Lessons 8 - 14 Flashcards
Capabilities vs dynamic capabilities?
Capabilities: purposeful combination of a firm’s resources that enable the firms to perform activities, such as logistics, marketing and sales, manufacturing.
The bridge between intentions and outcomes.
Dynamic Capabilities: the ability of firms to deal with change: integrate, build, reconfigure internal and external skills to address rapidly changing environments. (higher level capabilities)
Based on the three basic processes: (Teece)
-Sensing: identify opportunity.
-Seizing: R&D investments and competence building.
-Transforming: recombination and organizational change.
What are the main views on capabilities?
1) Origin of capabilities, by Edith Penrose. Firms are made of tangible and intangible assets: production resources and capabilities.
2) Resource-based view of the firm: firm is made by financial, human, technical… resources. Capabilities are the way a firm can efficiently organize them.
3) The evolutionary view of capabilities: firms are repositories of knowledge embodied in organizational routines, partly tacit. Such knowledge evolves through processes of adaptation and search, which is idiosyncratic to each firm. Firms have distinctive capabilities and unique ways of doing things.
Capabilities vs routines?
Capabilities have intentionality.
Routines are procedural and behavioral knowledge, “the way things are done”.
Routines are building blocks of capabilities.
What are organizational capabilities and why are they important in representing firms?
Organizational capabilities (Nelson) are a set of skills, routines and complementary assets not transferable among firms.
They are:
- partly tacit
- based on procedural knwoledge
- specific to an application domain
- difficult to imitate
- they bind the range of possible actions of the firm
The are important in representing firms because they are idiosyncratic to each firm.
Can you provide some examples of capabilities?
Core Capabilities: (prahalad and hamel)
capabilities at the root of organization (NEC):
Cap-> Product->Business->Final product
as opposed to the traditional view of the firmGTE):
Strategic Business Unit ->Cap->Business->Final product
Hierarchy of Capabilities, from bottom to top: Functional, Organizational, Strategic.
Integrative Capabilities: capability of integrating different pieces of knowledge (internal & external).
Dynamic Capabilities: the ability of firms to deal with change: integrate, build, reconfigure internal and external skills to address rapidly changing environments.
What can you say about the inertiality of competences?
Competences have inertia: they are reluctant to change. It happened in history that firms remained focused on their core capabilities, failing to focus on new capabilities they needed to stay relevant. These became core rigidities. (KODAK)
This is why Dynamic capabilities are so important, they enable firms to adapt skills based on changing environments and develop new capabilities.
What is the difference between competence enhancing technological change, competence destroying technological change and lock-in?
Competence enhancing = technological change that uses the same capabilities of the older technology paradigm.
Competence destroying = advent of a new technology where the competences of the old one are no relevant anymore. Dynamic capabilities are necessary to anticipate the change and build a timely transition to the new technology. (Sense, Seize, Transform)
Lock-in = when companies remain stuck in their own value networks, given the positive feedback of current consumers.
They can’t develop new capabilities on the side, so they are destined to be displaced by new entrants.
(IBM pc, Blockbuster)
What is disruptive innovation and the Innovator’s dilemma?
The innovator’s dilemma is a book by Christensen 1997 that talks about disruptive technological innovation and its role.
A disruptive innovation is a radical innovation that displaces previous technology or practices.
They are sustaining: improving the performance of existing products.
A disruptive innovation initially underperforms existing products in mainstream markets, it has some features that appeal to a small niche of consumers. But its trajectory leads it to eventually overperform existing products and become appealing to mainstream consumers.
In what ways do firms react to disruptive innovations?
- Focus on existing distinctive competences.
- Attack who threatens you.
- Innovate the same way/Imitate
- Innovate in different ways
What are different approaches that look at industrial evolution?
- Industry dynamics
- Industry life cycle
- Evolution of sectoral systems
What is industrial dynamics and discuss the characteristics?
Industry dynamics looks at how the industry changes over time due to the entry, exit and growth of firms in the industry.
Analysis possible due to the recent availability of large datasets about the statistics of countries and industries at firm and employee level. 1989-1994
What are the stylized facts about industry dynamics?
1) Entry and exit are common (firm turnover rates = entry and exit /total firm population; 15-20% across countries
2) Entry and Exit happens mainly by small firms. (employee turnover rate) 4-12%
3) Entry and Exit are correlated – The revolving door. More entry, more exit.
4) The firms that survive, grow. (size and age data)
Compare entry in microeconomics and entry in evolutionary theory.
Entry in Microeconomics: - has an Equilibrating role
- driven by prices (High prices signal
that there is profit margin. Firms
enter, supply increases and prices fall)
Entry in Evolutionary theory: Entrant increase the variety of actors in the industry by introducing new products, strategies, organizational forms and approaches. So often they bring disequilibrium and challenges to the incumbents.
What are technological entrants?
Technological entrants are firms that patent a technology for the first time in a specific technology.
What do we know about the main obstacles to innovation of young innovative firms compared to old innovators?
Main obstacles for young innovative firms are:
- Financial constraints. High fixed start-up costs and capital investments + Innovation Cost
- Talented advanced human capital
- Finding cooperation partners
- Lack of experience (organization, technical…)
What are the stylized facts about spinoffs?
1) better performance than de-novo entrants
2) are rare in very young or very old firms
3) high performing firms generate more spinoffs
4) high performing firms generate better performing spinoffs
What theories can explain the creation of a spin-offs
1) Agency theory, no sharing of information, ownership.
2) Cannibalization. new product might cannibalize company product.
3) Disagreement. Sharing of information, but it is not considered valid.
4) Rigid organization. The inventor learns in the company but leaves because the company is Rigid.
What is an Industry life cycle?
Industry life cycle is a model that looks at industrial evolution and takes into account the following parameters:
- entry, exit, growth
- product and process innovation
- competition and concentration
The industry life cycle consists of:
- Emergence stage (uncertainty, variety of products, low barriers)
- Growth stage (dominant design, increase efficiency, shakeout)
- Maturity stage (no uncertainty, low innovation, high concentration)
- Discontinuity (new technology comes in and obsolete old one)
Provide an example of industry life cycle?
Automotive industry:
- Start. Lots of players at beginning 21st century.
- Growth. Emergence of of 3 large producers. Japanese enter (first shakeout). High competition with product and emergence of dominant design. Increase efficiency with Ford assembly chain and mass production. Lots of exit.
- Maturity. Oligopoly.
Give me the exceptions to the industry life cycle.
- Process then product (service based industries)
- product innovation only (specialized suppliers, instruments)
- Early process innovation (petrochemicals)
- joint occurrence of product and process (pharmaceuticals)
- segmentation and submarkets (lasers)
What is industry evolution/evolution of a sectoral system?
Elements of a sectoral system provide a good basis for conducting industry evolution analysis.
Method of examining industries with:
- entry, exit, growth, product, process, concentration, competition
- origin of industries
- change in firms’ competences
- change of firms boundaries
- developments of network of firms
- role of institutions
It consists of:
- trigger event
- incubation stage
What is a trigger event of a new industry?
Event that activates the emergence of a new industry:
- Scientific discovery
- radical innovation
- new demand segment
- Mission oriented grand challenges.
What is the incubation stage?
Period between the introduction of a discontinuity and the first instance of commercialization, which will shape the industry structure and firm strategy.
In this stage there are heterogenous actors with diverse knowledge.
Lots of experimentation to reduce uncertainty.
What are the approaches to modeling industry dynamics?
1) Neocalssical. Jovanovic Model.
Homogeneous product, known demand and perfect competition.
Firms differ in their efficiencies, but are uncertain about their own level of efficiency. As they enter and operate in the market, they understand their efficiency and may decide to exit or adjust their production level.
2) Evolutionary. Nelson’s and Winter model.
Are competitive industries more innovative than concentrated industries?
Depends on 4 factors affecting concentration:
1. Rate of growth of technological opportunities (basic or applied)
2. Appropriability conditions
3. Uncertainty (variance of innovative results)
4. Investment policies (aggressive or non)
Concentration is high when… (high all)
Imitation is better when there is low appropriability.
In high technological opportunity scenarios, large firms may decide to imitate, because they can produce in large scale.
IBM, fast second mover.
