session 5: industry analysis and competitive dynamics knut haanæs associate professor norwegian...

Session 5:Industry analysis and competitive dynamics

Knut Haanæs

Associate Professor

Norwegian School of Management - BI

Dynal case discussion

Resources and industry

Timing and resources

Questions to think about when reading Dynal case

• How does Dynal create value?• What are their most critical resources? How have

they evolved over time (1986-1994)?• How would you characterize Dynal’s way of

competing -- their strategic “posture”?• What are their most important innovations, and

how have they attempted to commercialize these?

• What does the industry look like?

Dynal case discussion

Resources and industry

Timing and resources

Firm-specific resources

RESOURCES

Intangible resourcesTangible resources

Competence-based Relationship-based

STRUCTURAL CAPITALControlled by organization

HUMAN CAPITALControlled by individuals

ReputationLoyaltyRelations

ImageLoyaltyRelations

KnowledgeSkillsAptitudes

Info. basesRoutines Culture

PhysicalFinancial

Property-rights

Sour

ce:

Haa

nes

and

Løw

enda

hl (

1997

)

Intellectual capital

Competence

Knowledge

Skills

Competence(“To know something that can be used to do something”)

NO

T

IMIT

AB

LE

?

SC

AR

CE

?

VA

LU

E?

3 criteria for sustained competitive advantage

Source: Barney (1991)

M

OB

ILIZ

ED

?

VA

LU

E?

SC

AR

CE

?

NO

T

IMIT

AB

LE

?

AP

RO

PR

IAT

ED

?

2 strategic challenges

Core competencies

• Can give access to new markets• Lead to perceived advantages for customers • Integration of knowledge and skills• Limited number (5-15)• Take time to develop / built through doing• Difficult to understand / socially complex

Being First - A mixed blessing!

+ First Mover Advantages

- First Mover Disadvantages

(Late Mover Advantages)

To get first mover advantages

• Leadership in product and process technology– Learning and experience curve

– R&D and patents

– Possibility to set standards

• Pre-emption of scarce resources– Natural resources

– Locations, product space or relationships

– Production capacity (or signalling of...)

– People or competences

• Development of buyer switching costs– Investments in co-specialized resources

– Supllier-specific learning

– Buyer preferences (habits)

First mover disadvantages

• Free-rider problems

• Inertia by first mover

• Go directly to price competition

• New and better technologies may emerge

Free-rider problems

Cheaper to copy than to

innovate

Hire people trained by first mover

Learn from first movers

mistakes

Take advantage

of first movers mistakes

Take advantage

of first movers mistakes

First mover inertia

Locked to specific

resources (“Sunk cost”)

Reluctant to

“cannibalize” own

productsOrganiz-ationally inflexible

Attached to

current products/routines

Vision of mass market

Managerial persistence

Financial commitment

Continuous innovation

Resource leverage

Characteristics of “early leaders”

Source: Tellis and Golder (1996)

Commercializers

See commercial opportunities

Ability to contract and mobilize unique

resources

Choice of timing depends on firm resources

• Innovation requires different competencies and relationships than following

• Innovators take a higher risk

• Initial innovators are generally not the companies to commercialize the market

• Commercialization requires relative low cost production and mass distribution

Dynal case discussion

Resources and industry

Timing and resources

Critical questions• How does the industry work?

• Is this an attractive industry?

• How is the industry evolving?

• Who are the main firms?

• What kind of value is created?

• What are the main innovations in the industry?

• How do firms compete?

• Who are the customers?

• What affects entry?

• What limits the pricing of the firms in the industry?

CompetitiveRivalry

Source: Porter (1980)

Suppliers Buyers

New Entrants

Substitutes

Industry

Product functionality Product technology

Geography Markets

Defining an Industry

INN

OV

AT

ION

PRODUCTIVITYHighLow

Low

Hig

h

Strategy as choice

Difficult path

Operational competition

Contractual competition

Entrepreneurial competition

Mob

ility

of

crit

ical

re

sou

rces

Industry development over time

High

LowTime