Strategic Decision-Making: Competitive Environment

You could think of business strategy as a chess game. In chess, before you make a move, you model the most likely subsequent move of your opponent and then, conditional on what he or she will do, you finalize your move. A poor way to play chess is to make moves and not consider what your rival will do next since you will be put in checkmate very quickly. In business strategy, managers must also figure out the subsequent actions of other actors. However, as compared to chess where there is only one other party to consider, business strategy involves numerous parties.

When making decisions, top management teams (TMTs) must think specifically about how the following people or entities will react:

• buyers or customers,
• suppliers,
• government regulators,
• pressure groups, and 
• competitors.

This is not an exhaustive list, but it does include the most prominent actors.

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Example: AT&T Purchases T-Mobile

As an example, AT&T announced in 2011 that it was going to purchase its rival T-Mobile for $39 billion. AT&T’s top management, however, did not completely model the reactions of the necessary parties, as evidenced by the strong counterpressure that came shortly after the announcement. Within weeks of the March 20, 2011 press release, AT&T and its TMT were dealing with all sorts of issues, including

• customer defections because some customers were unsure if the newly merged company would offer the same plans as they currently had in place;
• U.S. Department of Justice (DOJ) officials announcing a probe and lawsuit to block the merger due to antitrust concerns;
• an FCC investigation and lawsuit to block the merger due to antitrust concerns; and
• a lawsuit by rival Sprint to block the merger due to antitrust concerns.

In essence, AT&T was playing a chess game without modeling its rivals’ subsequent moves. As a result, it was forced to back out of the deal and, according to the contract, had to pay T-Mobile $6 billion in break-up fees. This led to a multibillion-dollar loss in the 4th quarter of 2011 and a $2 million pay cut to the CEO. Had AT&T thought through its moves better, it may have been able to anticipate the quite obvious reactions of other actors and allocated its time and monies somewhere more effective (Brown, 2017).

 

 

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