Ripples in the Pond: Product Portfolio Reconfiguration and Dynamism in the Competitive Environment

The management literature often overlooks how firms can alter the competitive landscape without introducing groundbreaking changes or innovations. Applying the awareness, motivation, and capability framework from competitive dynamics, we posit that as a firm intensifies its product portfolio reconfiguration, its rivals become increasingly aware and motivated to respond, creating a ripple effect that accelerates change in the competitive environment. However, extreme reconfigurations may decrease rivals’ motivation due to the costly and disruptive nature of keeping pace. We also argue that rivals will be more motivated to respond to reconfigurations from a firm with high customer orientation and when they possess financial slack. Using a longitudinal dataset of 6382 firms’ product portfolios and those of their rivals, we find support for these arguments. This study contributes to competitive dynamics research by expanding the focus to a firm’s entire set of rivals and highlighting how a firm’s competitive moves can result in ripple effects throughout its rival network. We also demonstrate how moderate organizational changes can quickly lead to increased environmental dynamism, an overlooked avenue in research of dynamism. Finally, we suggest that a broadened competitive dynamics perspective rooted in Austrian economics can enhance our understanding of firm adaptation.