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Stratégie theory, Four appropriation strategies by Adam Brandenburger…

- - - - Output is 200 demand is also 200
        Labor vost 25, Capital is 50, the opportunity cost is 50 (if I grow Banana instead)
        
        Situation 1:
        Total cost here are 100:
        L+C+OC=100
        Price = 100/200 = 0.5
        The cost of one unit would be 0.5
        Revenues = 200*0;5 = 100
        The rent is 50 (no economic profit as it equals OC)
        
        There is no monopoly power in the story (there is no artificial restriction of supply in the product market)
        Therefore there are no negative consequences to social welfare (value creation is maximized)
        Ricardian rents are about the appropriation of value (how welfare is distributed)
        Ricardian rents are ‘price determined’ (landowner A earns an economic profit without doing anything – i.e. simply by virtue of owning the land)
      - Situation 2: Demand goes up = 300
        
        What happened:
        Basically the other land break even with OC with higher price.
        (It cost more to produce one unit) It makes the price goes up for land 1:
        Now instead of puting the price to 0.5 land one can put it at 1€
        Price
        Determined by the costs of the marginal firm!
        P=MR=MC
        P= #products/costs = 100/100 =1
        Revenues plot 1 = 200; plot 2 = 100
        We substract the cost of Labor and Capital so: Plot 1= Rent 150 (50 opp cost + 100 Ricardian rent)
      - Principle 3: Firms can earn an economic profit without having market power if they control superior resources for which they did not pay the full economic cost.
        If firms are more efficient than others.
        
        Barney (1991) VRIN criteria (Sustained competitive advantage)
        
        Rare:
        
        How many competing firms possess the resource?
        
        Inimitable
        
        Do firms without a resource face a cost disadvantage in obtaining it?
        
        Valuable
        
        Do resources add value by exploiting opportunities or neutralizing threats?
        
        Non-substitutable:
        They can be fixed in supply
        They can be inelastic in supply
        They may be causally ambiguous
        They may be socially complex
        They may be path dependent (‘time compression diseconomies’)
        
        If you have resource:
        
        Only valuable and not exploited by organisation = competitive disadvantage
        
        Valuable and not rate exploited by orga = competitive parity
        
        Valuabale Rare and not costly to imitate = Temporary competitive advanatge
        
        All the box = sustained competitive advantage
        
        Organization:
        
        Is the firm organized to exploit the competitive potential of the resource?
        
        Peteraf's (1993) criteria
        
        Heterogeneity
        
        Ex-post limits to competition:
        refer to the barriers that prevent competitors from imitating or replicating a firm's competitive advantage after the firm has acquired valuable resources or established a superior market position
        
        Ex-ante limits to competition
        Ex Ante: This term means "before the event"—in this case, before a firm acquires a valuable resource or strategic advantage.
        Example: If all firms are equally aware of this opportunity, they will aggressively compete to acquire it. As competition increases, the cost of obtaining that location/resource rises. Eventually, the potential profits that could have been gained from acquiring the resource are diminished by the cost of competing for it.
        Result: The resource may no longer provide above-normal returns because the competition has driven up the price (or cost) of acquiring it.
        Key Insight: For a firm to gain a sustainable competitive advantage, it must acquire the resource or strategic position before intense competition arises—either through foresight, good fortune, or some advantage that allows them to secure the resource without rivals driving up the cost.
        
        Imperfect mobility
        These resources can be traded, but they are more valuable to the firm that currently owns them than they would be to other firms.
        They are "somewhat specialized" to meet the unique needs of the current firm, meaning that while they could technically be transferre
  - - - Land is in fixed supply (the supply of high quality land will not increase when demand goes up)The Factor Market competion
      - Land is heterogeneous (some land is more productive (fertile) than other land)
      - Land is scarce (like any resource which requires payment)
- - - - More structure on a ‘game’
        
        Requires a specification of the possible moves and their pay-offs (e.g. the prisoner’s dilemma)
    - - Value appropriated
        
        Game theoretic equilibrium (‘The core’)
        
        Prices are negotiated
        
        Brandenburger & Stuart logic
        Economic welfare:
        Value created
        Buyer surplus (=consumer surplus)
        
        Rent (payment above opportunity costs)
        Supplier surplus
        Firm surplus (= economic profit)
        
        THE ADDED VALUE VIEW
        
        The added value of a player is the drop in the value created if you take that player out of the game
        =company compete to gain the share of the added value
        
        ‘Unrestricted bargaining’: All players have complete information and are fully rational
        
        All of the bargaining takes place at the same time, resulting in one set of prices
        
        The outcome will be the coalition that creates the most value
        
        It is rational to sell at opportunity cost (or more) or to buy at willingness-to-pay (or less)
        
        We may, or may not, assume that there is room for collusion (illegal cartel for exemple)
        
        what is the price in the case of:
        
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        The added value improves on porter
        
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      - Coalitions
        
        Cooperation (win-win games: value creation), and competition (zero-sum games: value appropriation)
        
        Bargaining (‘competitive’ and ‘pure’)
        
        Favorable asymmetries (differences in ‘added value’/marginal contribution/marginal product)
    - - The parts model
        
        This framework helps companies analyze and shape their competitive and cooperative interactions in business. It’s a strategic tool derived from game theory, aimed at understanding how companies can create and capture value in the marketplace.
        
        Players:
        This refers to the different entities involved in the "game." Players can include customers, suppliers, competitors, complementors (companies that offer complementary products or services), and even regulators..
        
        Added Value:
        This represents the unique contribution or value each player brings to the game.
        
        Rules
        These are the formal and informal regulations that define the way the game is play.
        Tactics:
        It’s about strategic moves and managing perceptions to influence how other players behave.
        
        Scope:
        This refers to the boundaries of the game.
        For example, a company might change the scope by entering a new market or by bundling complementary products to increase its control over the market.
      - The value net
        
        It helps companies analyze their position within a network of relationships that create value in the market. The Value Net includes four key players:
        
        Customers:
        
        Suppliers:
        
        Substitutors: also meant competitors
        
        Complementors:
        are companies whose products or services enhance the value of your own when used together. For example, a smartphone manufacturer and an app developer. Working with complementors can increase the total value for both parties
- - - - Source of advantage ---> Competitive advanatge ---> Performance
        
        If you have an advantage over competitor you must be different = unique
        We are going to see general insight that always need to be translated to the specific situation.
        
        how can we explain differences in performance among firms?
        
        1960s design school
        
        Onward: The process school
        
        1970s: The planning school
        
        1990s: The RBV: Ricardian, Schumpeterian, Chicago
        
        1980s the positionning school: bain type I/O / Chicago
        
        Important
        
        The neoclassical view: Perfect competion
        No sources of advantage --> Identical firms ---> Zero economic profit
        
        Assumptions:
        
        The large numbers assumption
        Decreasing returns; a large number of buyers and sellers; firms are price takers (company that must accept the prevailing prices in the market of its products)
        
        The homogeneity assumption
        Demand is homogeneous; standardized products
        
        The mobility assumption
        Resources are perfectly mobile; free entry and exit
        
        The rationality assumption
        Buyers and sellers have complete information and maximize their utility and profit
        
        The transaction cost assumption
        Transactions are costless
        
        =0 economic profit
        
        Corollary: Any deviation from the assumptions of the model of perfect competition is a possible source of competitive advantage that can lead to performance differences*
        
        The model is about a world of ‘perfect decentralization’ in which rational agents (Homo economicus) interact exclusively through price-mediated exchange (ils echangent par prix seulement rien d’autre).
        Cela revient à dire et à reprendre une intuition de Adam Smith that free market competition will maximize collective welfare despite (or even, because of) the fact that individual economic agents are self-interested.
        In this model, maximisation of welfare is allocative efficiency: the most efficient allocation of given scare resources given a certain level of productive knowledge (‘in perfect competition, there are no opportunity costs left on the table’).
        In this model, competition is price competition. If an industry get economic profit it will get more entry and if they are negative economic profit the exit will increase. = free entry and exit
        Firms are black boxes = something goes in and something goes out (what happened between we do not care / and unitary agent (one individual that act rational)
        Firms are seen as implementing a given production function and as rationally responding to prices (by increasing production until marginal costs equal marginal returns
        Human nature = fully rational and self interested
        
        Limitations of the neoclassical model:
        The firm is treated as a unitary agent
        The firm is treated as a black box
        Preferences are seen as given
        Technology are seen as given
        Agents are seen as fully rational (and entirely self-interested)
        There is no room for increasing returns
        
        There is a difference between Economic profit and accounting profit (counts what entre and goes out)
        Accounting profit = Sales revenue – accounting cost
        Economic profit = Sales revenue – Economic Cost
        =Accounting profit - (Economic Cost – Accounting Cost)
        The difference is opportunity cost, another cost that is the idea of what you did not chose to allocate your resource at.
- - - - Bain’s Industrial Organization (IO) Theory
        
        Overview: Joe Bain introduced the Structure-Conduct-Performance (SCP) Paradigm, which suggests that a market's structure (e.g., number of competitors) influences the conduct (behavior) of firms, and this, in turn, determines market performance (e.g., efficiency, profitability).
        
        Key Concepts: Bain placed importance on barriers to entry, product differentiation, and economies of scale. He argued that monopolistic markets or oligopolies could lead to market inefficiencies, higher prices, and reduced innovation.
        
        Emphasis: Market structure strongly influences the competitive behavior of firms and their outcomes. Bain advocated for regulation to address the inefficiencies of concentrated markets.
        
        Criticism: Overly deterministic in linking market structure to performance without accounting for firm-level strategies that may overcome structural limitations.
      - By turning IO on its head, Porter also changes the objective: the purpose is no longer to understand how to make industries more competitive to increase social welfare, but to understand how to avoid competition to increase private profit.
        The key concepts of Porter’s positioning view of competitive strategy
        Porter = performance throught economic profit or higher market value
        How does porter see competitive strategy
        --> Two central questions underlie the choice of competitive strategy. The first is the attractiveness of industries for long-term profitability and the factors that determine it. The second […] is the determinants of relative position within an industry’ (1985: 1)
        
        1- Industry structure
        Five forces
        Porter has his own idea of industry structure and use 5 forces to get generic strategies. It is a snapshot
        The stronger the forces, the more it puts pressure on the industry.
        A stronger force means more competition.
        Barriers to competition is key here:
        Entry barrier low = less competition
        Exit barrier are a bad thing = high is hard to exit
        Mobility barriers = link to strategic group
        
        Due to barriers to competition (mobility barriers, size, switching costs) these positions are relatively stable
        
        Barriers to competition at the level of industries positively affect the average profitability of the firms in those industries (the industry effect)
        
        2- Strategic groups
        ‘groups of firms … following similar strategies in terms of key decision variables’ (Porter, 1979: 215)
        =within an industry, we also need to check the group of firms that follows the similar strategy. Between group they have different strategy. The competition is more important inside.
        Airline industry: full service (Airfrance, lufthanza...) vs low cost (Ryanair) = they do nnot have the same business model
        
        Firms differ from each other in terms of their market position: some positions are more attractive than others
        
        Mobility barriers between strategic groups within an industry positively affect the average profitability of the firms in those strategic groups (the strategic group effect)
        
        3- Generic strategies
        Cost leadership = only one otherwise you have to differentiate
        Differentiation = several
        Focus = combination of the two
        
        Differences between firms in terms of their product market positions lead to performance differentials (the strategic group effect and the firm effect)
        
        Positions of differentiation and/or low cost positively affect the relative profitability of individual firms within an industry or strategic group (the firm effect)
- - - - Two competing views:
        
        The (public) corporation as a vehicle for advancing shareholder interests (shareholder primacy)
        
        versus
        
        The (public) corporation as a vehicle for joint value creation (team production theory/stakeholder theory)
        
        Shareholder view
        
        Agency theory (michael jensen)
        
        The firm should maximize shareholderr value
        Closer to Smith and Riccardo
        
        Agency theory simply posits that shareholders are the principals and managers their agents
        The firm is a nexus for a set of contracting relationship among individuals
        The firm is a "legal fiction" (as long as you have maximum indiuvidually interest = maximize welfare"
        It “makes little or no sense to try to distinguish those things which are ‘inside’ the firm … from those things that are ‘outside’ of it”
        
        Who can lay claim to the suurplus that the firm creates: Shareholder are residual claimants (after all contractual payents have been made)
        
        Legal scholars Blair & Stout oposite view
        "nothing in the law proves that"
        
        ‘While many laypersons believe shareholders own corporations, this statement is incorrect as a matter of law.’
        
        ‘Shareholders do not own corporations, they own shares of stock ... [which] gives the shareholder limited rights [including the right] to receive any dividens that directors declare.’
        
        ‘[The statements that] shareholders own corporations and are the corporate entity’s residual claimants ... are factually incorrect ...’
        
        Stakeholder view
        
        Stakeholder theory
        -The firm should balance all stakeholder interests (Ed Freeman)
        Closer to Karl Marx
        
        All our stakeholders were disappointed. Shareholders had wanted more dividends, employees higher wages, creditors lower interest rates, and retail clients more interest on their savings. Such criticism was a signal that we had done a good job. We would have had a problem if one of the groups had not complained. That would have meant that we had favoured one of the groups over the others.’
  - - - Employees can have the bargaining power for example
        Mbappe does really good match but the result is not for shareholrder but for his own salary
        Conditions
        
        Capable of unified action
        
        Access to information
        
        High replacement cost to the firm
        
        Low cost of exiting
  - - - The CGT framework does not explain value creation, it assumes it
        
        Firm is seen as a blavk box but here we change
        Value creation is assumed and depends on the productive knowledge of firm (increases over time --> Innovation)
        
        How is value created?
        
        Value is realized in exchange
        
        Value is created in production (cross-sectional)
        
        Value is created in innovation (longitudinal)
        
        Principle 1: Value is created in production and innovation and realized in exchange
        
        The Brandenburger & Stuart view only addresses value creation in exchange, and only explains value appropriation given differences among firms’ abilities to create value in production.
        Similarly, the ‘High Church’ of the RBV only explains value appropriation given value realized in exchange. It does not explain anything about value creation.
    - - We need to switch from the black box which act as a unitary agent to become the firm form the nexus of contract views
        
        We can comeback to the classical firm:
        Owner-Manager-Entrepreneur firm
        can be seen as a unitary agent which is the OME agent
        They have their Opp Cost
        Bottom of the figure
        
        A public corporation is a legal entity by itself (How should it be govern?) STH vs Shareholder theory
        All the suppliers of the contract are at the bottom, employees, shareholder
        they owns his asset/ cooperative system
        
        The agents are now interdepedent: they can only create the value together (‘team production’)
        
        This is like the case of a bi-lateral monopoly (or, rather, a multi-lateral one). 1+1 is not 2 but 3,4,5....
        
        There are no economic arguments to decide who appropriates the surplus created in such a case (value appropration is the result of pure bargaining)
        
        The public firm is a governance solution for joint production and joint innovation
        
        Value, rent, and profit in the public firm
        
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        What drives stakeholder payments?
        
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    - - CGT logic: how is the surplus shared?
        Competitive’ bargaining
        -The bargaining outcome is determined by relative bargaining power derived from competitive positions
        ‘Pure’ bargaining
        -The bargaining outcome is determined by relative bargaining power derived from formal institutions, norms (‘habits of thoughts’), and bargaining skills
        
        Value appropriation is the result of competitive bargaining over the division of value created, and pure bargaining over the division of any residual remaining after competitive bargaining
- - - - Bi-lateral monopoly
        
        There is a total surplus of 40 (100-60)
        The added value (marginal product) of both B and S = 40
        Where the price will go
        Between 60 and 100
        Indeterminate
        it is not determined by economic arguments (i.e. competitive bargaining/bargaining positions)
        The entire surplus is a residual
        the division of which is decided by non-economic variables
        i.e. pure bargaining/ fairness /perceptions/ bargaining skills
      - Monopoly = added value from the supplier that is alone, he add the value .............
        
        Monopoly – Unilateral dependence: expropriation
      - Monopolistic competition: relate to Porter (differentiation)
        2 sellers and 1 buyer
        
        There is a total surplus of 40 (100-60)
        
        The added value (marginal product) of B(1) and B(2) = 0; the added value of S = 40
        The relative competitive (bargaining) positions mean that the price will be 100 (equal to W-t-P)
        The division of the surplus is fully decided by competitive bargaining and the entire surplus will go to the seller (there is no residual whose division depends on pure bargaining)
        = Monopolistic competition – Product differentiation
      - Ricardian competition
        
        Ricardian competition – Differences in productivity
      - Perfect competition
        
        Value created = oportunity cost = zero economic profit
        The consumer get the most value
- - - - Austrian economics
        
        Mengten/Hayek/Mises
        
        Libertarian view (maximum individual freedom)
        
        Schumpeter is austrian but not in this view (differeence in the idea of the equilibrium)
        How entrepreuneurs move the equilibrium away
        
        What is the role of the entrepreuneur
        
        Shumpeter ) create disequilibrium = opportunity creation
        --> You can think of a system of perfect competition (everybody is doing 0 economic profit)
        But thanks to the entrepreuneur he can bundle resource in a different way that allows for profit
        He will make economic profit and the system will adapt itself to create a new equilibrium
        
        Austrian push hard against this idea so always opportunities
        
        Schumpeter competition
        -‘The essential point to grasp is that in dealing with capitalism we are dealing with an evolutionary process’
        
        ‘Capitalism … is by nature a form … of economic change and not only never is but never can be stationary’
        -‘The fundamental impulse that sets and keeps the capitalist engine in motion comes from [innovation]’
        
        ‘… the process that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating the new one. This process of Creative Destruction is the essential fact about capitalism’
        This will create more value and more welfare over time
        
        Knights make a difference between Risk and Uncertainety
        
        Entrepreuneurship = doing new things can lead to a profit in the condition in uncertainety
        
        Risk is when we know the different state of the world and can be assigned probability = assurance. You can allocate with data information = no profitability
        -Uncertainty: we do know all the possible states of the world. We can just do stuff out, try and make some effort. Under this condition be a source of profit
        = allow temporary profit
  - - - Porter's Value Chain - 1985
        How firm get to the position of competitive advantage and get the differentiation and cost leadership
        On the right side there is accounting profit that is made (margin)
        It comes from the primary activities of the firm supported by other activities
        The idea is to have a map with "value" driver and cost drivers
        It is a traditional way of thinking so less important than five forces
        If you want to have a position, it comes down to what you do within the firm
        
        1980 book have a different level,
        We do not talk to manager or industries at all
        Here the competitive advantage of the nation = shift
        --> audience is now government that can stimulate industries
        (bain type IO reference)
        --> Sillicon valley (=cluster)
        Four variables below
        The message is not to avoid competition but the opposite, more local rivalry will be good for individual firm --> They will be better if they survive that be globally successful
        
        Porter 1991:
        How do we develop a dynamic view of strategy
        He said that have have to go to a cross-sectional to the longitudinal problem
        
        cross sectional: Snapshot, positioning firm
        
        Longitudinal: how do a firm get in in this position
        
        Than also thinking backword: I see a company that works well
        We should look at their activity, why are they better...
        We going down to initial conditions = diamond (external) and managerial choices (entrepreunerial decision)
        --> He develops that the essence of strategy is choice (great advice)
        
        Operational effectiveness is not strategy
        
        The essence of strategy is choosing to perform activities differently than competitors do
        
        The entrepreneurial edge is finding new positions
        
        A sustainable strategic position requires trade-offs (they create the need for choice and purposefully limits what the company does) and complementarities
        
        Competitive advantage arises from fit across activities
        
        Complementarities example: A lot of decision to make the ticket price cheaper. This choices have linked together
        
        Porter late view
        He goes backward
        Complementarities with Stoelhorst & Van Raaij and Porter 1991
        Drivers are quitte general
        --> Understanding your environment is important
- - - - Ricardian rent + additional agent which is the entrepreuneur with a opportunity cost
        :
        
        Price
        costs / #products = 150 / 200 = 0.75
        Revenues : 200 x 0.75 = 150
        Payments Wage = 25 Interest = 50 Rent = 50
        
        Entrepreneurial income = 25 (= opp.costs)
      - Demand goes up
        We have another entrepreuneur to meet demand. He is less productive
        The price is going to go up
        
        Price Determined by the costs of the marginal firm!
        P=MR=MC
        P= costs/#products = 150/100 =1.5
        Revenues plot 1 = 300; plot 2 = 150
        
        Who appropriate the economic profit of firm 1
        
        Payments plot 1
        Labor 25
        Capital 50
        Rent 50
        
        Entrepreneurial income 175 (25 opp cost + 150 entrepreneurial profit)
        
        The entrepreneur as residual claimant
        The entrepreneur is entitled to the residual value – i.e. the economic value that remains after all contractual payments have been made
        = he is paying every contracts including land, he keep the rest
        HOWEVER: What will happened if the contract expire?
        The landowner will be in a competitive bargaining position and will appropriate the economic profit as an efficiency (Ricardian) rent.
        =The landowner can appropriate the economic profit because it is now clear what is driving this additional values in this bundle of resources --> It is the land, now he knows and will ask for a higher price. If not Entrepreneur 2 will ask for the same.
        
        Why was the entrepreuneur able to secure such a favorable contract to begin with?
        Because of uncertainty, if everyone have anticipated that, the owner would have ask of more. He has been reward for the bet.
        (if the economic profit would have been generally anticipated, the landowner would have appropriated the profit right away)
        
        Pure (entrepreneurial/Schumpeterian) profit is driven by uncertainty and can be competed away in product and factor markets.
        
        Principle 4: Given uncertainty, firms can earn an economic profit by bringing new combinations to the market
        (Note that, by itself, uncertainty only allows for a temporary profit)
        
        Sources of entrepreneurial profit according to barney (RBV)
        "You don't pay for the full economic value"
        
        Information asymmetries (I have an information that you do not have)
        
        Different expectations (Betting, everything is subjective + understanding the resource your control better than the others and use them better than others)
        
        Luck
        
        (Entrepreneurial insight?) sometimes luck
        
        (Resource complementarities!)
  - - - Litterature found critical failure factors:
        
        Supply side: technological competencies that became obsolete. For example: biological pharmaccy that had to adapt to biotech technology,
        
        Demand side: existing customers (‘value network’): Christenssen "disruptive innovation = an innovation that attack from below"
        Sometimes business are too close to their customer so they cannot see what happened else where
        -Organizational design: ‘architectural innovation’:
        
        Managerial cognition: identity and ‘dominant logic’: hard to let go
        
        Architectural innovation
        ‘Innovations that change the architecture of a product without changing its components’ (p.9)
        ‘[S]ince architectural knowledge tends to become embedded in the structure and information-processing procedures of established organizations, this destruction is difficult for firms to recognize and hard to correct’ (p.9)
        Intel example where they have to change they organizational view on innovation
        
        Cognition: Managers working together over a longer period of time tend to develop a shared set of beliefs or dominant logic for (Prahalad)
        Managers are sometimes not rational with uncertainty, may develop a strong dominant logic especially if they are successful. They may develop core rigidities
        
        A dominant logic
        Defines what the firm is about
        What its competitors are
        What makes it successful
        Is based on past success
        Directs and restricts search activities in relation to innovation
        Which in turn influences capability development
        
        The interplay of managerial cognition and capability development:
        ‘We find that by restricting and directing search activities related to technology development, managerial cognition influences the development of new capability’ (p. 1148)
- - - - ‘The fact that resource bundles need to be deployed to achieve or protect … privileged product market positions is often overlooked.’
        (Dierickx & Cool, 1989)
        
        Explanation: reference to organisation of Barney
        It is not because you have a resource that you know how to use it
        Dierickx and Cool emphasize that merely possessing valuable resources isn't enough; firms must actively deploy and manage these resources to achieve competitive advantages in the market. a tech company that owns advanced software (its resource bundle). If the company just holds the software but doesn't strategically use it to develop new products, market those products effectively, or protect its market share from competitors, it will lose its competitive advantage. To stay ahead, the firm must deploy its software (resource) to innovate and secure a "privileged" position in the tech industry, ensuring long-term success
        
        Limitation of the neo classcial model that the high church take into consideration
        
        Firm is trated as a black box (Diericks & Cool, Grant, 1996)
        
        Market are incomplete (yes) vs market are imperfect
        
        "The implementation of a strategy may require assets which are nonappropriable"
        Are reputations for quality, for
        "toughness" (readiness to retaliate) and so on, really bought in "the market for corporate reputations?"
        
        Resource Picking refers to firms gaining an advantage by acquiring valuable resources that others do not have, often through market opportunities or luck.
        
        Capability Building focuses on developing and nurturing internal skills and competencies within the organization. Rather than relying solely on picking the right resources, firms create a competitive edge through learning, innovation, and improving their ability to use resources effectively over time.
        = open the black box --> We are inside the firm
        
        Accumulation of Asset stocks
        strategic asset stocks are accumulated by choosing appropriate time paths of flows over a period of time.
        
        The fundamental distinction between stocks and flows may be illustrated by the "bath- tub" metaphor: at any moment in time, the stock of water is indicated by the level of water in the tub; it is
        the cumulative result of flows of water into the tub (through the tap) and out of it (through a leak). In the example of R&D, the amount of water in the tub represents the stock of know-how at a particular moment in time, whereas current R&D spending is represented by the water flowing in through the tap; the fact that know- how depreciates over time is represented by the flow of water leaking through the hole in the tub. A crucial point illustrated by the bathtub metaphor is that whileflows can be adjusted instantaneously, stocks cannot. It takes a consistent pattern of resource flows to accumulate a desired change in strategic asset stocks. It follows that a key dimension of strategy formulation may be identified as the task of making appropriate choices about strategic expenditures (advertising spending, R&D outlays, etc.) with a view to accumulating required resources and skills (brand loyalty technological expertise, etc.). In other words, appropriate time paths of relevant flow variables must be chosen to build required asset stocks. Critical or strategic asset stocks are those assets which are nontradeable, and as will be argued below, nonimitable and nonsubstitutable
        
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        Organizational capabilities
        A firm’s ability to perform repeatedly a productive task which relates either directly or indirectly to a firm’s capacity for creating value through effecting the transformation of inputs into outputs’
        
        The ultimate source of competitive advantage is the knowledge underlying a firm’s capabilities (it is thanks to your knwoledge that you can act in a way)
        
        The ultimate source of sustainable competitive advantage is not just knowledge, but …
        
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        Organizational capabilities
        Stalk evans and Schulman
        A set of business processes strategically understood
        
        Case PTT Post
        Sorting: hand written algorythm
        Collecting: Infrastructures (with the boxes)
        Distribution: really vulnerable on the mail postman
        
        Core competencies
        
        (Prahalad & Hamel, 1990:82)
        
        Prahalad & Hamel’s criteria (‘tests’) for core competencies
        
        Potential access to a wide variety of markets
        
        Significant contribution to perceived user benefits of end product
        - Difficult for competitors to imitate
        
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        The Resource-based View III: The Low Church – DCV
        "Which firm is able to learn faster?"
        Sould their be only one? (you are faster or you are not)
        A dynamic RBV?
        
        - The dynamic capabilities view (Teece)
        
        Dynamic capabilities are ‘the firm’s ability to integrate, build, and reconfigure internal and external competencies to address rapidly changing environments’
        
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        Sidney Winter ()
        
        A capability is a capacity to perform a particular activity in a reliable and at least minimally satisfactory manner
        
        Capabilities rest on routines, which are learned, collective, and stable patterns of behavior triggered by internal or external stimuli
        
        Operational capabilities are those that enable a firm to make a living in the present
        
        Dynamic capabilities are those that enable a firm to alter how it currently makes a living
        
        In terms of dynamics at the collective level:
        
        (Investment in building) collective knowledge (a child try to walk)
        
        (Process of) organizational learning (repeat it every day so the brain adapt)
        To capture and explain these things we need to move from an equilibrium to an evolutionary logic
        
        The problem of the DCV is with the underlying explanatory logic
        
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