Week 3

Question 1

Two perspectives on Business strategy:

Answer 1

The outside-in perspective - based on industry structure and focuses on the influence that competitive forces, industry transformation paths, first-mover benefits, barriers to entry and mobility, and reconfiguration options have on a company

The inside-out perspective - driven by a resource-based perspective, and it focuses on core competencies, dynamic capabilities, and VRIN criteria and their influence on firm.

Question 2

What is a resource?

Answer 2

Resource is a competitive asset or a productive input that is owned by a company or controlled by a company.

Question 3

What is a capability/competency:

Answer 3

is the capacity that the company has to carry out different activities competently. It is about how well a company can do certain things or activities.

Question 4

Types of competencies:

Answer 4

Core competencies - the activities which are highly important to organisational performance. They can also become core “rigidities” (unable to be changed or adapted).

Distinctive competencies - are the activities in which the company can perform better than its competitors.

Dynamic capabilities - a type of competencies that allow companies to adapt and be ready for the future.

Core competencies should be kept dynamic.

Question 5

Performance level (above/below aspirations):

Answer 5

1) When performance is above managerial aspirations - managers tend to have a relaxed approach, as they do not feel the need to improve operations

2) Below managerial aspirations - the management usually starts to panic and make aimless decisions. Heavily investment is R&D, or launch new products, however these auctions often leave in worse positions.

Question 6

What leads to above-average performance? (Luck)

Answer 6

Luck leads to good performance more often than people think:

R&D luck - pharmaceutical molecules (a drug which has unintended positive side effect), serendipity (3M post-it notes)

Compatibility luck - when companies choose to connect with the right technology (android), or when companies invest in tech which is compatible with developments in an emerging industry.

Position luck - first-mover advantages in a market which starts to grow rapidly, or when companies invest in products that have uncertain regulatory approval.

Question 7

Variation in company performance:

Answer 7

10.3% of the variation is explained by industry effects, 11.6% can be explained by corporate-level effects, and 36% by business-level effects.

Question 8

Threats undermining good performance (sustainable performance):

Answer 8

1) Sustainability - Ability to sustain above-average performance.

1.1) Scarcity - is the competitive advantage based on a scarce resource?
1.1.1) Imitation - will competitors be able to imitate the resource?
1.1.2) Substitution - will competitors be able to offer a substitute that meets the same customer needs as you do?

1.2) Appropriation - can the owners benefit from the competitive advantage?
1.2.1) Hold-up - are there other actors, who are appropriating the benefits of competitive advantage?
1.2.2) Slack - to what extent do bureaucracy and inertia drive out the benefits of competitive advantage?

Question 9

To maintain a competitive position the companies should:

Answer 9

Keep innovating and reconfiguring their resource positions. This helps companies to shield themselves against competing and value transfer and prevent the regression-to-mean effect.

Question 10

VRIN:

Answer 10

VRIN helps to assess the resources of a company. It assesses how strong a resource position of a company is, and helps to identify weak and strong resource so the company knows which resources to focus on and improve.

Valuable - a resource is valuable if it can exploit opportunities or neutralise threats
Rare - a resource must be rare among competitors
Inimitable - a resource must be difficult to imitate
Non-substitutable - strategically equivalent resources must be rare and/or imperfectly imitable.

Question 11

VRIN resources (sources):

Answer 11

Unique historical circumstances, which allow companies to develop or acquire resources with very favorable terms (IBM)

Causal ambiguity which means that it may be impossible for competitors or outsiders of the business to understand how companies actually achieve success, as they are unaware of the real assets the company possesses.

Patent - legally prevent other companies from imitating specific products of a different company until they expire.

Question 12

Value Chain analysis:

Answer 12

Provides an “inside-out” perspective on the core activities of a single-business firm since it looks at the firm internally and tries to find revenue and values there. Difficult for companies with many divisions. Created to explore synergetic and dyssynergic linkages across all activities.

The button part includes primary activities: Inbound logistics, operations, outbound logistics, marketing and sales, service.

The upper part includes support activities (to ensure primary activities): Firm infrastructure, HRM, Technology development, and Procurement.

Value chain analysis is used for: identifying competitive advantages, finding operational bottlenecks, or tracing the sources of social costs.

Question 13

Value chain analysis, primary activities:

Answer 13

Inbound logistics - secure the timely delivery of high-quality inputs.
Operations - a set of operations needed to be executed against high-quality standards and efficiency to make the value chain work and create synergies.
Outbound logistics - cover the need to deliver on time, securely, and against low cost.
Marketing and sales - activities that ensure the demand for the company’s product/services.
Service - good service can improve customer satisfaction and resolve issues fast.

Question 14

Value chain analysis, Support activities

Answer 14

Firm infrastructure - has the task of providing stimulating informational and physical work context in which employees can thrive and excel.

HRM - must ensure the recruitment and retention of human capital to have a high-quality workforce to support its main activities.

Technology development - keeps the company’s product portfolio in line with the changing demands.

Procurement - unlocks the value contained in suppliers by making sure that their service is reliable and their inputs are of high quality for the company.

Question 15

Value chain analysis competitive advantage:

Answer 15

Companies can try to identify “pockets” of competitive advantage. Firms find which primary/support activities they do better than their competitors.

Question 16

Value chain analysis, operational bottlenecks:

Answer 16

When companies start to look at their operations as interlinked activities, they are able to identify key bottlenecks in their operations.

Question 17

Value chain analysis, Social costs:

Answer 17

The type of costs caused by companies when they potentially hurt the interests of their stakeholders with their operations. Used to find activities that generate the highest social costs and then finding actions to reduce them.

Question 18

Core competence model:

Answer 18

Fully embraces the “inside-out” perspective on the competitive advantages of the firm.

States that core competencies are “knowledge-based resources” that contribute to the benefits of the end product that customers perceive, give access to many markets, and are difficult to imitate.

Core competence - usually a distinct but limited number of learning in which the company and its competitors excel.
Core products - formed from the core competence
Various businesses embody the core products that embody the core competencies.

Question 19

Conglomerate corporation vs core competence-driven firms:

Answer 19

Conglomerate corporation - competition is distilled down to individual competitiveness of every product in the portfolio.

Core competencies driven firm - fostering stronger core competencies through inter-firm competition.

Relative performance over absolute performance.

Must remember that core competencies erode fast.

Appropriation is the key.