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 ( )? 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 resources Tangible resources Competence-based Relationship-based STRUCTURAL CAPITAL Controlled by organization HUMAN CAPITAL Controlled by individuals Reputation Loyalty Relations Image Loyalty Relations Knowledge Skills Aptitudes Info. bases Routines Culture Physical Financial Property-rights Source: Haanes and Løwendahl (1997) Intellectual capital

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

NOT IMITABLE? SCARCE? VALUE? 3 criteria for sustained competitive advantage Source: Barney (1991)

MOBILIZED? VALUE? SCARCE? NOT IMITABLE? APROPRIATED? 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 products Organiz- 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?

Competitive Rivalry Source: Porter (1980) Suppliers Buyers New Entrants Substitutes Industry

Product functionalityProduct technology GeographyMarkets Defining an Industry

INNOVATION PRODUCTIVITY HighLow High Strategy as choice Difficult path

Operational competition Contractual competition Entrepreneurial competition Mobility of critical resources Industry development over time High Low Time