This document summarizes The Cornerstones of Competitive Advantage by Margaret Peteraf. It identifies four key conditions that must be met for a firm to achieve sustainable competitive advantage based on its resources: 1) resource heterogeneity, 2) limits to competition from imperfect imitability and substitutability, 3) imperfect resource mobility, and 4) ex-ante limits to competition for resources. It then provides examples of how this resource-based view can be applied to single business and corporate strategies like diversification.
This is a presentation given in the MBS MSc Innovation Management course taught by Prof. Silvia for group assignment to introduce and discuss the paper Dynamic Capabilities and Strategic Management by Teece D., Pisano G., and Shuen A. in 1997.
An Organization Should Approach All Tasks With The Idea That They Can Be Accomplished In A Superior Fashion
An organization capability refers to the way systems and people in the organization work together to get things done. The way leaders foster shared mindsets, orchestrate talent, encourage speed of change, collaborate across boundaries, and learn and hold each other accountable define the company's culture and leadership edge.
The firm’s ability to manage people
to gain competitive advantage.
• focuses on internal processes and systems for meeting customer needs
• creates organization-specific competencies that provide competitive advantage since they are unique
• ensures that employee skills and efforts are directed toward achieving organizational goals and strategies
A document issued by a recognized agency, and dealing with design and safety requirements relating to a specific product.
EXAMPLES
The U.S. Occupational Safety and Health Administration (051-IA) and the American National Standards Institute (ANSI).
OSHA standards are generally legally binding for an employer,
while ANSI standards are generally of an advisory nature. set industry standards with input from industry representatives and consumers.
“ Value Chain Analysis (VCA) is a process where a firm identifies its primary and support activities that add to its final product and then analysis to reduce costs or increase differentiation.”
“ Value Chain represents the internal activities a firm engages in when transforming inputs into outputs.”
Organizational Appraisal is the process of monitoring an organization’s internal environment to identify strengths and weaknesses that may influence the firms ability to achieve GOALS. It include identifying strengths and weaknesses.
A document issued by a recognized agency, and dealing with design and safety requirements relating to a specific product.
EXAMPLES
The U.S. Occupational Safety and Health Administration (051-IA) and the American National Standards Institute (ANSI).
OSHA standards are generally legally binding for an employer,
while ANSI standards are generally of an advisory nature. set industry standards with input from industry representatives and consumers.
A measurement of the quality
of an organization's policies, products, programs, strategies, etc., and their comparison with standard measurements, or similar measurements of its peers.
Competitive analysis - porter’s five force model- strategic management - Man...manumelwin
The purpose of five forces analysis is to identify how much profit potential exists in an industry. To do so, five forces analysis considers the interactions among the competitors in an industry, potential new entrants to the industry, substitutes for the industry’s offerings, suppliers to the industry, and the industry’s buyers.
This is a presentation given in the MBS MSc Innovation Management course taught by Prof. Silvia for group assignment to introduce and discuss the paper Dynamic Capabilities and Strategic Management by Teece D., Pisano G., and Shuen A. in 1997.
An Organization Should Approach All Tasks With The Idea That They Can Be Accomplished In A Superior Fashion
An organization capability refers to the way systems and people in the organization work together to get things done. The way leaders foster shared mindsets, orchestrate talent, encourage speed of change, collaborate across boundaries, and learn and hold each other accountable define the company's culture and leadership edge.
The firm’s ability to manage people
to gain competitive advantage.
• focuses on internal processes and systems for meeting customer needs
• creates organization-specific competencies that provide competitive advantage since they are unique
• ensures that employee skills and efforts are directed toward achieving organizational goals and strategies
A document issued by a recognized agency, and dealing with design and safety requirements relating to a specific product.
EXAMPLES
The U.S. Occupational Safety and Health Administration (051-IA) and the American National Standards Institute (ANSI).
OSHA standards are generally legally binding for an employer,
while ANSI standards are generally of an advisory nature. set industry standards with input from industry representatives and consumers.
“ Value Chain Analysis (VCA) is a process where a firm identifies its primary and support activities that add to its final product and then analysis to reduce costs or increase differentiation.”
“ Value Chain represents the internal activities a firm engages in when transforming inputs into outputs.”
Organizational Appraisal is the process of monitoring an organization’s internal environment to identify strengths and weaknesses that may influence the firms ability to achieve GOALS. It include identifying strengths and weaknesses.
A document issued by a recognized agency, and dealing with design and safety requirements relating to a specific product.
EXAMPLES
The U.S. Occupational Safety and Health Administration (051-IA) and the American National Standards Institute (ANSI).
OSHA standards are generally legally binding for an employer,
while ANSI standards are generally of an advisory nature. set industry standards with input from industry representatives and consumers.
A measurement of the quality
of an organization's policies, products, programs, strategies, etc., and their comparison with standard measurements, or similar measurements of its peers.
Competitive analysis - porter’s five force model- strategic management - Man...manumelwin
The purpose of five forces analysis is to identify how much profit potential exists in an industry. To do so, five forces analysis considers the interactions among the competitors in an industry, potential new entrants to the industry, substitutes for the industry’s offerings, suppliers to the industry, and the industry’s buyers.
Explicating resource-based view critiques from a competitive heterogeneity p...Kevin Rommen
The resource-based theory of competitive advantage received stiff critiques during the years, and research discovered several weaknesses. By incorporating resource-based view into competitive heterogeneity we’ll try to weaken common critiques and strengthen the applicability of resource-based view in creating sustainable competitive advantage.
In consulting engagements with General Electric in the 1970's, McKinsey & Company developed a nine-cell portfolio matrix as a tool for screening GE's large portfolio of strategic business units (SBU).
Findings of "Customer Relationship Management Systems (CRM) for Manufacturer...eLogic
FOR MANUFACTURERS WHO MANAGE RELATIONSHIPS ACROSS SALES, MARKETING, SERVICE & THE 360° CUSTOMER EXPERIENCE. Findings of Manufacturing.net and Manufacturing Business Technology Manufacturers Survey, May 2016
Slide no:2
Mr. Porter is a specialist in industrial economics and business strategy. An associate professor of business ad- ministration at the Harvard Business School, he has created a course there entitled "Industry and Competitive Analysis."
He sits on the boards of three companies and consults on strategy matters, and he has written many articles for economics journals and published two books. One of them, Interbrand Choice, Strategy and Bi- lateral Market Power (Harvard University Press, 1976) is an out-growth of his doctorate, for which he won the coveted Wells prize awarded by the Harvard economics department.
Operational Effectiveness Is Not Strategy
Operational Efficiency
Competitive Strategy
Strategy Rests on Unique Activities
Origin of Strategic Position (3 Sources)
Variety /Need /Access-Based Positioning
A Sustainable Strategic Position Requires Trade-offs
Fit Drives Both Competitive Advantage and Sustainability
Rediscovering Strategy
External Challenges to Strategy
Traps for Shaping Strategy
Explicating resource-based view critiques from a competitive heterogeneity p...Kevin Rommen
The resource-based theory of competitive advantage received stiff critiques during the years, and research discovered several weaknesses. By incorporating resource-based view into competitive heterogeneity we’ll try to weaken common critiques and strengthen the applicability of resource-based view in creating sustainable competitive advantage.
In consulting engagements with General Electric in the 1970's, McKinsey & Company developed a nine-cell portfolio matrix as a tool for screening GE's large portfolio of strategic business units (SBU).
Findings of "Customer Relationship Management Systems (CRM) for Manufacturer...eLogic
FOR MANUFACTURERS WHO MANAGE RELATIONSHIPS ACROSS SALES, MARKETING, SERVICE & THE 360° CUSTOMER EXPERIENCE. Findings of Manufacturing.net and Manufacturing Business Technology Manufacturers Survey, May 2016
Slide no:2
Mr. Porter is a specialist in industrial economics and business strategy. An associate professor of business ad- ministration at the Harvard Business School, he has created a course there entitled "Industry and Competitive Analysis."
He sits on the boards of three companies and consults on strategy matters, and he has written many articles for economics journals and published two books. One of them, Interbrand Choice, Strategy and Bi- lateral Market Power (Harvard University Press, 1976) is an out-growth of his doctorate, for which he won the coveted Wells prize awarded by the Harvard economics department.
Operational Effectiveness Is Not Strategy
Operational Efficiency
Competitive Strategy
Strategy Rests on Unique Activities
Origin of Strategic Position (3 Sources)
Variety /Need /Access-Based Positioning
A Sustainable Strategic Position Requires Trade-offs
Fit Drives Both Competitive Advantage and Sustainability
Rediscovering Strategy
External Challenges to Strategy
Traps for Shaping Strategy
Collaboration is not an option. Everything is available to everyone. Your business needs strategies for competitive advantage. This presentation helps you to start thinking in the direction.
Full strategic case analysis for Apple incorporation including industry , competitor's and firm's self analysis. It covers all the strategic issues facing the industry and Apple inc. as well as the recommended solutions for these issues on business and corporate levels.
The study shows the development on the Apple Inc. mission& vision and the strategic objectives over time.
The 6 market dynamics that determine whether a startup or product opportunity are going to succeed.
More recent thoughts about product/market strategy can be found here:
https://productfolio.com/product-strategy/
The Use of IntermediateSourcing StrategiesAUTHORSKir.docxarnoldmeredith47041
The Use of Intermediate
Sourcing Strategies
AUTHORS
Kirk C. Heriot
is associate professor of business administration at North Georgia
College & State University in Dahlonega, Georgia.
Subodh P. Kulkarni
is assistant professor of management in the School of Business at
Howard University in Washington, D.C.
Much of the existing literature discusses vertical inte-
gration and competitive spot bidding as sourcing
strategy choices, but often neglects intermediate
sourcing strategies, such as taper integration and
long-term supplier relationships. This exploratory
study examines the extent to
SUMMARY which firms use intermediate
sourcing strategies, as opposed
to the polar strategies, and attempts to improve our
understanding of the sourcing choices available to
manufacturing firms. Results from.a sample of 209
plant managers indicate that firms use taper integra-
tion and long-term supplier relationships more fre-
quently than vertical integration and competitive
spot bidding. Further, the choice of a sourcing strategy
was found to be dependent on the industry.
The Journal of Supply Chain
Management A Global
Review of Purchasing
and Supply Copyright
( February 2001, by the
National Association of
Purchasing Management, Inc.
INTRODUCTION
A firn's sourcing decisions involve the choice of securing
inputs to its operations. The sourcing decision is variously
termed the "market-hierarchy choice," "vertical integra-
tion," or the "make-or-buy" decision. At the extreme, a
-fin may choose to completely outsource or completely
internalize its production.
Market (outsourcing) and hierarchy (vertical integra-
tion) are, however, endpoints of a continuum of sourcing
strategies. Some of the intermediate sourcing strategies
incdude taper integration and long-term cooperative rela-
tionships (Landeros and Monczka 1989). Much of the
existing literature focuses on the "bipolar" choice of out-
sourcing and vertical integration (Williamson 1985).
Traditionally, the selection of a sourcing strategy involves
a static comparison of the costs of outsourcing and ver-
tical integration with not much consideration for the
intermediate strategies.
Recently, Hennart (1993) asserted that firms are more
likely to select intermediate sourcing strategies than out-
sourcing or vertical integration. However, there is little
empirical evidence that the distribution of sourcing
strategies differs across firms. If firns overwhelmingly
used either outsourcing or vertical integration, it would
mean that the sourcing decision is essentially limited to
these two choices. On the other hand, a significant occur-
rence of intermediate sourcing strategies may indicate
that managers need to broaden their strategic repertoire.
Hennart (1993) stated that the criteria for the selection
of intermediate sourcing strategies are not ciear. Tradition-
ally, researchers have used a "comparative-static" approach
to evaluate the choice of sourcing strategies (e.g., Wllliamson
1985). This.
Merger Review process has evolved over a period of time. This is evident from the changing focus on consideration of efficiencies in merger analysis. However, a cross-country comparison shows that as of date consideration of efficiency has become almost an integral part of merger review. The article details this discussion.
This presentation by Eliana Garcés - Facebook, was prepared for a roundtable discussion on Conglomerate effects of mergers for the 133rd meeting of the OECD Competition Committee on 10 June 2020. More papers, presentations and contributions from delegations on the topic can be found out at http://www.oecd.org/daf/competition/conglomerate-effects-of-mergers.htm
The main objective of this study was to establish the effect of Mergers and Acquisition (M&A) on a firm’s competitive advantage in the IT industry. A descriptive research approach was adopted with a target population comprising of all employees atHewlett Packard Company (HP) in Nairobi, Kenya.Horizontal mergers were found to be the most common types of mergers. These mergers weremainly driven by external economies of scale, market power, combined complimentary resources and customer service quality. The findings also established that the major elements of competitive advantage were volume of transactions and markets share. External economies of scale, market power and combined complimentary resources contributed positively to competitive advantage while surplus funds and idle resources did not drive competitive advantage. Based on the study,researchers recommended that decisions on M&A should be based on first understanding which facets of the business will be driven by the M&A in order to derive a competitive advantage. In addition, there is need for companies to do progress evaluation of the M&A specifically to review its impact on competitive advantage.
Industry AnalysisRecall from the first session that a major tens.docxjaggernaoma
Industry Analysis
Recall from the first session that a major tension in business-level strategy is whether it should be resource-driven or market-driven.
The role of market is quite starkly evident in the strategies of console gaming firms. It has become increasingly difficult to develop major next generation breakthroughs in consoles, because they already feature cutting-edge graphics and motion features. Customers are delaying replacing older consoles with the new consoles, and are increasingly switching the use of consoles to watch movies, hurting the ability of console makers to make money by selling many expensive games to console owners. New entrants in social and mobile sectors are offering cheap games that are accessible anywhere online and that have a social aspect and are gaining popularity. Console gaming firms have responded by offering strip-down online versions of their console games, but these strategies have not been successful as they do not offer meaningful experiences the customers are looking for. The challenge is to design the right business model.
Porter’s five forces framework helps to analyze the structural attractiveness of an industry, in order to assess the profit potential of the firms holding intermediate positions within a value system. The objective of the five forces analysis is to improve value capture, as opposed to improving value creation. The analysis assumes that it is not possible to change participant behavior directly; the firms must strive to reposition themselves or change the industry structure in order to bring about a change in participant behavior. For instance by making a market more difficult to enter for others, the behavior of potential new entrants will be impacted, as they will be less likely to enter the market.
The first force is the threat of new entrants. The concept of entry barriers implies that substantial costs, time and investment are required to enter an industry. The higher the entry barriers, the less likely are the new firms to enter the industry. Entry barriers depend on three sub-factors: (1) ease of building supply, which depend on access to difficult-to-trade resources, capabilities, and core competencies, reachable capital requirements, and liberal regulatory policies. (2) ease of building demand, which depend on penetrability of customer relations of existing firms, insufficient switching costs, and rapid market renewal. (3) expected retaliation from existing firms, which depend on their fighting back ability based on resources and historical behavior, their exit barriers, and if the industry growth is sufficient to accommodate additional entrants. Using the opening case, think about how easy is it to build the supply of attractive consoles and popular games in the console gaming industry? How easy has it been for the new rivals to penetrate customer relationships? How strong has been the retaliation from the console gaming firms?
The second.
Economies (Efficiencies) – An Essential Consideration in Merger Analysis - KK...KK SHARMA LAW OFFICES
While the purport of competition law is to preserve and promote competition, the
essential object of competition is to ensure optimal allocation of available resources,
produce more while using less resources and thus, achieve efficient market
outcomes. Generally, the efficiency is accepted as a defence in competition law.
Ignorance of economies (efficient use of resources) by competition law and
competition enforcement agencies would prejudice the very object of preserving
competition. However, one should also acknowledge that scientific quantification and weighing of efficiencies are complex tasks.
Economies (Efficiencies) – An Essential Consideration in Merger Analysis - KK...
Peteraf 19931 (1)
1. The Cornerstones of
Competitive Advantage: A
Resource-Based View
(Margaret Peteraf, 1993)
Group 1
Meredith, Barclay,
Woo-je, and Kumar
2. MMoottiivvaattiioonn aanndd PPaappeerr OOuuttlliinnee
To develop a general model of resources and firm
performance that integrates the various strands of
research and provides a common ground for further
work
Two main sections of paper:
1) Discussion of four (cornerstone) conditions that ALL
must be met for (sustainable) competitive advantage
2) Applications to business and corporate strategy
3. Condition #1 :: RReessoouurrccee HHeetteerrooggeenneeiittyy
Assumption of resource-based work: resources and
capabilities are heterogeneous across firms (Barney, 1991)
Ricardian Rents (name originates from Ricardo, 1817):
Heterogeneity may reflect superior productive factors
Productive factors often quasi-fixed - cannot be expanded rapidly
Thus, inferior resources are brought into production as well
(Ricardian argument that can be understood by assuming superior
resource firms have lower average costs than other firms)
(See Figure 1)
4. Scarcity rents w/ heterogeneous factors
This model consistent with competitive behavior in product market -
Firms are price takers and produce where price equals MC.
High returns to low cost firms cannot be attributed to artificial restriction
of output or to market power.
Key point: superior resources remain in limited supply - cannot be
expanded freely or imitated by other firms. (See figure 2 to see what
happens when this isn’t the case.)
5. Rent dissipation from Imitation
Now, only normal economic returns will be earned by efficient
producers (now homogeneous).
6. Note: Monopoly Rents
Condition of heterogeneity consistent with models of market
power and monopoly rents
Monopoly models - heterogeneity may result from spatial
competition, product differentiation, localized monopoly, size
advantages
• Firms maximize profits by CONSCIOUSLY restricting their output
relative to competitive levels
Apparently homogeneous firms may earn monopoly rents:
• Cournot Behavior
• Collusive Behavior
• In this case, heterogeneity occurs across incumbent firms and
potential entrants (depends on barriers to entry)
7. Condition #2: Ex-Post Limits to Competition
Sustained competitive advantage requires that
heterogeneity be preserved - must be forces that limit
competition for rents (Figure 2 shows how ex-post
competition erodes Ricardian rents)
Resource-based work has focused on 2 critical factors
that limit ex post competition:
Imperfect imitability
Imperfect substitutability - substitutes reduce
economic rents by making the demand curves of
monopolists/oligopolists more elastic
More attention has been given to the condition of
imperfect imitability.
8. Imperfect Imitability
Rumelt (1984) - “Isolating mechanisms” - phenomena that protects firm
from imitation
Property rights to scarce resources
Quasi-rights (lags, info asymmetries, and frictions) (Rumelt, 1987)
Producer learning, buyer switching costs, reputation, buyer search costs,
economies of scale (Rumelt, 1987)
Causal ambiguity (Lippman & Rumelt, 1982) - uncertainty regarding causes of
efficiencies
Yao (1988) - production economies and sunk costs, transaction costs,
and imperfect information
Ghemawat (1986) - inimitable positions derive from size advantages,
preferred access to resources or customers, restrictions on competitors’
options
Dierickx & Cool (1989) - how imitable an asset is depends on nature
and process by which it was accumulated. They suggest the following
impede imitation: time compression diseconomies, asset mass efficiencies,
interconnectedness of asset stocks, asset erosion, and causal ambiguity
9. Condition #3: Imperfect Mobility
Resources are perfectly immobile if they cannot be traded
Dierickx & Cool (1989) - one of their examples are resources for
which property rights are not well defined
Williamson (1979) - resources that have no other use outside the firm
Teece (1986) – co-specialized assets, which have higher economic
value when employed together
Williamson (1975), Rumelt (1987) - resources may be imperfectly
mobile because of very high transactions costs
Opportunity cost of imperfectly mobile resource is significantly less than
the value to the present employer (firm). Here, Peteraf defines opportunity
cost in terms of next best potential user (e.g. firm), rather than next best
use.
Rents will be shared between factor (input) owners and the firm employing
them, thus - bilateral monopoly where rent distribution is indeterminate:
Imperfect factor mobility necessary for SCA
10. Condition #4: Ex Ante Limits to Competition
Prior to any firm’s establishing a superior resource position,
there must be limited competition for that position
Performance of firms depends not only on returns from their
strategies, but also on cost of implementing those strategies
(Barney, 1986)
Without imperfections in strategic factor (input) markets, firms
can only hope for normal returns
One example: Walmart’s acquisition of real estate in rural areas
Another example: Price of acquisition
Key here is: Cost
12. Applications
Single Business Strategy
Nobel prize winning scientist, although may be a unique resource, is
an unlikely source of SCA unless she has firm-specific ties
License new technology or develop internally?
• If potential value of technology cannot be well communicated to
others because of the risk of revealing proprietary info, may be
best to develop internally
• Might depend on co-specialized assets such as established
relationships with vendors who are reluctant to switch suppliers
Consideration of how imitable innovation is:
• If innovation is no more than a complex assembly of relatively
available technologies, a firm could consider building other co-specialized
resources that are less available
13. Applications
Corporate Strategy
Resource-based model fundamentally concerned with
internal accumulation of assets, asset specificity, and less
directly with transactions costs - Thus, naturally lends
itself too questions of firm boundaries
Diversification
Barney (1988) - abnormal returns from diversification depend on
how rare and imitable resulting combination of resources
Montgomery & Hariharan (1991) - shown that firms with broad
resource bases tend to pursue diversification
Theory of diversification is resource-based: diversification
is the result of excess capacity in which resources have multiple
uses and for which there is market failure
14. Applications
Paradox of how “excess capacity” in resources may lead
to “scarcity rents” for resource holders: Resources are
“scarce” relative to total demand for their overall use,
despite excess capacity relative to specific markets
Example: Kodak
Montgomery & Wernerfelt (1989) - diversification viewed
as matching a firm’s resources to the set of market
opportunities
Firms with more specialized resources are more constrained to
enter into widely different product markets - and specialized
resources relatively scarce, thus higher rents
Firms with more generalizable resources may face a wider
opportunity set - yet lower rents
15. Applications
Peteraf suggests that although they do not say so,
Montgomery & Wernerfelt’s (1989) model implies an
optimal extent of diversification.
16. CCoonnttrriibbuuttiioonnss
Peteraf provides a synthesis of previous work in
RBT
Shows how concepts and ideas in RBT are
consistent with a Ricardian view of economic rent
and competitive advantage
Provides a detailed and tractable discussion of
precisely why these four (cornerstone) conditions
must be met for SCA
Resource-based Theory - only theory of corporate
scope capable of explaining the range of
diversification