Lecture 3: Competing with resources Flashcards
2 main perspectives of “business strategy”
- Outside-in perspective
based on industry structure
Focuses on:
influence that competition forces,
industry transformation paths,
first-mover benefits,
barriers to entry and mobility,
reconfiguration options on company - Inside-out perspective
resource-based perspective
focus on:
core competencies,
dynamic capabilities,
VRIN criteria and influence on firm
Define capabilities and resources
RESOURCE
=>competitive asset or a productive input owned/controlled by company.
*tangible resources- include buildings, machinery, raw materials, capital etc.
*intangible resources- intellectual property, brand, reputation, network, legitimacy, organisational relationships/culture.
CAPABILITY/COMPETENCY
the capacity that company can carry out different activities completely. How well a company can do certain things or activities.
Connection between competencies & resources
Competencies make use of the resources.
ex. company has trucks, drivers etc. and their competence is well organised transport.
Types of competencies/capabilities
*Core competencies- highly important activities for organisational performance.
Can become “core rigidities”: unable to change or adapt.
*Distinctive competencies- activities that company can perform better than the competition.
*Dynamic capabilities- types of competencies that allow companies to adapt and be ready for future.
!Should keep core competencies dynamic, to not become absolute!
Company performance
More complex than financial ratios.
Goals and performance aims are largely subjective or cognitively determined by management.
Thus, difficult to measure or predict.
Disadvantages of being above managerial aspiration
Management tends to have relaxed approach.
Performing well–>no need to improve.
Leads to lack of proactiveness and create unmanageable problems later on.
Disadvantages of being below managerial aspirations
Management panics and make aimless decisions.
Heavily invest in R&D, launch new products.
Often create even worse position
How sustainable is good performance?
Predicting good performance of the companies is extremely difficult (2 books mentioned)
Study comparing high ROI companies with low ROI companies found that after 10 years the performance gap was almost 0.
What leads to good performance?
LUCK- leads to good performance more often than people think.
*R&D luck
ex. Paharmasutical molecules- drug which have unintended positive side effects. (NovoNordisk- Ozempic)
ex. Serendipity for 3M post-it notes
*Compatibility luck
when companies choose to connect with the right platform technology (Android)
when companies invest in technology which is compatible with developments in an emerging industry (Amazon S3)
*Position luck
first mover advantage in a market that starts to grow rapidly (Gillette) or when companies invest in products that have uncertain regulatory power (Uber).
Variation in company performance
Variation in performance of company can be explained by
*Industry effects (10.3%)
*Corporate level effects (11.6%)
*Business-level effects (36%)
remaining part hard to explain- luck and other factors.
Threats undermining good performance diagram
Sustainability (Ability to sustain above average performance)–>
A.) Scarcity (Is the competitive advantage based on scarce resource?)
1. Imitation
Will competitors- tempted by promise of high profits be able to imitate the resource position?
2. Substitution
Will the competitors provide substitute that meet the same customer needs as we do?
B.) Appropriation (Can the owner benefit from the competitive advantage?)
1.Hold-up
Are there an actors (besides owners), who are appropriating the benefits of competitive advantage?
2. Slack
To what extent bureaucracy and inertia drive out benefits of competitive advantage?
Imitation threat
Competitors able to imitate the product/service.
If other companies lack attractive competencies or face cost disadvantage–> resources are “inimitable” or “costly-to-imitate”–>creates temporary competitive advantage.
Substitution threat
Competitors meet the same needs customer needs as the firm.
If companies lack attractive competencies –> develop competencies to get the same value to the customers in a different way–>temporary competitive advantage.
Hold-up threat
Actors besides owners of the company can appropriate the benefits of a competitive advantage of a company.
If there are other actors involved in the value-creation process their input is crucial and withdrawn can highly impact company, due to hold-up
If there are no such actors–>temporary competitive advantage
Slack threat
Happens when bureaucracy or inertia destroys the benefits of a competitive advantage.
If the company has a prudent culture in which the profits are given to owners/shareholders and savings are reinvested it can be temporary competitive advantage.
If company does not have such culture its leading position can be damaged due to slack.
