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31 Cards in this Set

  • Front
  • Back
History shows that most competitive advantages are ______.
fleeting
What are the determinants of sustainability?
Scarcity and Appropriability -- affect added and captured value
What determines appropriability of a strategic position?
• Whether owners pocket the value
• Holdup and Slack (captured value)
--affect captured value
What determine scarcity of a strategic position?
Imitation and Substitution
--affected added value
Imitation:
(1) Companies who base product differentiation on _____ as opposed to marketing are more vulnerable to imitation
(2) Competitors usually find out about most new products within _______ of their development
• (3)Patenting usually _________ imitation
• (4) Imitation tends to cost ______ less than innovation and is ______ quicker
(5) _______ innovations not significantly less imitable than product innovations
(6) Imitation can be impeded by __________________
(1) R&D
(2) a year
(3) fails to deter
(4) 1/3 ; 1/3
(5) Process
(6) first mover advantage
What are the 5 principles to early mover advantage?
• 1. Private Information
•Easier to keep private
• 2. Size Economies
•Scale, Learning, Scope
• 3. Enforceable Contracts / Relationships
•Better terms or contracts lock up the supply of a critical input
• 4. Threats of Retaliation
• 5. Response lags: Sum or observation and implementation
•Prisoner’s Dilemma
What are the barriers to imitation? (3 main areas and subsets)
(1) Constraints on imitating firm (tradeoffs)
• Inconsistencies in image / reputation
• Incompatible activity requirements
• Inconsistent needs in internal controls
(2) Some resources are inimitable
• Scale economies
• Scope (product, geographic, vertical)
• Patents
• Learning and know-how
• Contracts, relationships
• Network Externalities
(3) Complexity of the firm’s strategy or culture
Substitution:
(1) ________ likely to be confined to direct competitors
(2) Successful substitution finds a way around _______, it is an ________ attack
(3) Substitution is a bigger threat than imitation since __________________
(4) Substitution depends on the mismatch between ______________________________________________.
(1) Less
(2) scarcity ; indirect
(3) it is often overlooked by companies
(4) established positions and market opportunities to override early mover advantage
What is holdup a determinant of?

What does it do?
Determinant of appropriability.

• Diverts value to customers, suppliers, or complementors who have bargaining leverage
(1) When does holdup arise?

(2) Holdup is the consequence of gaps between _______
(1) Arises when parties in a relationship have invested in assets that are specific to that relationship, so it’s hard to walk away
• Specialized supplier
(2) owners and managers
How can holdup be reduced?
• Holdup can be reduced by
• Multiple sourcing
• Shift in timing of negotiation
• Elimination of bargaining through careful contracting or vertical integration
Slack is...
internal threat to capture value (determinant of appropriability)
Slack:
(1) Slack is persistent ___________ (or inefficiencies) in firms that can harm LTP
(2) Slack is the extent to which the scarcity value realized by the organization falls short of _________
(3) Whereas holdup concerns the portion of the pie to the owners and non-owners, slack is _____________________________________________
(4) Slack is hard to ________ and __________
(5) Slack is worst under _______ competitive environments and settings in which managers have ______________ over production process.
(1) sub-optimization
(2) its potential
(3) a step above that affects the total size of the pie that is available to owners and non-owners
(4) identify and measure
(5) forgiving ; wide discretion
Slack builds because
• High innovation intensity hard to monitor
• Incomplete information to monitor
• Growth of employees
• How to manage
• Information, aligning goals of employees with companies and moral persuasion
What are the ways to combat slack?
Monitoring of performance
o Benchmarking
o Time-motion studies
o Outsiders on boards
Managerial incentives
Commitments to return cash
o E.g. dividends to shareholders or lenders via debt
Appeals to a higher calling, a sense of mission
What are the threats to sustainability for the low-cost airlines?
(explain via imitation, substitution, holdup, slack)
Imitation
• Other low cost airlines
• Competition for secondary airports
Substitution
• Other travel nodes
• New business models
Holdup
• Pilots? Partners? Airport authorities?
Slack
• Becoming sloppy at keeping costs down
Building a sustainable competitive advantage: it takes more time and more cost to imitate along _________ than ___________.
many dimensions than along one or two
What are the ways to build a sustainable competitive advantage?
(1) Making commitments
• Staking out particular opportunities through commitments
(2) Developing Capabilities
• Organizational capabilities relevant to strategy:
• Characterize what a company can do well (choice about product and services influence capabilities)
• Organizational capabilities differ across companies in the same industries.
• Capabilities are hard to imitate
• Private information, tacit, rooted deep in complex organizational processes
What is industry transformation?
It's when the nature of doing business in an industry significantly changes to something that was not possible before
When does industry transformation occur?
o Occurs when significant way of doing business that was not possible before
What are the 3 triggers for transformations?
• Change in technology
• Change in what customers want
• Change in regulation
Facts about industry transformation:
(1) What is important to know about industry transformation and the productivity frontier?
(2) ____ and lack of _______ characterize this stage
(3) Often companies are _______-valued by capital providers during industry transformation
(4) What is the point at which "experiments" fail? Meaning the point at which changes occurring don't work for every company?
(1) It typically shifts the entire productivity frontier of the industry (not just improvements in operational effectiveness)
(2) risk ; information
(3) over-valued
(4) Convergence
What should be a company's strategy during the period of transformation?
Good analysis of future industry structure
• Distinguish the enduring from the transient
• Look for internal consistencies
• Identify clearly the uncertainties that remain
Cirque du Soleil
What are the conclusions of the 5 forces analysis for the Circus industry in the 80s (both big league and little league)
• Big League: There is quite a lot of money to be made here; but one dominant player will make sure that we do not succeed in this space
• Little League: not much money to be made here
What made the circus industry a virtuous cycle in the past?
Lots of M&A through history of circus because there are only so many big-name talents...so the same big circus owners (e.g. Ringling brothers) kept it's advantage
What is the Cirque du Soleil strategy?
Differentiation
Cirque du Soleil: Differentiation

(1) Redefined ___________
(2 Unique ____________
(3) Win-win _________
(4) Customer _________
(5) Customers more ____________ , _____________
(1) Experience
(2) positioning
(3) partnerships
(4) Loyalty
(5) sophisticated ; affluent
Why is the circus industry becoming increasingly competitive recently?
• Fragmented industry (60 circuses in US alone)
• Past directors are creating their own shows
• Emergence of niche circuses
How can Cirque Du Soleil maintain its distinctive advantage?
(1) Define a new industry (is it still circus?)
(2) Redefine business scope: products, clients, geography
(3) Define a whole new set of activity systems
(4) Increase willingness to pay while reducing cost: new value creation
(5) Value Innovation
• Simultaneous pursuit of differentiation and low cost (eliminating some factors and adding others)
• Shifts out the productivity frontier
• Cost savings from eliminating and reducing
• Differentiation by raising and creating
What has led to Cirque du Soleil's revenue generation?
•More profitable pool of customers → Higher price
•No head to head competition → Higher price
•Multiple Productions: more visits per customer → Higher volumes
•Leap in value → Pulls new customers into the industry
How as Cirque du Soleil eliminated costs?
•Eliminating High Cost, Low Value Elements (stars, animals, trainers)
•Yearly productions allow fast coverage of fixed costs
•Leveraging untapped, high value, lower cost talent pool (Russia, China, Latin America)