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21 Cards in this Set
- Front
- Back
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Definition competitive advantage:?
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When a firm outperforms competitors who sell in the same market in terms of higher rates of economic profit.
However: Rivals can erode the competitive advantage of industry leaders. Fe: Through imitation or innovation. Fe: Game consoles innovator Atari surpassed by followers Nintendo/Sony. Already shows: Sustaining competitive advantage over time is not easy (but possible)! Fe: Nike or L’Oréal (by far world’s largest cosmetics and beauty company). |
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Definition sustainable competitive advantage:
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Long-term competitive advantage that is not easily duplicable or surpassable by competitors.
How? Differences between firms are persistent because of superior resources and capabilities. Isolating mechanisms may work to protect competitive advantage. Analogous to the Entry & Exit |
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Resource based theory of the firm?
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Explains sustained competitive advantage in terms of heterogeneity in resources and capabilities.
However! To support competitive advantage resources and capabilities have to be: Scarce. Imperfectly mobile. Unavailable in the open market. Otherwise: Any other firm could immediately replicate a strategy of a successful firm. |
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resources
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Resources:
Are a firm’s assets, including people and the value of its brand name. Represent inputs into a firm’s production process. Both: Tangible. Intangible. |
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Tangible resources, think of?
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Financial Resources • The firm’s borrowing capacity. • The firm’s ability to generate internal funds.
Organizational Resources • The firm’s formal reporting structure and its formal planning, controlling, and coordinating systems. Physical Resources • Sophistication and location of a firm’s plant and equipment. • Access to raw materials. Technological Resources • Stock of technology, such as patents, trade- marks, copyrights, and trade secrets. |
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Intangible resources, think of?
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Human Resources • Knowledge.
• Trust. • Managerial capabilities. • Organizational routines. Innovation Resources • Ideas. • Scientific capabilities. • Capacity to innovate. Reputational Resources • Reputation with customers. • Brand name. • Perceptions of product quality, durability, and reliability. • Reputation with suppliers. |
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What are the firms capabilities?
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Capabilities:
Are the firm’s capacity to deploy resources that have been purposely integrated to achieve a desired end state. Emerge over time through complex interactions among tangible and intangible resources. Are often based on developing and exchanging information and knowledge through the firm’s human capital. Development? Often in specific functional areas. |
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Capabilities, think of:
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Distribution • Effective use of logistic management.
Human resources • Motivating and retaining employees. Marketing • Effective promotion of brand-name products. Management • Effective organizational structure. Manufacturing • Designing extremely reliable products. R&D • Rapid transformation of new technology in new products and processes. |
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Another way to realise competitive advantage? Yes, isolating mechanisms!
What do these mechanisms do exactly?? |
Limit the rivals from eroding a firm’s competitive advantage.
Are to firms what barriers to entry are to industries. Two different groups: Impediments to imitation. Early-mover advantages. |
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What are impediments to imitation?
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Impede potential entrants from duplicating the resources and capabilities of the incumbent firm.
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Four important types of impediments are:
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Legal restrictions.
Fe: Patents, trademarks, copyrights. Superior access to inputs / customers. Fe: Exploiting an oilfield. Market size and economies of scale. Fe: Building windsurf boards. Intangible barriers. Fe: Difficult to understand how a network of a multinational firm works exactly. |
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Intangible barriers:
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If the firm’s advantages lies in distinctive organisational capabilities.
Three barriers can be identified: Causal ambiguity: the superior ability to create value may be obscured and imperfectly understood diseconomies of scale? Fe: Not much understanding of intra-firm linkages and the effects on firm performance. Historical circumstances: distinctive capabilities may be bound up with the history of the firm. Fe: Hummer. Social complexity: competitive advantage may be hard to replicate if the advantage is rooted in socially complex processes. Fe: Dynamic culture in R&D firm. |
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What are impediments to imitation?
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Impede potential entrants from duplicating the resources and capabilities of the incumbent firm.
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Four important types of impediments are:
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Legal restrictions.
Fe: Patents, trademarks, copyrights. Superior access to inputs / customers. Fe: Exploiting an oilfield. Market size and economies of scale. Fe: Building windsurf boards. Intangible barriers. Fe: Difficult to understand how a network of a multinational firm works exactly. |
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facts impediments:
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Legal restrictions: Buying patents or copyrights at open market prices will not yield economic profits unless the firm can deploy this asset in superior ways.
Superior access to inputs / customers: Through vertical integration or long term contracts. Only profitable if obtained at favourable prices winner’s curse problem. Market size and economies of scale: Effective when market demand can be met by one producer specialised products. |
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What are early mover advantages?
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Advantages of which the economic power increases over time.
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Four important types of early movers advantages are:
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Learning curve.
Fe: Amazon.com Reputation and buyer uncertainty. Fe: Lexus. Switching costs. Fe: Frequent flyer programs. Network effects. Fe: e-Bay and Monsterboard. |
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learning curve, reputation and buyer, switching costs
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Learning curve: A firms that sells more than its competitors in the early period moves farther down the learning curve and achieves a lower costs than its rivals.
Reputation and buyer uncertainty: For experience goods, a firm’s reputation for quality provides a significant advantage. Switching costs: Changing to another supplier is costly. Brand specific, buyer specific, loyalty programs. |
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Network effects:
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If customers value the product depending on how many others are using the product.
Two network effects can be distinguished: Actual networks: effect depends on how many customers are using the product. Fe: WhatsApp or Facebook. Virtual networks: arise from the use of complementary goods. Fe: DVD-players and DVDs. |
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Many networks are based on standards.
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Fe: Gauge width for railways is exactly 1 meter and 44,5 cm (60% world coverage).
Standards are difficult to replace. Option for the firm? Nice questions! Competing for the market? How do you replace a standard? Offer superior quality and new options. Attract early adopters. Competing in the market? High costs to replace a standard accept standard. |
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Conclusion: ch 14
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Sustainable competitive advantage: Not only difficult to create competitive advantage, but even more difficult to make it sustainable.
Ways to make competitive advantage sustainable: Impede imitation. Try to create and exploit early mover advantages. Example FedEx: Underlines the importance of organisational and strategic innovation over time to sustain competitiveness! |
