Perceptions of competitive environment and organizational capabilities as antecedents of firm’s competitive response characteristics and performance: an examination of managerial perceptions on competitive response behavior of the firm and firm performance

Abstract

The study of competitive actions and reactions has gained attention in strategic management literature over the last two decades. The dominant stream of this research has focused on modeling the behavior of a firm by examining the impact of various measurable and observable characteristics that are expected to systematically influence competitive action and reaction accordingly. However, in this research we take a different approach by associating competitive behaviors with subjective managerial beliefs. We develop a predictive model that examines the effects of both perceptions of competitive environment and organizational characteristics of a firm on key competitive response characteristics to determine whether responding to competitive actions is based on evaluation of environmental threats and opportunities or on assessing the competitive quiver of the firm’s capabilities related to its rivals. Moreover, this research examines the degree to which competitive response characteristics are aligned with competitive environments and organizational capabilities and, in turn, may lead to increased performance. In particular, we study the circumstances under which competitive response characteristics lead to superior performance or failure. Thus, we gain a better insight on the alignment of competitive reactions with the competitive environment characteristics and specific organizational capabilities in order to improve organizational performance. We conducted two studies in order to validate our reseach question. The first study consisted of a survey among 174 firms from manufacturing, trade and service industries in Greece. The second study referred to 23 case studies conducted among firms belonging to the same industry. The results indicate a significant association between perceived industry forces, organizational capabilities, and aspects of the competitive reaction characteristics. Certain aspects of the perceived competitive environment form perceptions that influence specific characteristics of the competitive responses either positively or negatively. This applies for speed, intensity and innovation of competitive responses. Our research indicates that managers do not decode industry characteristics in terms of observable figures, but instead react on rival actions based on the perceptions they shape about the competitive environment and, more specifically, the threat the competitive environment poses for the survival of their firm, especially if they choose not to react. At the same time, perceptions of distinctive firm capabilities also influence specific characteristics of the competitive responses either positively or negatively but not to the same degree. Although their effects are limited (compared to perceptions of the competitive environment) to the speed, intensity and innovation of responses, they pose a significant influence on the breadth of the competitive instruments used for reaction, which seem not to be directly affected by perceptions of the competitive environment. This leads the competitive