How Do Groups Matter?: Competitive Responses, Environmental Dynamism and Firm Performance

How Do Groups Matter?: Competitive Responses, Environmental Dynamism and Firm Performance

Bau-Jung Chang (Department of Business Administration, Feng Chia University, Taichung, Taiwan) and Yu-Pin Chen (Department of Business Administration, Feng Chia University, Taichung, Taiwan)
Copyright: © 2014 |Pages: 18
DOI: 10.4018/ijsds.2014070103
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Abstract

The purpose of this study is to examine the relationship between competitive responses and performance, subject to environmental dynamism and strategic action types, to understand competitive responses under moderating effects. This study employed a structured content analysis of coding data from multiple sources and collected competitive actions and responses for the period between 1999 and 2011 in the Taiwanese banking industry. The results show that response likelihood, response imitation and response speed are positively associated with firm performance and that environmental dynamism weakens the relationships among firm performance, response likelihood and response speed. Furthermore, the intensity of strategic action strengthens the relationship between response imitation and firm performance. This study first investigates the roles of environmental dynamism and action types on the relationship between competitive response characteristics and firm performance. This study considers not only the impact of individual firms' responses on their performance but also the impact of collective actions taken by other firms, thus providing new insights in competitive dynamics research.
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Introduction

Hyper-competition and action-response between close rivals have become major topics of discussion in the fields of both competition and firm performance. Researchers such as Smith et al. (1991), Chen and MacMillan (1992), Chen et al. (1992), Chen and Miller (1994), and Chen (1996) have looked at competitive strategies from a new angle, leading to their proposed competitive dynamics theory. A large number of scholars have contributed to this stream, resulting in an abundance of findings and insights. The primary framework of competitive dynamics focuses on the discussion of competitive action-response at the dyadic level, and emphasizes the importance of adopting competitive responses under a competitive dynamics scenario while reviewing the predictors of competitive responses. Other primary features of competitive dynamics theory are the intrinsic and extrinsic factors of firms’ decision repertoires that affect their strategic competitive behaviors and competitive strategies.

In addition to the action-response dyad, competitive dynamics researchers have devoted attention to competitors’ actions that do not involve competitive action-response. Derfus, Maggitti, Grimm, and Smith (2008) have extended the competitive dynamics research to discuss attributes of the actions of rivals other than action-response parties. Based on evolutionary and ecological theories, they address the Red Queen competition, which shows the importance of how entities dynamically interact and co-evolve with one another and that these actions should be taken into consideration when examining the impact of the actions of a focal firm on firm performance. The primary entities in a strategic environment have been constructed by close competitors—i.e., how those entities act and react may influence both firms’ strategies and the performance impact of those strategies, which represent uncertainty within the competitive environment. Moreover, Giaglis and Fouskas (2011) have examined the role of managerial perception on response variety, providing new insight in competitive dynamic research. This study proceeds from the objective viewpoint of environmental dynamism beyond subjective managerial perceptions, which may contribute to an understanding of competitive response characteristics and firm performance.

Although studies in organizational theory and traditional industrial competition, such as Derfus et al. (2008), Porter (1980) and Panagiotou (2006, 2007), have addressed the importance of non-focal-firm actors in making decisions, prior studies have failed to explain either how groups matter to response decisions after an attack or the impact of groups on performance. Extending the studies of Derfus et al. (2008) and Panagiotou (2006, 2007) and following the competitive dynamics and environmental dynamism literature, this study focuses on response characteristics and firm performance, along with the moderating effects of competitive environmental dynamism on relationship response characteristics and performance.

Moreover, the different impacts of competitive actions and responses to such actions have addressed by Chen et al. (1992). Strategic action involves not only specific and unique resources but also major commitment, which comprises information that is difficult for competitors with relatively slow response speeds to interpret, comprehend or imitate; whereas tactical action is often used to fine-tune strategy with less involvement and involves relatively easier implementation compared to general resources, which therefore makes tactical action more easily imitated by competitors with faster response speeds (Ansoff, 1984). Previous studies have noted the impact of various types of actions on firm performance; however, the moderating effects of types of actions on response characteristics and firm performance are still vague, and this study develops hypotheses to enhance the understanding of those effects.

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