The Emergence of Competitive Advantage
           The Emergence of Competitive Advantage
                             How does competitive 
                               advantage emerge?
       External sources of
       change e.g.:                                Internal sources 
       •Changing customer demand                      of change
       •Changing prices
       •Technological change
                                                            Some firms
   Resource heterogeneity      Some firms faster        have greater creative
     among firms means         and more effective          and innovative
      differential  impact    in exploiting change           capability
                 Competitive Advantage from Internally-
                  Competitive Advantage from Internally-
                Generated Change: Strategic Innovation
                 Generated Change: Strategic Innovation
          Characteristics of innovatory strategies:
                 – Associated with new entrants to an industry (e.g. Nucor in 
                     steel, IKEA in furniture, Home Depot in DIY, Dell in PCs, American 
                     Apparel in casual clothing)
                 – Reconcile conflicting performance goals (e.g. Toyota’s lean 
                     production system combines low cost, high quality, and flexibility. 
                     Retailers Primark and Target combine low cost with stylishness.)
                 – Reconfiguring the value chain e.g.---
                       •  Nike’s system for manufacturing and distributing shoes totally 
                          different from traditional shoe manufacturer
                       •  Southwest Airlines simplification of the normal airline value chain
                       •  Zara’s system of design, manufacture, and distribution
        Sustaining Competitive Advantage Against Imitation
         Sustaining Competitive Advantage Against Imitation
        REQUIREMENT FOR IMITATION             ISOLATING MECHANISM
         Identification                 - Obscure superior performance
                                        - Deterrence--signal aggressive
        Incentives for imitation          intentions to imitators
                                        - Pre-emption--exploit all available
                                          investment opportunities
                                        - Rely upon multiple sources of 
        Diagnosis                         competitive advantage to create
                                          “causal ambiguity”
                                        - Base competitive advantage upon 
        Resource acquisition              resources and capabilities that are
                                          immobile and difficult to replicate
        Competitive Advantage in Different Industry Settings: 
         Competitive Advantage in Different Industry Settings: 
                  Trading Markets and Production Markets
                   Trading Markets and Production Markets
       MARKET                      SOURCE OF                          OPPORTUNITY
         TYPE                  IMPERFECTION OF                       FOR COMPETITIVE
                                  COMPETITION                           ADVANTAGE
                          •
                            None (efficient markets)             None
                          •
       TRADING              Imperfect information                Insider trading
      MARKETS             •
                            Transactions costs                   Cost minimization
                          •
                            Systematic behavioral trends         Superior diagnosis
                                                                 (e.g. chart analysis)
                          •
                            Overshooting                         Contrarianism
                                                                Identify potential barriers to 
                          •                                     imitation (e.g. deterrence, 
                            Barriers to  imitation              preemption, causal ambiguity, 
     PRODUCTION                                                 resource immobility, etc.) & 
        MARKETS                                                 base strategy upon them.
                          •                                     Difficult to influence or 
                            Barriers to innovation
                                                                exploit.
           Sources of Competitive Advantage
           Sources of Competitive Advantage
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