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Firm Level Strategies

Let’s take a look at firm-level strategies. Firm-level strategy addresses the question, “How should we compete against a particular firm?” Although Porter’s five industry forces indicate the overall level of competition in an industry, most companies do not compete directly with all the firms in their industry. Instead of competing with an entire industry, most firms compete directly with just a few companies within it. Direct competition is the rivalry between two companies offering similar products and services that acknowledge each other as rivals and take offensive and defensive positions as they act and react to each other’s strategic actions. Two factors determine the extent to which firms will be in direct competition with each other: market commonality and resource similarity. Market commonality is the degree to which two companies have overlapping products, services, or customers in multiple markets. The more markets in which there is product, service, or customer overlap, the more intense the direct competition between the two companies. Resource similarity is the extent to which a competitor has similar amounts and kinds of resources, that is, similar assets, capabilities, processes, information, and knowledge used to create and sustain an advantage over competitors. While corporate-level strategies help managers decide what business to be in, and industry-level strategies help them determine how to compete within an industry, firm-level strategies help managers determine when, where, and what strategic actions should be taken against a direct competitor. Firms in direct competition can make two basic strategic moves: attack and response. An attack is a competitive move designed to reduce a rival’s market share or profits. A response is a countermove, prompted by a rival’s attack, that is designed to defend or improve a company’s market share or profit. When deciding when, where, and what strategic actions to take against a direct competitor, managers should always consider the possibility of retaliation.