Reading 3 (Strategy & Entrepr)

time compression diseconomies

trying to achieve the same outcome in a short time period, even with higher investments, tends to lead to inferior results

Direct Imitation

A firm that enjoys a competitive advantage, however, attracts significant attention from its competitors. They will attempt to negate a firm's resource advantage by directly imitating the resource in question (direct imitation) or through working around it to provide a comparable product or service (substitution).

Dynamic capabilities

A firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources in its quest for competitive advantage. For a firm to sustain its advantage, any fit between its internal strengths and the external environment must be dynamic.

Resource-based view

A model that sees certain types of resources as key to superior firm performance. (both tangible & intangible) The two assumptions critical to the resource-based model are: 1) resource heterogeneity 2) resource immobility

Social complexity

A situation in which different social and business systems interact with one another. There is frequently no causal open comprehension as to how the individual systems such as supply chain management or new product development work in isolation. Managed through Six Sigma or ISO 9000.

Causal ambiguity

A situation in which the cause and effect of a phenomenon are not readily apparent. managers need to have a hypothesis or theory of how to compete

Path dependence

A situation in which the options one faces in the current situation are limited by decisions made in the past.

VRIO Framework

A theoretical framework that explains and predicts firm-level competitive advantage. or Tool for evaluating a firm's resource funding is a framework that answers the question, What resource attributes underpin competitive advantage? This framework is implied in the resource-based model, identifying certain types of resources as key to superior firm performance. Although VRIO resources can lay the foundation of a competitive advantage, no competitive advantage can be sustained indefinitely must be: Valuable, Rare, and costly to Imitate. And finally, the firm itself must be Organized to capture the value of the resource.

Resources

Any assets that a firm can draw on when formulating and implementing a strategy.

Resources

Any assets that a firm can draw on when formulating and implementing a strategy. (Resources can be either tangible or intangible)

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.

Resource heterogeneity

Assumption in the resource-based view that a firm is a bundle of resources and capabilities that differ across firms.

Isolating mechanisms

Barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy. includes Better expectations of future resource value. Path dependence. Causal ambiguity. Social complexity. Intellectual property (IP) protection. If one, or any combination, of these isolating mechanisms is present, a firm may strengthen its basis for competitive advantage, increasing its chance to be sustainable over a longer period of time.

Five guys example

Core Competencies: Superior ability to deliver fresh, customized hamburgers as well as hand-cut fries using the highest- quality ingredients. Application Examples: Hamburgers and fries.

Beats Electronics example

Core Competencies: Superior marketing: creating a perception of coolness. Establishing an ecosystem, combining hardware (headphones) with software (streaming service). Application Examples: Beats by Dr. Dre and Beats Music.

Activities

Distinct and fine-grained business processes that enable firms to add incremental value by transforming inputs into goods and services.

primary activities

Firm activities that add value directly by transforming inputs into outputs as the firm moves a product or service horizontally along the internal value chain. (Supply chain management, Operations, Distribution)

support activities

Firm activities that add value indirectly, but are necessary to sustain primary activities. (Research and development (R&D), Information systems, Human resources)

Valuable resource

One of the four key criteria in the VRIO framework. A resource is valuable if it helps a firm exploit an external opportunity or offset an external threat. (positive effect on a firm's competitive advantage)

Costly-to-imitate resource

One of the four key criteria in the VRIO framework. A resource is costly to imitate if firms that do not possess the resource are unable to develop or buy the resource at a comparable cost.

Rare resource

One of the four key criteria in the VRIO framework. 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.

Organized to capture value

One of the four key criteria in the VRIO framework. The 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. costly-to-imitate resource can form the basis of a sustainable competitive advantage depends on the firm's internal structure.

Inside the Firm

Rather than creating a onetime and thus a static fit, the firm's internal strengths need to change with its external environment in a dynamic fashion. At each point the goal should be to develop resources, capabilities, and competencies that create a strategic fit with the firm's environment

Intangible resources

Resources that do not have physical attributes and thus are invisible. (Culture, Knowledge, Intellectual property)

Tangible resources

Resources that have physical attributes and thus are visible. (Labor, Capital, Building)

Strategic activity system

The conceptualization of a firm as a network of interconnected activities.

Resource stocks

The firm's current level of intangible resources. Intangible resource stocks are built through investments over time.

Resource flows

The firm's level of investments to maintain or build a resource.

Value chain

The internal activities a firm engages in when transforming inputs into outputs; each activity adds incremental value.

Strategic activity system math example

Turns out, Firm B is very good at copying, managing to achieve a 90 percent accuracy rate. Will Firm B be able to negate Firm A's competitive advantage as a result? Far from it. Recall that Firm A's activity system comprises 25 interconnected activities. Because each of these activities is copied with just 90 percent accuracy, that means Firm B's ability to copy the entire system accurately is 0.9 × 0.9 × 0.9 . . ., repeated 25 times, or 0.9^25 = 0.07

Core competencies

Unique strengths, embedded deep within a firm, that are critical to gaining and sustaining competitive advantage.