Week 1 Flashcards
Firm resources can be categorized into 3 categories:
- Physical Capital Resources
- Human Capital Resources
- Organizational Capital Resources
Physical Capital Resources (Firm resource type)
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.
Human Capital Resources (Firm resource type)
The intangible skillset associated with stakeholders in the company: Training, experience, judgement, intelligence, relationships, and insight of individual managers and workers in a firm.
Organizational Capital Resources (Firm resource type)
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.
Competitive Advantage
A value-creating strategy that current or potential competitors are not currently implementing.
Sustained Competitive Advantage
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.
Competitive Advantage vs Sustained Competitive Advantage
A “sustained” competitive advantage is acquired when the value-creating strategy cannot be duplicated by potential or current competitors.
Sustained Competitive Advantage:
Resource Homogeneity + Mobility
It is not possible for firms to enjoy a sustained competitive advantage
Sustained Competitive Advantage:
Resource Homogeneity + Mobility + First Mover Advantages
- 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.
Sustained Competitive Advantage:
Resource Homogeneity + Mobility + Entry/Mobility Barriers
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.
To have the potential to create a sustained competitive advantage, a firm resource would need to have 4 attributes:
- 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.
- Rare- among the firm’s current and potential competition.
- Imperfectly imitable
- No strategically equivalent substitutes
How can a firm’s resource be imperfectly imitable? (3)
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
Define the 2 forms of Substitutability:
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
Sustained Competitive Advantage:
Information Processing Systems (2)
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.
Sustained Competitive Advantage:
Positive Reputations (2)
- 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.
The 5 Competitive Forces that Shape Strategy:
- Rivalry among existing competitors
- Threat of new entrants
- Threat of substitute products or services
- Bargaining power of suppliers
- Bargaining power of buyers
Barriers to entry definition
These are advantages incumbents have over new entrants.
Sources of barriers to entry (7)
- 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
Bargaining power of suppliers is high if: (6)
- There is a large industry with a small number of suppliers
- Supplier group does not depend heavily on the industry for its revenues.
- Supplier group can credibly threaten to integrate forward into the industry.
Industry participants face high switching costs in changing suppliers - Supplier group offers products that are differentiated (opposed to standardized)
- There is no substitute for what the supplier provides.
- Industry participants face high switching costs in changing suppliers
High switching costs (for changing suppliers)
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…
Bargaining power of buyers is high if: (2)
Buyers have
- negotiating leverage
- price sensitive (power is much higher in this instance)
When do buyers have negotiating leverage? (4)
- 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).
When are buyers price sensitive? (4)
- 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.
Threat of a substitute is high if: (3)
- 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.
