Bus 189 Ch.3

Costs of imitation: Causal ambiguity (Southwest airlines- HR)

- causal links between resources and competitive advantage may not be understood - bundles of resources fog these causal links

Internal analysis assumes:

- determinates of economic performance are firm level characteristics (resources and capabilities) * firms may be different (heterogeneity) * differences may be enduring (immobility) - competitive advantage stems from resources and capabilities that meet the VRIO criteria

Internal analysis helps a firm:

- determine if its resources and capabilities are likely sources of competitive advantage - establish strategies that will exploit any sources of competitive advantage

Costs of imitation: Unique historical conditions (caterpillar)

- first mover advantage - path dependence

The question of Rarity

- if the resources is not rare, then perfect competition dynamics are likely to be observed (no competitive advantage, no above normal profits) - a resource must be rare enough that perfect competition has not set in

Resource immobility

- it may be costly for firms with out certain resources to acquire or develop them - some resources may not spread from firm to firm easily

Resources

- tangible and intangible assets of a firm - used to conceive of and implement strategies

Competitive dynamics "no action" response (Rolex--> casio) - a firm may decide to take no action because:

- the other firm is serving a different market - a response may hurt its own competitive advantage - it does not have the resources and capabilities to mount an effective response - it wants to reduce or manage rivalry in the market through tacit collusion

The question of imitability

- the temporary competitive advantage of valuable and rare resources can be sustained only if competitors face a cost disadvantage in imitating the resources - intangible resources are usually more costly to imitate than tangible resources

Costs of imitation: Patents

- two edged sword - offer a period of protection if the firm is able to defend it patent rights - required disclosure may actually decrease the cost of imitation, and the timing

What does resource heterogeneity do?

- typically occurs as the result of bundling the resources and capabilities of a firm - managers of a firm could take resources that seem homogenous and bundle them to create heterogenous combinations - competitive advantage typically stems from several resources and capabilities bundled together

The resourced based view of internal analysis

- used to help firms achieve competitive advantage and superior economic performance - assumes that a firms resources and capabilities are the primary drivers of competitive advantage and economic performance

Four categories of resources

1. financial 2. physical 3. human 4. organizational

Two critical assumptions of the resource based view (RBV)

1. resource heterogeneity 2. resource immobility

VRIO

1. value 2. rarity 3. imitability 4, organization

The question of Organization

A firms structure and control mechanisms must be aligned so as to give people ability and incentive to exploit the firms resources

Internal Analysis

Provides a comparative look at the firms capabilities

Valuable rare, but not costly to imitate

Temporary competitive advantage

Capabilities

a subset of resources that enable a firm to take full advantage of other resources - marketing skill, cooperative relationships

valuable and rare

competitive advantage (at least temporarily)

Not valuable

competitive disadvantage

valuable, but not rare

competitive parity

Resource heterogeneity

different firms may have different resources

tangible assets

factories, products

Question of organization example

formal and informal reporting structures, management controls, compensation policies, relationships, etc.

intangible assets

reputation

Valuable, rare, and costly to imitate

sustained competitive advantage (organized)

If a firm has resources that are VRIO..

the firm can expect to enjoy a sustained competitive advantage

High costs of imitation

the firm may enjoy a period of sustained competitive advantage

Costs of imitation: Social complexity (Wordperfect)

the social relationships entailed in resources may be so complex that managers cannot really manage them to replicate them

Competitive Dynamics

the strategic decision and actions of firms in response to the strategic decisions and actions of other firms

Applying the question of organization

these structure and control mechanisms complement other firm resources-- taken together, they can help a firm achieve sustained competitive advantage (3m company)