reactions in the Twenty-First Century 5
Part II. Strategic Paradigms of Competitive Advantage
2: Economic Theories of Competition and Competitive
Advantage: Neoclassical, Industrial Organization,
Game Theory, Schumpeterian, and Evolutionary
Economics 31
3: Knowing Your Relative Market Position 48
4: Knowing Your Relative Resource Position 68
Part III. Action-Based Dynamic Model of Competitive
Advantage
5: An Action-Reaction Framework for Building
Competitive Advantage 83
