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31 Cards in this Set
- Front
- Back
History shows that most competitive advantages are ______.
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fleeting
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What are the determinants of sustainability?
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Scarcity and Appropriability -- affect added and captured value
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What determines appropriability of a strategic position?
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• Whether owners pocket the value
• Holdup and Slack (captured value) --affect captured value |
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What determine scarcity of a strategic position?
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Imitation and Substitution
--affected added value |
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Imitation:
(1) Companies who base product differentiation on _____ as opposed to marketing are more vulnerable to imitation (2) Competitors usually find out about most new products within _______ of their development • (3)Patenting usually _________ imitation • (4) Imitation tends to cost ______ less than innovation and is ______ quicker (5) _______ innovations not significantly less imitable than product innovations (6) Imitation can be impeded by __________________ |
(1) R&D
(2) a year (3) fails to deter (4) 1/3 ; 1/3 (5) Process (6) first mover advantage |
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What are the 5 principles to early mover advantage?
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• 1. Private Information
•Easier to keep private • 2. Size Economies •Scale, Learning, Scope • 3. Enforceable Contracts / Relationships •Better terms or contracts lock up the supply of a critical input • 4. Threats of Retaliation • 5. Response lags: Sum or observation and implementation •Prisoner’s Dilemma |
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What are the barriers to imitation? (3 main areas and subsets)
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(1) Constraints on imitating firm (tradeoffs)
• Inconsistencies in image / reputation • Incompatible activity requirements • Inconsistent needs in internal controls (2) Some resources are inimitable • Scale economies • Scope (product, geographic, vertical) • Patents • Learning and know-how • Contracts, relationships • Network Externalities (3) Complexity of the firm’s strategy or culture |
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Substitution:
(1) ________ likely to be confined to direct competitors (2) Successful substitution finds a way around _______, it is an ________ attack (3) Substitution is a bigger threat than imitation since __________________ (4) Substitution depends on the mismatch between ______________________________________________. |
(1) Less
(2) scarcity ; indirect (3) it is often overlooked by companies (4) established positions and market opportunities to override early mover advantage |
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What is holdup a determinant of?
What does it do? |
Determinant of appropriability.
• Diverts value to customers, suppliers, or complementors who have bargaining leverage |
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(1) When does holdup arise?
(2) Holdup is the consequence of gaps between _______ |
(1) Arises when parties in a relationship have invested in assets that are specific to that relationship, so it’s hard to walk away
• Specialized supplier (2) owners and managers |
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How can holdup be reduced?
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• Holdup can be reduced by
• Multiple sourcing • Shift in timing of negotiation • Elimination of bargaining through careful contracting or vertical integration |
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Slack is...
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internal threat to capture value (determinant of appropriability)
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Slack:
(1) Slack is persistent ___________ (or inefficiencies) in firms that can harm LTP (2) Slack is the extent to which the scarcity value realized by the organization falls short of _________ (3) Whereas holdup concerns the portion of the pie to the owners and non-owners, slack is _____________________________________________ (4) Slack is hard to ________ and __________ (5) Slack is worst under _______ competitive environments and settings in which managers have ______________ over production process. |
(1) sub-optimization
(2) its potential (3) a step above that affects the total size of the pie that is available to owners and non-owners (4) identify and measure (5) forgiving ; wide discretion |
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Slack builds because
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• High innovation intensity hard to monitor
• Incomplete information to monitor • Growth of employees • How to manage • Information, aligning goals of employees with companies and moral persuasion |
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What are the ways to combat slack?
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Monitoring of performance
o Benchmarking o Time-motion studies o Outsiders on boards Managerial incentives Commitments to return cash o E.g. dividends to shareholders or lenders via debt Appeals to a higher calling, a sense of mission |
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What are the threats to sustainability for the low-cost airlines?
(explain via imitation, substitution, holdup, slack) |
Imitation
• Other low cost airlines • Competition for secondary airports Substitution • Other travel nodes • New business models Holdup • Pilots? Partners? Airport authorities? Slack • Becoming sloppy at keeping costs down |
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Building a sustainable competitive advantage: it takes more time and more cost to imitate along _________ than ___________.
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many dimensions than along one or two
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What are the ways to build a sustainable competitive advantage?
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(1) Making commitments
• Staking out particular opportunities through commitments (2) Developing Capabilities • Organizational capabilities relevant to strategy: • Characterize what a company can do well (choice about product and services influence capabilities) • Organizational capabilities differ across companies in the same industries. • Capabilities are hard to imitate • Private information, tacit, rooted deep in complex organizational processes |
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What is industry transformation?
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It's when the nature of doing business in an industry significantly changes to something that was not possible before
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When does industry transformation occur?
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o Occurs when significant way of doing business that was not possible before
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What are the 3 triggers for transformations?
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• Change in technology
• Change in what customers want • Change in regulation |
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Facts about industry transformation:
(1) What is important to know about industry transformation and the productivity frontier? (2) ____ and lack of _______ characterize this stage (3) Often companies are _______-valued by capital providers during industry transformation (4) What is the point at which "experiments" fail? Meaning the point at which changes occurring don't work for every company? |
(1) It typically shifts the entire productivity frontier of the industry (not just improvements in operational effectiveness)
(2) risk ; information (3) over-valued (4) Convergence |
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What should be a company's strategy during the period of transformation?
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Good analysis of future industry structure
• Distinguish the enduring from the transient • Look for internal consistencies • Identify clearly the uncertainties that remain |
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Cirque du Soleil
What are the conclusions of the 5 forces analysis for the Circus industry in the 80s (both big league and little league) |
• Big League: There is quite a lot of money to be made here; but one dominant player will make sure that we do not succeed in this space
• Little League: not much money to be made here |
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What made the circus industry a virtuous cycle in the past?
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Lots of M&A through history of circus because there are only so many big-name talents...so the same big circus owners (e.g. Ringling brothers) kept it's advantage
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What is the Cirque du Soleil strategy?
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Differentiation
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Cirque du Soleil: Differentiation
(1) Redefined ___________ (2 Unique ____________ (3) Win-win _________ (4) Customer _________ (5) Customers more ____________ , _____________ |
(1) Experience
(2) positioning (3) partnerships (4) Loyalty (5) sophisticated ; affluent |
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Why is the circus industry becoming increasingly competitive recently?
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• Fragmented industry (60 circuses in US alone)
• Past directors are creating their own shows • Emergence of niche circuses |
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How can Cirque Du Soleil maintain its distinctive advantage?
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(1) Define a new industry (is it still circus?)
(2) Redefine business scope: products, clients, geography (3) Define a whole new set of activity systems (4) Increase willingness to pay while reducing cost: new value creation (5) Value Innovation • Simultaneous pursuit of differentiation and low cost (eliminating some factors and adding others) • Shifts out the productivity frontier • Cost savings from eliminating and reducing • Differentiation by raising and creating |
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What has led to Cirque du Soleil's revenue generation?
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•More profitable pool of customers → Higher price
•No head to head competition → Higher price •Multiple Productions: more visits per customer → Higher volumes •Leap in value → Pulls new customers into the industry |
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How as Cirque du Soleil eliminated costs?
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•Eliminating High Cost, Low Value Elements (stars, animals, trainers)
•Yearly productions allow fast coverage of fixed costs •Leveraging untapped, high value, lower cost talent pool (Russia, China, Latin America) |