Ch4

Time compression diseconomies refers to the concept that

attempting to get a good outcome in less time tends to be ineffective

Dynamic Capabilities Perspective

A model that emphasizes a firm's ability to modify and leverage its resources in a way that enables it to gain and sustain competitive advantage in a constantly changing environment Distinguish between resource stocks and resource flows create deploy modify reconfigure upgrade resources

Resource-based view

A model that sees certain types of resources as key to superior firm performance Firms are a distinctive collection of resources, capabilities, and competencies Two assumptions: 1) resource heterogeneity 2) resource immobility

Groupon

Competitive advantage was temporary since its resource was not rare or costly to imitate

Combining Imitation and Substitution

Firms in some instances are able to combine direct imitation and substitution when attempting to mitigate the competitive advantage of a rival.

IBM

How did IBM regain its competitive advantage? through transforming itself multiple times

Substitution

Working around to provide a comparable product or service (valuable and rare resources) Accomplished through strategic equivalence.

Resource Immobility

assumption in the resource-based view that a firm has resources that tend to be "sticky" and that do not move easily from firm to firm. Difficult to duplicate or imitate, can last for a long time.

Honda

clearly defined core competency. lessons learned from failure, built the core competency to design and manufacture small but powerful and highly reliable engines for which it now is famous. Their core competency results from superior engineering know-how and skills carefully nurtured and honed over several decades. Hondas engines can be found everywhere

Activities

distinct and fine-grained business processes that enable firms to add incremental value by transforming inputs into goods and services activities give leverage to core competencies that give to competitive advantage and superior firm performance order taking physical delivery of products invoicing customers

Resource heterogeneity

implies that each firm has different resources Bundle of resources and capabilities that is unique to the firm

Intangible resources

resources that do not have physical attributes and thus are invisible culture knowledge brand equity reputation intellectual property (patents, designs, copyrights, trademarks, trade secrets) Competitive advantage is more likely to spring from intangible rather than tangible resources. Brand name must be built, often, over a long period of time through continuous investments and experience over time

Resource Stocks

the firm's current level of intangible resources Dynamic capabilities new product development engineering expertise innovation capability reputation for quality supplier relationships employee loyalty corporate culture customer goodwill know-how patents trademarks

Resource Flows

the firm's level of investments to maintain or build a resource. investments in resources (think of facets flowing into a bathtub and the leakage/outflow) outflows = leakage, forgetting employee turnover, key employees leave reduction of resources

Direct Imitation

A firm that enjoys a competitive advantage attracts significant attention from its competitors. They will attempt to negate a firm's resource advantage by directly imitating the resource in question Is swift if the firm is successful and intellectual property (IP) protection such as patents or trademarks can be easily circumvented.

VRIO Framework

A theoretical framework that explains and predicts firm-level competitive advantage. Used to assess the competitive implications of a firm's resources Valuable Rare Imitate is costly Organized to capture the value of the resources Valuable & rare = competitive parity Valuable, rare & costly to imitate = temporary advantage all = sustainable competitive advantage To fully exploit the competitive potential of its resources, capabilities and competencies, a firm must be organized to capture value.

Isolating Mechanisms

Barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy. Barriers to imitation: Better expectations of future resource value Path dependence Casual ambiguity Social complexity Intellectual property (IP) protection

Core Rigidity

Former core competency that turned into a liability because the firm failed to hone refine and upgrade the competency as the environment changed. Over time the original core competency is no longer a good fit with the external environment and turns from an asset to a liability. This is the reason for reinvesting honing and upgrading resources and capabilities are so crucial to sustaining any competitive advantages.

Value Chain

Internal activities a firm engages in when transforming inputs into outputs Each activity adds incremental value and incremental costs

Social Complexity

Isolating Mechanism A situation in which different social and business systems interact with one another No casual ambiguity as to how the individual systems such as supply chain or new product development work in isolation. Otten managed through standardized business processes such as Six Stigma or ISO 9000. Social complexity emerges when two or more systems are combined. Neither direct imitation or substitution is a valid approach. Create too many possible permutations for a system to be understood with accuracy. Rare costly to imitate resource that the firm is organized to exploit. Social and business systems that work in one firm may be hard to imitate due to complex interactions between these systems

Isolating Mechanisms: How to sustain a competitive advantage

No competitive advantage can be sustained indefinitely. Isolating mechanisms

Costly to Imitate

One of the four VRIO A resource is costly to imitate if firms doesn't possess the resource are unable to develop or buy the resource at a comparable cost. IF the resource in question is valuable, rare, and costly to imitate then it is an internal strength and a core competency. If the firm's competitors fail to duplicate the strategy based on the valuable, rare and costly to imitate resource then the firm can achieve a temporary competitive advantage.

Primary activites

add value directly by transforming inputs into outputs as the firm moves a product or service horizontally along the internal value chain. Inputs to outputs to production phases to sales and marketing and finally to customer service: supply chain management operations distribution marketing and sales after sales service

Support Activities

add value indirectly, but are necessary to sustain primary activities Research and Development (R&D) Information systems Human resources Accounting and finance firm infrastructure including processes, policies and procedures. Each activity performed needs to either add incremental value to the product or service offering or lower its relative cost.

Resources

any assets that a firm can draw on when formulating and implementing a strategy Resources reinforce core competencies cash buildings machinery intellectual property

Resource Heterogenity

assumption in the resource-based view that a firm is a bundle of resources and capabilities that differ across firms. This ensures that analysts look more critically at the resource bundles of firms competing in the same industry (or even the same strategic group) bc each bundle is unique to some extent.

Beats

core competencies helped the company gain and maintain competitive advantage Their core competencies are marketing and projecting coolnes

Insights gained from SWOT lead McDonald's to open new resturants in China

financial strength and brand name growth in emerging economies and market share decline in developed economies

Dynamic Capabilities

firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources in its quest for competitive advantage. Most relevant in changing markets because the firm must be able to change its internal resource base as the external environment changes. intangible resource Essential to move beyond a short lived advantage and create a sustained competitive advantage.

Valuable Resource

one of the four VRIO a resource is valuable if it helps a firm exploit an external opportunity or offset an external threat. It has a positive effect on a firm's competitive advantage. Increases economic value creating (V-C). It increases the perceived value of its product or service in the eyes of consumers by offering superior design and adding attractive features (assuming the cost isn't increasing)

Capabilities

organizational and managerial skills necessary to orchestrate a diverse set of resources and deploy them strategically Capabilities orchestrate core competencies structure routines culture

Tangible resources

resources that have physical attributes and thus are visible labor capital land buildings plant equipment supplies

Path Dependence

Isolating Mechanism A situation in which the options one faces in the current situation are limited by decisions made in the past. Strategic decisions generate long-term consequences due to path dependence and time-compression diseconomies; they are not easily reversible. A competitor cannot imitate or create core competences quickly. Suggests sometimes even random events may have a large impact on an outcome

Organized capture to value

One of the four VRIO Characteristic of having in place an effective organizational structure, processes and systems to fully exploit the competitive potential of the firm's resources, capabilities and competencies.

SWOT Analysis

Framework that allows managers to synthesize insights obtained from an internal analysis of company's strengths and weaknesses with those external opportunities and threats to derive strategic implications *note internal: strength and weaknesses external: opportunities and threats (can be captured by PESTEL) Strengths Opportunities - to derive offensive alternatives by using an internal strength in order to exploit an external opportunity. Strength Threat - use an internal strength to minimize the effect of an external threat Weakness Opportunities - shore up an internal weakness to improve its ability to take advantage of an external opportunity. Weaknesses Threats- to derive defensive alternatives by eliminating or minimizing an internal weakness in order to mitigate an external threat.

Casual ambiguity

Isolating Mechanism A situation in which the cause and effect of a phenomenon are not readily apparent To formulate and implement a strategy that enhances a firm's chances of gaining and sustaining a competitive advantage managers need to have a hypothesis or theory of how to compete. Managers need to have some kind of understanding about what causes superior or inferior performance. Understanding cause and effect of a strategy to help managers avoid casual ambiguity

Intellectual Property (IP) Protection

Isolating Mechanism Critical intangible resource that can provide a strong isolating mechanism and thus help to sustain a competitive advantage. Five major forms: patents, designs, copyrights, trademarks and trade secrets Prevent others from copying legally protected products or services. Can make direct imitation difficult or illegal. Doesn't last forever, once protection has been expired the invention can be used by others.

Better expectations of future resource value

Isolating Mechanism Firms can acquire sometimes resources at a low cost which lays the foundation for a competitive advantage later when expectations about the future of the resource turn out to be more accurate. Although luck can play a role in gaining an initial competitive advantage, it is not a basis for sustainable competitive advantage

Rare Resource

One of the four VRIO A resource is rare if the number of firms that possess it is less than the number of firms it would require to reach a state of perfect competition. If a resource is common, it will result in perfect competition where no firm is able to maintain a competitive advantage. Valuable but not rare resources can lead to competitive parity at best

Core Competencies

Unique strengths, embedded deep within a firm, that are critical to gaining and sustaining competitive advantage It allow a firm to differentiate its products and services from those of its rivals and create a higher value for the customer or offering products and services of comparable value at lower cost. Competitive advantage can be driven by core competencies. Core competencies that are not continuously nourished will eventually lose their ability to yield a competitive advantage. It can be too easy to focus on the more visible elements or facets of core competencies such as superior products and services. Firms that fail to adapt their core competencies to a changing external environment not only lose a competitive advantage but also may go out of business. Ideally, managers want to leverage their firms internal strengths and to exploit external opportunities while mitigating internal weaknesses and external threats. Allow managers to formulate a strategy that is tailored to their company creating a unique fit between the company's internal resources and the external environment. Strategic fit increases likelihood that a firm is able to gain competitive advantage. If a firm achieves a dynamic strategic fit it is likely to be able to sustain its advantage over time. Dynamic strategic fit sustain its advantage over time.