Week 3 - Sustained Competitive Advantage

• Dierickx and Cool (1989); Asset stock accumulation

  1. Time compression diseconomies
  2. Asset mass efficiencies
  3. Inter-connectedness
  4. Asset erosion
  5. Causal ambiguity
• Time Compression Diseconomies


  Maintaining a given rate of R&D spending over a particular time interval produces a larger increment to the stock of R&D expertise than maintaining twice this rate over half the tie interval
• Asset Mass Efficiencies


  "Success breeds success" - Historical success translates into favourable initial asset stock positions, which in turn facilitates further asset accumulation
• Inter-Connectedness


  Accumulating increments in an existing stock may depend not just on the level of that stock, but also on the levels of others
• Asset Erosion


  Asset stocks may decay over time. Higher decay rate weakens the inherent asymmetry between firms having stock levels. R&D know-how depreciates because of technological obsolescence for example
• Causal Ambiguity


  Stochastic nature of processes: inability to identify relevant variables as well as an inability to control them. So, cannot be imitated.
• Dierickx and Cool (1989); Asset stock accumulation

  Incomplete vs Imperfect Factor Markets

  • Imperfect, such that there are informational asymmetries
  • INCOMPLETE, such that not all assets can actually be bought / sold (e.g., reputation)
• Christensen et al (2015); Disruptive Innovation

  1. Low-End Disruption
  2. New-Market Disruption
• (1997); The Innovator’s Dilemma

  • Disruptive technologies: how large incumbent firms lose market share by not serving lower-value customers
  • Innovation as an S-curve (value to it) In-time, incremental innovation will provide value to customers, but maybe not initially 
  • Disruptive Technologies: Renewable energy, Internet of Tings, Advanced Robotics, Genomics, Energy storage, 3D printing
• Schumpeter (1942); Creative Destruction

  A constant cycle of innovation and entrepreneurship‘Waves’ getting smaller; cycle of innovation and entrepreneurship getting smaller
• Teece (1986); Profiting from Technological Innovation

  Cospecialised Assets• Assets which have a higher value because they are used in conjunction with each other (e.g., marvel movies) If a competition has better cospecialised assets, they can take the innovation and do better than you
• Teece (1986); Profiting from Technological Innovation

  Co-specialised Assets: Ownership of complementary assets which help to establish who wins/loses from innovation
• Lieberman and Montgomery (1988); First-Mover Advantage

  1. Economies of Scale
  2. Experience
  3. Costs of switching
  4. Brand reputation and credibility
  5. Diffusion of the product
• Porter (1985); Creating and sustaining superior performance


  Value Chain and Value System analysis

  Adding to 1979 5 forces framework, and 180 3 generic strategies for competitive advantage

  Firms should configure activities in a way to support their chosen strategy, and try to add value at every point in the value chain (linkages are key)
• Lanzolla (2015); The Half-Truth of First-Mover Advantage

  • FMA is never a certainty
  • The likelihood of its occurrence is affected by the turbulence of markets and the pace of technological change In calm waters, with gradual evolution of technology, moving first will likely payoff
• Epple (1990); Learning Curves in Manufacturing

  Large increases in productivity as organisations gain experience in production.
• Teece et al (1997); Dynamic Capabilities and Strategic Management

  Dynamic capabilities are the ability to integrate, build, and reconfigure internal and external competencies to address rapidly changing environments. RBV is insufficient to support CA; you need responsive abilities and flexible product innovation
• Teece et al (1997); Dynamic Capabilities and Strategic Management

  They are Idiosyncratic, so are internal to the firm

  1. A capability is a set of learned processes and activities that enable a company to achieve a particular outcome
  2. A dynamic capabilities is unique to each company Framework:Processes2. Positions3. PathsA difficult-to-replicate or difficult-to-imitate competence must be built through these frameworks
• Kathy Eisenhardt (2000); Dynamic Capabilities, What are they?

  Critique of the RBV:

  • Tautological
  • Endlessly recursive
  • Non-operational
• Kathy Eisenhardt (2000); Dynamic Capabilities, What are they?

  • Routines to learn routes are just different routines! Tautological
  • The key determinant of whether you can get a competitive advantage from your capabilities depends on how dynamic the market isIt is basically down to luck
  • A stable market is full of organisation with their own ‘routines to learn routines’.
• Teece (2014); A Dynamic-Capabilities-Based Entrepreneurial Theory

  Ricardian —> Schumpetarian view of managementThree clusters of processes describe dynamic capabilities:

  1. Sensing
  2. Seizing
  3. Transforming
• Nalebuff and Brandenburger (1996); Co-Opetition

  The Value Net:

  Customers

  Suppliers

  Competitors

  Complementors
• Nalebuff and Brandenburger (1996); Co-Opetition

  Jekyll and Hyde:

  • People focus too much on the Mr Hyde and overlook Dr Jekyll
• Porter (1989); Clusters and the new economics of competition

  • Geographic clusters of interconnected actors increase competition which drives productivity, innovation, and business formation - these strengthen the cluster
• Porter (1989); Clusters and the new economics of competition

  6th force: Bargaining power of complementors

  Without vigorous competition, a cluster will fail.

  Vertical cooperation and horizontal competition can exist simultaneously because they take place on different dimensions amongst different players
• Shapiro and Varian (1999); The Art of Standards Wars


  • Standards wars are especially bitter; in markets with strong network effects, compatibility is of high value. 
  • Trying to fight for the 'one standard' for an industry is tricky. Compatability is king in these industries
• Levine (2004); Strategy as Ecology

  Grow the Pie, not the Slice

  Players in an ecosystem:

  1. Keystones
  2. Niche
  3. Dominators
• Collins and Montgomery (1995); Competing on Resources

  Resources that qualify for an effective strategy:

  1. Inimitable
  2. Depreciate slowly
  3. Company controls the value
  4. Nom-substitutable
  5. Superior
• Collins and Montgomery (1995); Competing on Resources

  Core competencies are not what you do, it’s what you do better than competitors. Most firms don’t have standout valuable resources, so should focus on:

  • Investing in resources to counter depreciation
  • Upgrading resources
  • Leveraging resources