Week 1

Question 1

Firm resources can be categorized into 3 categories:

Answer 1

• Physical Capital Resources
• Human Capital Resources
• Organizational Capital Resources

Question 2

Physical Capital Resources (Firm resource type)

Answer 2

The tangible assets within a firm such as physical technology used in a firm, a firm’s plant and equipment, the geographical location/land, and access to raw materials.

Question 3

Human Capital Resources (Firm resource type)

Answer 3

The intangible skillset associated with stakeholders in the company: Training, experience, judgement, intelligence, relationships, and insight of individual managers and workers in a firm.

Question 4

Organizational Capital Resources (Firm resource type)

Answer 4

Relational and organizational resources such as:
- Formal reporting structure
- Formal and informal planning and coordinating systems
- Informal relations among groups within a firm, between a firm, and those in its environment.

Question 5

Competitive Advantage

Answer 5

A value-creating strategy that current or potential competitors are not currently implementing.

Question 6

Sustained Competitive Advantage

Answer 6

A value-creating strategy that current or potential investors are not currently implementing.
It is specifically a “sustained” competitive advantage when other firms are unable to duplicate the benefits of this strategy.

Question 7

Competitive Advantage vs Sustained Competitive Advantage

Answer 7

A “sustained” competitive advantage is acquired when the value-creating strategy cannot be duplicated by potential or current competitors.

Question 8

Sustained Competitive Advantage:
Resource Homogeneity + Mobility

Answer 8

It is not possible for firms to enjoy a sustained competitive advantage

Question 9

Sustained Competitive Advantage:
Resource Homogeneity + Mobility + First Mover Advantages

Answer 9

• First-moving firms can enjoy a sustained competitive advantage due to knowledge accumulated from the learning curve.
  - For this to occur, the firm needs to have insights about
  the opportunities associated with implementing a strategy that
  is not possessed by other firms in the industry.
• However, if competing firms are identical in the resources they control, it is not possible for a firm to obtain a competitive advantage from first moving.

Question 10

Sustained Competitive Advantage:
Resource Homogeneity + Mobility + Entry/Mobility Barriers

Answer 10

A sustained competitive advantage is achievable for firms protected by the entry or mobility barrier.
However, this is only possible if the firms in that industry are heterogeneous in terms of the resources they control and if these resources are not perfectly mobile.

Question 11

To have the potential to create a sustained competitive advantage, a firm resource would need to have 4 attributes:

Answer 11

1. Valuable—Resources in a firm are considered valuable when they increase efficiency and effectiveness, exploit opportunities, and/or neutralize threats in a firm’s environment.
2. Rare- among the firm’s current and potential competition.
3. Imperfectly imitable
4. No strategically equivalent substitutes

Question 12

How can a firm’s resource be imperfectly imitable? (3)

Answer 12

Firm resources can be considered imperfectly imitable when they have one or more of the following values:
- Unique historical conditions
- The link between resource and competitive advantage is causally ambiguous.
- The resource generating a firm’s advantage is socially complex

Question 13

Define the 2 forms of Substitutability:

Answer 13

Substitutability can take at least 2 forms:
1. The ability to substitute similar resource that enable implementation of the same strategy.
2. Very different firm resources can also be substitutes.
E.g. Charismatic leader with a clear vision vs Firm’s formal planning system

Question 14

Sustained Competitive Advantage:
Information Processing Systems (2)

Answer 14

Whether Information Processing Systems can create sustained competitive advantages or not is dependent on the type of information processing system that is being analyzed:
- Possibly a source of SCA: The information processing system is deeply embedded in a firm’s formal and informal management decision-making process.
- Not a source of SCA: When machines that can be purchased by competitors and the strategy is purely the use of that machine, it is not possible to attain an SCA.

Question 15

Sustained Competitive Advantage:
Positive Reputations (2)

Answer 15

• Possibly SCA: When competitors do not have a positive reputation (yet) (i.e. historical setting for your firm built reputation positively)
• Not a source of SCA: As firms can use a guarantee for customers and suppliers through long-term contracts.
  This serves as a substitute for a positive reputation.

Question 16

The 5 Competitive Forces that Shape Strategy:

Answer 16

1. Rivalry among existing competitors
2. Threat of new entrants
3. Threat of substitute products or services
4. Bargaining power of suppliers
5. Bargaining power of buyers

Question 17

Barriers to entry definition

Answer 17

These are advantages incumbents have over new entrants.

Question 18

Sources of barriers to entry (7)

Answer 18

• Supply-side economies of scale
• Incumbency advantages independent of size
• Restrictive government policy
• Demand-side benefits of scale
• Unequal access to distribution channels
• Customer switching costs
• Capital Requirements

Sir Ducc

Question 19

Bargaining power of suppliers is high if: (6)

Answer 19

1. There is a large industry with a small number of suppliers
2. Supplier group does not depend heavily on the industry for its revenues.
3. Supplier group can credibly threaten to integrate forward into the industry.
   Industry participants face high switching costs in changing suppliers
4. Supplier group offers products that are differentiated (opposed to standardized)
5. There is no substitute for what the supplier provides.
6. Industry participants face high switching costs in changing suppliers

Question 20

High switching costs (for changing suppliers)

Answer 20

This is where firms have high costs associated with changing suppliers.
This may include costs associated with adjusting the product to fit new supplier, paying for training for employees to handle new product, etc…

Question 21

Bargaining power of buyers is high if: (2)

Answer 21

Buyers have
- negotiating leverage
- price sensitive (power is much higher in this instance)

Question 22

When do buyers have negotiating leverage? (4)

Answer 22

• Few buyers or each buyer purchases in large volumes (Especially in industries with high fixed costs and low marginal costs).
• Industry products are standardized (a lot of viable competitors)
• Low switching costs to change to a different competitor.
• Buyers can integrate backwards and produce products (if vendors are too profitable).

Question 23

When are buyers price sensitive? (4)

Answer 23

• The product that is being purchased represents a significant fraction of its cost structure or procurement budget.
• Buyers earn low profits, strapped for cash, or under pressure to trim purchasing costs.
• Quality of buyers products are minimally affected by the seller’s product.
• Industry product has little effect on the buyer’s other costs.

Question 24

Threat of a substitute is high if: (3)

Answer 24

• It offers an attractive price-performance trade-off to the industry’s product.
• The buyer’s cost of switching to the substitute is low.
• Firms cannot read each other’s signals well due to lack of familiarity with one another, diverse approaches to competing, or differing goals.

Question 25

When does rivalry among existing competitors drive down an industry’s profit potential? (2)

Answer 25

Rivalry among competitors drive down profit potential when there is a high INTENSITY amongst competitors and is dependent on the BASIS at which they compete.

Question 26

The intensity of rivalry amongst existing competitors is highest if: (5)

Answer 26

• Many competitors are roughly equal in size and power.
• Industry growth is slow
• Exit barriers are high because of highly specialized assets or managements devotion to a particular business.
• High commitment from the rivals, goals that go beyond economic profit.
• Firms cannot read each other’s signals because of lack of familiarity.

Question 27

The basis for competition:

Answer 27

• Price-based: This is where the products are standardized with few switching costs for buyers. These are industries where there are low margins and high fixed costs, meaning profitability is low
• Product-feature based:

Question 28

What are 2 downsides to industries with a fast growth rate?

Answer 28

1. Fast growth can put suppliers in a powerful position due to the high demand.
2. High growth with low entry barriers will draw in entrants, increasing competition.

Question 29

What are complementary products and services?

Answer 29

A complementary product is

Question 30

The boundaries of an industry consist of 2 primary dimensions:

Answer 30

• Scope of the products or services- If the industry structure remains constant between 2 products (suppliers, barriers to entry, customers, etc…), it is likely that they are treated as the same industry.
• Geographical Scope- If an industry has different structures in different regions, each region may well be a distinct industry.

Question 31

What are the typical steps in an industry analysis? (6)

Answer 31

1. Define the relevant industry.
2. Identify the participants and segment them into groups.
3. Assess the underlying drivers of each competitive force to determine which forces are strong and which are weak and why.
4. Determine overall industry structure, and test the analysis for consistency.
5. Analyze recent and likely future changes in each force, positive and negative.
6. Identify aspects of industry structure that might be influenced by competitor, by new entrants, or by your company.