Life in the fast lane: Origins of competitive interaction in new vs, established markets, страница 6

Overall, we propose that high-performing firms use frequent R&D moves to keep offering products that are attractive to customers, align product competition with their own advantages, and make it more difficult for rivals to predict, plan, and execute their competitive responses. In contrast to poorly performing firms that use market moves to disrupt the landscape, high-performing firms engage in R&D moves to preserve the current topography (cf. Miller and Chen, 1994). We propose:

Hypothesis 1 (H1). High-performing firms will be less likely to enact market moves than low-performing firms in markets with moderately temporary advantages.

Hypothesis 2 (H2). High-performing firms will be more likely to enact R&D moves than low-performing firms in markets with moderately temporary advantages.

Markets with highly temporary advantages

From the evolutionary theory perspective, new markets with highly temporary advantages can be conceptualized as search landscapes that are unstable and intensely competitive. These landscapes are unstable such that new peaks often arise frequently as the market unfolds and as rival firms make moves that reshape the landscape. Thus, the terrain is ‘in an early stage of formation’ (Santos and Eisenhardt, 2009: 644). Second, since the terrain is largely unknown (i.e., locations of peaks and valleys are unmapped), firms learn about the terrain only through search which further intensifies competition. For example, through both local and nonlocal search, firms attempt to learn more about new product characteristics and customer segments (Katila and Ahuja, 2002). Illustrating search in an unknown terrain, one participant-manager described the new market as ‘a black box that nobody knows…We sort of pitch out ideas and put them on the wall, throw some number in, and the actual preferences [of customers] are revealed when you start to move.’ In addition to unknown customers and undefined product attributes (Hargadon and Douglas, 2001), there are no well-defined turfs of competition or spheres of influence to defend (Katila and Shane, 2005). This makes the landscape unstable and the competition intense.

Given the unknown topography of new markets, we propose in Hypothesis 3 that high-performing firms are particularly motivated to engage in frequent market moves in new markets for several reasons. First, since the new market landscape is in flux, firms that currently occupy high-performing positions have a high incentive to make market moves in order to keep pace with the changing topography of the landscape. Product introductions to new segments help firms understand the market (e.g., segment growth, customer preferences, effective sales channels). Such moves can also provide valuable information about customers' willingness to pay for particular features. In contrast, low-performing firms that occupy the valleys of the new landscape are more likely to be overwhelmed by instability, see few immediate solutions, and adopt a wait and see strategy that lets the landscape explore for them (i.e., wait for new peaks to arise rather than engage in instant market moves). Consistent with this logic, several high-performing teams saw the new market as a land grab opportunity that needed to be exploited quickly before others entered, while unsuccessful teams focused on the ‘risks of the unknown market’ and avoided moves. In fact, many low performers blamed the instability of the market for their poor performance. Second, high-performing firms are more motivated to engage in market moves because of momentum. That is, executives are likely to face high uncertainty in new markets and, thus, look to their recent past for simple and local solutions. Consequently, since high performers in new markets are likely to have engaged in frequent market moves in the past (Sorenson, 2000), they are likely to continue making market moves. Low performers are similarly likely to persist, so they make few market moves. Third, unlike established markets, firms in new markets can experiment with market moves without incurring significant retaliation. Information is often poor. Competitors are usually not entrenched in market segments, as the segments are ambiguous, competitive threats are unclear or even nonexistent, and norms of mutual forbearance are unlikely to exist. Thus, market moves in new markets are less likely to incur retaliation than those in established markets, especially if conducted by high-performing firms that can retaliate aggressively. Together, these arguments suggest that high-performing (not low-performing) firms are motivated to engage in market moves in new markets.