Strategy Text Chapter 3 8-20-13.Student Version

8/11/2019 Strategy Text Chapter 3 8-20-13.Student Version

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Real World Strategy

Dyer, Godfrey, Jensen, Bryce

Chapter 3: Internal Analysis: Strengths, Weaknesses, and Competitive Advantage

Opening Case: Disney: No Mickey Mouse Company

When most of us think of the Disney Company, we think of Mickey Mouse, Disneys

oldest and most important in a long line of memorable characters. As the companys

spokesman, he appears prominently on the Disney home page.1Everyone knows Mickey,

but few know the story of Mickeys birth; even fewer understand how Mickeys birth in

1928 helped create a set of resources and capabilities that continue to drive profits for

Disney more than 85 years later.

In 1923, Walt Disney and his brother Roy settled in Burbank, California. They

created the Disney Brothers Cartoon Studio to capitalize on a series of Laugh-O-Gram

animations that Walt had produced in their hometown of Kansas City. Later that year,

movie distributor Margaret Winkler contracted with the new studio to produce a series of

single-reel cartoons based on a character from Walts first movie,Alices Wonderland.2After

56 successful episodes of theAlice Comedies, Winklers husband Charles Mintz contracted

with the Disneys in 1927 to produce a new character, Oswald the Lucky Rabbit.

Oswald quickly gained popularity, due in large part to the Disneys insistence on

quality drawing and animation sequences known as the illusion of life, which enabled

characters to move smoothly, like real humans.3In 1928, Walt and his wife Lilly headed

east to negotiate with Mintz for more money to expand the successful series. They were

met with a shock when they arrived in New York. Not only would Mintz not pay more, he


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fired Walt! Mintz held the rights to the Oswald character, and he set out to produce Oswald

without the Disney brothers.

Crushed at the loss of their main character and income source, Walt and Lilly

boarded the cross-country train to return to Hollywood. Lilly recalled, Walt showed me

some of his sketches on the train coming home. They were cute little things; they could do

anything. I asked him what he was going to call the character. Mortimer Mouse, he said. I

said, That doesnt sound very good, and then I came up with Mickey Mouse.4That

mouse, conceived in adversity, would soon lead his creator to prosperity.

Mickeys public debut in Steamboat Williein late 1928 introduced not only a cute

mouse performing laughable antics, but also a company incorporating the latest technology

to bring its stories to life. Sound was just beginning to make inroads in Hollywood, and

Steamboat Willierepresented the first synchronous sound movie. Mickeys motions and

voice were perfectly timed with the music and audio in the cartoon, a major advance in

motion pictures.

The Disneys learned well from Charles Mintz the importance of owning, not just

creating, characters. Ownership of their most important resources allowed the brothers to

control the use of characters by licensing the images to others. Walt entered his first

licensing agreement in 1929 with a stationary company that produced Mickey Mouse

emblazoned notecards. Bythe time WWII broke out in 1942, Disney earned 10 percent of

its revenue from licensing.5

Mickey Mouses combination of a lovable character and cutting edge technology

became a Disney hallmark. The company pioneered a series of firsts:

Technicolor, used for the first time in a film in 1938s Snow White and the SevenDwarfs.


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The use of a multi-plane camera that enhanced the illusion-of-life artistry. A precursor tomodern surround-sound technology. Debuted in the 1940 film

Fantasia, thisinnovative technology would not spread industry wide for anothertwo decades!6

Walts capability to innovate continued throughout his career. He realized the

potential of television in its infancy, and on October 27, 1954 the first episode of Disneyland

aired. The show would later become Disneys Wonderful World of Colorto capitalize on the

potential of color television. And, it would last. In some version, new Disney programming

has been on weekly network television for more than 60 years.

Walt entered the world of television in order to fund his grandest innovation of all:

The countrys first destination themepark. Disneyland opened in July of 1955 on 270 acres

of land in Orange County, California.7Disneyland defied all skeptics and proved a huge

success from the day it opened. The park combined the companys skills in engineering and

entertainment. In fact, Walt called his designers imagineers. Walts almost maniacal focus

on creating a clean setting also helped to set Disneyland apart from the myriad local

amusement parks that constituted the competition. Local Ferris wheels and roller coasters

were no substitute for Magic Mountain or the Tea Cups, and the clean, inviting family

atmosphere proved difficult for cash-strapped local parks to imitate.

Overview

Why did the Walt Disney Company become such a great success? The Disney

brothers built a set of unique resources and capabilities that enabled them to carve out a

successful niche in animated shorts and then parlay that success into feature films,

merchandising, television, and theme parks.

External analysis, the focus of Chapter 2, helps managers answer the question,

Where could we compete? Choosing an attractive industry environment certainly helps,


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but competitive advantage requires a match between external opportunities and the

internal characteristics of the firm. Managers sometimes have little control over the

industry structure or environmental opportunities and threats, but they have lots of

control over what goes on inside their firms. The Disney story, from a strategic perspective,

captures the essence and power of a firms internal abilities, the resources and capabilities

that can create and sustain a competitive advantage. The Disneys young studio survived

and eventually flourished in spite of a harsh industry environment. Large integrated

studios such as Metro Goldwyn Mayer (MGM), United Artists, and otherscompeted fiercely,

and the industry produced over 800 films a year throughout the 1920s.8

When micro-economists study markets, they assume that all firms in a market are

homogeneous, or alike. In such a world, internal analysis would be a fruitless exercise

because any differences among firms performance would arise from industry-level factors.

Strategists, however, assume that firms are heterogeneous, or varied. Firms vary in

meaningful ways along significant factors of production, the critical inputs they use and

the activities they engage in to create products and services. Those differences may

translate into abilities to produce products or services at lower cost (Chapter 4), to meet

customer needs in unique ways (see Chapter 5), to cooperate more efficiently with

partners (Chapter 8), or to compete in global markets more effectively (Chapter 10).

The strategists view of firms as heterogeneous has one other, huge, implication: Not

all firms in an industry will not all earn the same level of profits; some firms will earn

better profit returns than their rivals. For example, Figure 3.1 displays the five-year

operating profitability of Disney and its competitors in filmed entertainment9. As you can

see, these firms earn very different rates of operating profit as a percentage of sales.


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The concepts and tools in this chapter will help you to evaluate a firms internal

abilities in order to answer the question, How can a firm create unique value for all the

firms stakeholders? The first section of the chapter explains how firms create competitive

advantages over rivals, and the second section discusses the sustainability of those

advantages over time. Internal analysis seeks to allow informed and meaningful judgments

about a companys ability to win in its market, bothintime (during any year or product

cycle) and overtime (as long as a decade or longer)10. Winning in time means that a firm

has a competitive advantage; winning overtime requires that advantage to be sustainable.

We end the chapter by describing how to use a tool called the Company Diamond to

create a meaningful visual model of the internal attributes that underlie a firms

competitive advantages.

As weve mentioned, strategists assume that firms differ. How can we describe those

differences in a clear way that highlight how they contribute to the overall strategy? The

value chain provides a logical way to divide the firm into important strategic activities.

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

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News Corp Disney Time Warner Viacom NBCUniversal

OperatingPercenta

ge

Company

Figure 3.1: Operating Profit average, 2008 to 2012, Filmed

Entertainment

Source: Company 10 K filings


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The Value Chain

Figure 3.2 displays the value chain. Developed by Michael Porter, the value chain is

a way to depict and evaluate the activities a company performs. The horizontal elements in

Figure 3.2 capture the production process that a firm uses to acquire and import raw

materials, transform them into valuable outputs, and put them in the hands of customers.

The vertical axis represents four administrative elementsfirm infrastructure, human

resource management, technology development, and procurementthat span all of the

firms economic activities. Porters value chain not only gives you a framework to describe

the activities a company performs, it also can help you to identify which activities represent

the firms competitive strengths and weaknesses.

Wal-Marts sophisticated

information system is part of

both firm infrastructure and

technology development

activities. The system gives

Wal-Mart an advantage in

inbound logistics because it

can find low-cost ways to

move products from its

suppliers to warehouses, and in outbound logistics, when it uses the same systems to move

products at low cost to its retail stores. High-end retailer Nordstroms legendary return

policy is part of its core activities in marketing and sales as well as after-sales service. The


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ability to return virtually any Nordstrom item with no receipt and no questions asked

creates unique value for customers.

Apples dominance in its markets can be traced to its strengths in the support

activities of technology development and procurement. It designs easy-to-use products and

procures unique raw materials such Cornings ultra-strong Gorilla Glass.11Apples iTunes

website and unique and trendy Apple Stores showcase its strengths in operations. The

company is also well-known for its strong marketing and sales, including its sleek logo and

advertising campaigns featuring silhouetted dancers and white ear buds have made Apple

products a must have image product for billions across the globe.

Disneys early strength, as the opening case indicated, came in operations, via its

illusion-of-life cartooning process and innovative film production, both of which were

enabled by the companys technological development. The company later developed a

world-class brand identity that now gives it strength in marketing and sales.

The value chain helps you identify areas in which a firm has an absolute strength,

but provides no guidance about strength relative to competitors. So, you can use the value

chain to answer the important question, What is a firm good at? But, you cant use it to

answer the critical question, What is the firm better at than relevant competitors? Well

help you answer the second question through two processes. First, well define a set of

conceptsresources, capabilities, and prioritiesto help you understand in a deep way

the sources of a firms strengths. Second, well introduce you to VRIO thinking, a way of

measuring the magnitude and durability of a firms strengths versus competitive rivals.


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The Resource-Based View

We can think about resources, capabilities and priorities as answers to basic

questions that firms face. Resources are the specific whatsthat a firm employs to create

value and competitive advantage. Capabilities represent how firms do things, the processes

they use. Priorities are the whysthat determine how firms allocate critical resources to

achieve key objectives.12

Resources

Resourcesprovide the answer to the question, What creates the firms strengths?

An early definition proposes that resources include all assets, capabilities, organizational

processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the

firm to conceiveof and implement strategies that improve its efficiency and

effectiveness.13This definition clearly identifies what could be a resource, but its breadth

makes it difficult to use in practice.

Most resources are, or could be, counted and quantified on a firms balance sheet as

assets. Accountants classify resources as tangible or intangible assets. Tangibleresources

are those with physical presence, such as land, factories, machinery, equipment, or cash.

Intangibleresources are economically valuable assets which do not have physical

presence, and include brands, licenses patents, knowledge, and reputation.14

Four categories of resources are important contributors to competitive advantage:

Physical resources,such as plant or equipment

Financial resources,such as free cash flow

Human resources,including employee and management skills and talents


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Intangible resources,the intangible assets held by firms, such as brands and

patents

Resources enable the operational and support/administrative activities that you

identified in the value chain. Nordstrom could not have any operations without the physical

resources of stores or a website for customers to visit, or without the financial resources of

cash or credit to purchase inventory. Similarly, without the human resources of salespeople

and the intangible resource of a strong brand, there would be no excellent customer

service, which gives Nordstrom its strength in marketing and sales. Finally, without the

intangible resource of Nordstroms culture contributes to the firms infrastructure, and the

human resource of its training programs, the shopping experience would provide little of

the satisfaction that customers have come to expect.

Resources contribute to a firms strengths because resources are used to create

valuable products or services. The importance of resources was highlighted in the early

1800s by economist David Ricardo. Ricardo noted that the amount of labor farmers needed

to produce one bushel of corn was fairly constant but that the land upon which grain was

raised differed in quality and productivity.15Farmers who owned the most fertile, well-

watered, and easily accessible land, produced more grain with the same labor than farmers

with poor land. Ricardo referred to the difference in their output as rent. Modern

strategists use the term Ricardian rentsto describe the competitive advantages and high

profit returns available to companies because they own or control assets or resources that

are more valuable than those of competitors.16Those resources may be land, buildings,

patents, machines, or people. The job of strategists is to make sure their firms find and own

the most valuable resources, allowing the firm to capture Ricardian rents.


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Capabilities

Capabilitiesare processes that the firm has developed to coordinate human activity

in order to achieve specific goals. McDonalds corporation holds a commanding 24 percent

market share in the U. S. fast-food industry, nearly four times as large as rival Wendys.17

McDonalds operates more than 33,000 stores worldwide, many of them in highly

accessible locations, such as freeway off-ramps, or attractive downtown and mall locations.

The stores themselves are resources. But, McDonalds has also developed a set of

operating capabilities,or processes, that it implements in each of these stores. The

companys ability to fill customers orders at industry-leading speed exemplifies a

capability, one at the heart of what makes McDonalds successful. This capability involves

several discrete steps: procuring customer orders, communicating the orders to those who

cook the food, cooking the food, packaging it, and delivering it to the customer. This process

is repeated hundreds of times a day at all 33,000 individual store locations, leading to high

store-level capability for fast-food turnaround.

Competitive advantage relies on a strong set of operating capabilities. A firms

advantage becomes stronger if it develops dynamic capabilities, processes that are

designed to continuously expand existing resources or to improve or modify operating

capabilities.18Dynamic capabilities are practiced and refined over time and through

repetition. For example, Procter and Gamble has many brand resources, such as Crest and

Tide. But it also has been through the process of creating a new brand many times. Through

repetition, P&G has refined its capability to create new brands to the point that it now has a

dynamic capability that can help it expand its existing brand resources with new additions,

such as the Swiffer.


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Dynamic capabilities can help firms modify and evolve processes to keep pace with

environmental changes or to utilize new technologies. They can also enable firms to

incorporate learning into their processes. For example, P&G used its formidable skill in

brand management to create value in its purchase of Gillette, helping the consumer

products company introduce a string of new brands such as Fusion for men and Venus for

women brands.

Companies with strong dynamic capabilities have a more secure foundation for

competitive advantage than those without them, for two reasons. First, dynamic

capabilities entail complex connections and coordination among different internal units

within the firm. For example, finding the optimal site for a restaurant requires input from

marketing about demographic information and target customer segments; the corporate

counsel about sales contracts and local regulations; and real estate professionals skilled at

identifying, negotiating, and closing on properties. Companies that have developed strong

coordination processes are likely to also gain the competitive advantage of good restaurant

locations.

Second, dynamic capabilities take time to develop and require significant learning.

Processes or routines represent deeply engrained, often tacit, habits of behavior that take

years for companies to perfect. As firms and their managers master the ongoing process of

learning and adjustment in the face of environmental change, they develop a formidable set

of dynamic capabilities.19Read more about one of Disneys critical dynamic capabilities, the

ability to protect its intellectual property, in the Strategy in the Real World feature.


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Strategy in the Real World: Preserving Disneys Capabilities: Dont Mess

with the Mouse!

Walt learned early about the importance of copyrights to hischaracters, and over the years, his company developed a set of dynamic

capabilities to protect those resources.20Those capabilities paid hugedividends in 1998.

Steamboat Willie, aka Mickey Mouse, debuted on screen in 1928.Under existing copyright law, Disneys copyright protection on the fabledmouse would expire in 2003, 75 years after the characters origination. In1988, Disney led a group of Hollywood studios, music labels, and othercontent owners in the entertainment businesstosuccessfully lobby Congressto extend the copyright protection on Mickey, and other characters createdbetween 1923 and 1978, for another 20 years.21

With so much riding on the mouse and his friends, Disney makesevery effort to safeguard its property. The rise of YouTube and other user-generated content (UGC) sites has presented a new front in the copyrightwars. Users can upload content to these sites whether or not they have rightsto the material. Disney recognized this threat early and realized the resultinglegal battle would be global, long-running, and very, very expensive. Ratherthan threaten YouTube and other technology providers, Disney GeneralCounsel Alan Braverman decided on a different strategy: Disney would agreenot to sue UGC sites as long as those sites worked to scrub copyrightedcontent on their own.22The delicate negotiations took over a year, butindustry giants Disney, Microsoft, Viacom, Myspace, NBC, Dailymotion, and

Chinese UGC site Youku.com agreed to a set of rules to protect contentcopyrights.

Priorities

Resources and capabilities help firms create and deliver unique value. So what

drives the choices of which resources and capabilities a firm should invest money and time

to try to build? The answer is priorities,which are a firms ranking of the tasks, projects, or

principles that are most important. Priorities answer the question what matters most?

and are driven by a companys underlying values, its leaders beliefs what is right and

wrong, good and bad, desirable and undesirable. 20thCentury management guru Peter


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Drucker described values as the ultimate test for action.23Drucker noted that corporate

decisions about hiring from the inside or outside, a companys stance about the importance

of R&D, marketing, or any other function looklike technical questions of strategy; however,

they are really questions about what companies, and their leaders, truly value.

Values lead to priorities that help executives make decisions. Priorities drive the

creation of resources and capabilities in two ways. First, priorities guide resource

allocation processes such as capital investment, human capital acquisition and training, and

brand development. Second, priorities maintain those allocations over time when things

get tough. Toyota, the worlds leading automobile maker, operates on the core value of

respect for four constituencies: society (the laws and cultures of the markets where they

operate), customers, employees, and the natural environment. Respect for customers has

led the company to make quality a priority. For example, Toyota hires more engineers than

competitors do, in order to focus specifically on quality. Respect for the natural

environment led to a set of priorities and investments that resulted in the Prius, the worlds

first hybrid fuel vehicle produced at large scale.24Read in the Strategy in the Real World

feature how priorities influenced the design of a new headquarters building for Pixar

Studios (then a Disney partner, now a Disney subsidiary).

Strategy in the Real World: Priorities at Pixar

When Steve Jobs bought Pixar Animation Studios in 1986, herefocused the company, away from its founding focus on high-tech hardware,

and further in a direction it had already started, toward creating computer-generated animations that would sell. The refocus was critically, as well asfinancially successful. In the same year of Jobs purchase, Pixars short filmLuxo Jr. (reminiscent of Disney and Steamboat Willie) received an Oscarnomination. Two years later, the companys Tin Toywon the Oscar for bestanimated short film. Thus began a run of Oscar-winning films that includedthe feature-length movies Toy Story,A Bugs Life, and others.


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Jobs valued innovation and creativity, and he believed they were thekeys to Pixars success. Jobs also believed that innovation is sparked whenindividual creative people can spontaneously get together with one anotherand share ideas. As Jobs oversaw the design of the new Pixar Studios buildinghe made sure that the architecture itself would reinforce his values, by

making interaction among employees a design priority. As Jobs biographerWalter Isaacson recounts:

The headquarters was to be a place that promoted encounters and

unplanned collaborations. Pixars campus design originally separated

different employee disciplines into different buildings one for computer

scientists, another for animators, and a third building for everybody else. But

because Jobs was fanatic about these unplanned collaborations, he envisioned a

campus where these encounters could take place, and his design included a

great atrium space that acts as a central hub for the campus.

Brad Bird, director of The Incrediblesand Ratatouille, said of the space,The atrium initially might seem like a waste of spaceBut Steve realized that

when people run into each other, when they make eye contact, things happen.

And did it work? Steves theory worked from day one, said John

Lasseter, Pixars chief creative officer Ive never seen a building that

promoted collaboration and creativity as well as this one.25

At Pixar, values favoring creative collaborations led to a designpriority: interaction. Building a workspace that promoted these interactionsmaintains and enhances Pixars rich capabilities for innovation in both

technical design and storytelling. These capabilities, in turn, drive thecreation of valuable resources, including Pixars Oscar-winning films.

Creating a Sustainable Competitive Advantage: The VRIO Model of Sustainability

Walt Disneys experiences with Oswald the Rabbit illustrate the difference between

having a competitive advantage and sustaining that advantage through time. Oswald

incorporated many of Walts cartoon illusion-of-life animation techniques. The first

cartoons were both profitable and promising of a strong future. However, Oswald lacked

sustainability. For Walt Disney, the Oswald advantage was unsustainable because he didnt

own the rights to the character. Charles Mintz proved unable to sustain Oswald because


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Mintz lacked the capability to keep Oswald alive the way Disney kept Mickey Mouse alive

through products, TV shows, and theme park. Oswalds lifeon film ended in 1943, shortly

after Disney gave birth to Bambi, Dumbo, and Pinocchio.26Walt Disney lost a valuable

competitive asset when Mintz enforced his ownership of the copyright on Walts fateful trip

to New York, but Mintz lacked the capability to sustain the character he had captured.

Competitive advantages arise when resources or capabilities possess two attributes:

Value and rareness. Two other principles determine the durability, or sustainability, of

competitive advantage: Inimitability, the characteristics that make a resource or capability

difficult to imitate, and an organizations ability to exploit profit returns generated by its

unique and valuable resources. Together, these four characteristicsvalue, rareness,

inimitability, and organization to exploit profitsare often abbreviated as VRIO. Well

examine each one in turn.

Value

Mickey Mouse earned returns for Disney and allowed the company to grow because

he created value for film distributors and viewers. Valuedenotes worth to someone and

for strategists that someone is the firms customer. Customers only find value in the

companys products or services when they create pleasure, satisfaction, or happiness for

them. Users wont pay for products or services without value. In fact, a fundamental

premise of our economic system holds that the price someone will pay for a good depends

on the value that good produces: The higher the value, the higher the price that buyers are

willing to pay.

Although not an absolute rule, resources and capabilities that allow firms to produce

and sell at lower costs than their rivals may produce pleasure for users, but low costs also


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provide indirect benefits to consumers. Purchasing products and services at low cost leaves

users with more money to spend on additional, other things that directly provide them

pleasure or satisfaction. Similarly, products or services that are different in some

significant way from competing ones will create direct pleasure or satisfaction for

customers. Resources that help a firm create such differentiatedproducts and services have

value to the firm. (Chapter 4 discusses how firms can create cost leadership strategies and

Chapter 5 considers differentiation.)

Rarity

To be rareis to be uncommon, or not held by others. Uniqueis often used as a

synonym for rare. Disneys illusion-of-life animation technology represented a rare

capability throughout much of Disneys history. So did Walts ability to create films that told

good stories and his visionary use of technology. Rare or unique resources create

competitive advantage through a basic principle of economics: Scarcity. When products or

services are scarce, or few, users become willing to pay a higher price for them than they

would be if the same products or services were more commonly available, leading to higher

company profits.

Inimitability

Inimitabilityis the extent to which competitors cannot reproduce the unique value

created by a product. Mickey Mouse was inimitable for two reasons. First, copyright laws

protected the mouses image. Second, Disneys capabilities in creating the illusion of life

meant that imitators couldnt create a mouse with the same lifelike motions. Several factors

drive inimitability, thereby acting as barriers to imitation. Well describe each one below.


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relationship between VariableAand Outcome Bis difficult to disentangle.29You may have

learned in statistics courses that correlation does not equal causation; just because A and B

appear together does not mean that A causes B. Steve Jobs studied calligraphy at Reed

College and yogic meditation from gurus in India. Jobs credited these two experiences as

highly influential in his aesthetic abilities, but most entrepreneurs will not find that

calligraphy classes or meditation trips to India bestow upon them the same aesthetic

abilities that Jobs possessed.

Complexity.Resources, capabilities, and priorities become difficult for competitors

to imitate when they span the organization or contain many interrelated elements; in a

word, when they exhibit substantial complexity. Creating synchronous sound for Steamboat

Willieproved a complex task in 1927. Walt learned that the key lay in timing the cartoon

framing and motion with the beat of the music (12 frames and beats per minute). Today,

much of Disneys competitive advantage rests on the complex interplay between film

production, distribution in theaters and television, branding, merchandising, and theme

park management. NBC Universal has similar resources, but its profit rate is only about

one-fourth of Disneys. Disney mastered the complex art of managing multiple, interrelated

business over several decades, while NBC Universal combined these resources through a

merger.

Time Compression Dis-economies. Timing is crucial in the development or

deployment of many resources, capabilities, or priorities.30If a project requires a $20

million investment over two years, time compression diseconomies mean you cant get the

same results by spending $40 million in one year. Resources that are likely to be subject to

time compression diseconomies include those that rely on natural or physical processes,


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such as biological growth limits in biotechnology and pharmaceutical research or forestry;

differences in individual or organizational abilities to learn;31or feedback, such as

customer responses to new products.

Network effects and first-mover advantages. Recall from Chapter 2 that much of

the reason eBay is so successful has to do with network effects, which economists call

positive network externalities. If you want to sell your old stuff, where do you want to sell?

Some place where there are lots of potential buyers. If you want to buy stuff, where would

you look? In a place with lots of sellers! eBay wins because of its network effect: More

sellers attract more buyers, who in turn attract more sellers. Its a virtuous circle. As eBay

grows, other online auction sites become less valuable because everyone wants to be

where they have the greatest exposure or selection.

Network effects represent a specific form of a first-mover advantage.32eBay has

been able to lock up the best sellers and most active buyers for its site because it was the

first mover in the market. Being the second to enter is difficult, as eBay learned in Japan,

where it exited the market because Yahoos auction site had captured the first-mover

advantage.33First movers establish a number of advantages. In addition to customers, they

can lock up other resources, such as locations, patents, or scarce raw material inputs, They

can establish long-term contracts with customers. They can set industry standards that

favor their products. These actions make it difficult for rivals to profitably imitate the first

mover.

Organized to Exploit

A firm may employ valuable, rare, and difficult to imitate resources and yet still lack

a sustainable competitive advantage because the firm may not be organized to exploitthe


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Ricardian Rents from these resources.34Consider National Football League (NFL) players.

Payments from television networks for the rights to broadcast NFL games have grown from

$47 million per year in 1970 to just over $4 billion each year in 2012, a compound annual

growth rate of an impressive 12 percent. Over that same period, theplayers share of

revenue has jumped from 35 percent in 1970 to 57 percent in 2011.35How were players

able to increase their share of this huge pie by over 60 percent?

Before 1970, the NFL Players Association (NFLPA) had been a weak collection of

player representatives. During the 1970s, however, the NFLPA emerged as a true, well-

organized union, capable of engaging owners in meaningful contract negotiations backed

up by credible threats of strikes and legal action. The contracts the NFLPA negotiated for its

members have garnered an increasing percentage of a growing revenue pie. The NFLPAs

stronger organization enhanced both its legal standing and administrative abilities,

allowing players to capture the Ricardian Rents from their valuable, rare, and inimitable

resources.

Assessing Competitive Advantage with VRIO

Figure 3.3 shows the relationships between VRIO attributes of resources or

capabilities and competitive advantage. You can assess the strength and durability of a

companys position by answering a yes or no question for each element in the matrix. Both

resources and capabilities should be subjected to the VRIO questions to determine the

strength of a companys competitive advantage.


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As Figure 3.3 shows, in the real world, firms that cant create value for their

stakeholders dont survive. These businesses experience competitive failure. Many

companies, especially new start-ups, introduce valuable products that are also unique and

rare and enjoy a period of competitive advantage. The combination of value and

uniqueness create a short-run competitive advantage intime for a firm. Overtime,

however, competitors imitate these resources and create competitive parityin the

industry.

To create competitive advantage in the long runan advantage that endures over

several yearsa firm must create barriers to imitation. Barriers make it difficult for

competitors to offer similar products or services, drive prices down, and dissipate the

firms superior profits. Barriers to imitation provide apotentiallydurable advantage

literally, a sustain-able competitive advantage. Moving from sustain-ability to

sustainability requires an organizational structure and design that captures the value from


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resources and capabilities. Companies that realize sustained competitive advantage

combine the legal elements, such as contracts or intellectual property rights;

administrative elements, including organizational structure; and cultural elements, such as

norms regarding rewards and what constitutes equity that allow them to capture high

profits that come from their valuable, rare and inimitable resources, capabilities, or

priorities.

Managers may work hard to create resources and capabilities that are VRIO, only to

then witness changes in technology, consumer tastes and preferences, government

regulations, or other forces that imperil their source of competitive advantage. The

Strategy in the Real World feature describes how Disney responded when a new

technology for cartooning presented a threat to its sources of competitive advantage.

Strategy in the Real World: Disney Responds to a Competitive Threat

Disneys competitive advantage since the 1920s arose from thecompanys ability to combine illusion-of-life animation and the latesttechnological advances with classic stories. Steamboat Willie,which

pioneered synchronous sound Fantasia, which debuted Technicolor; andSnow White, the first full-length animated feature film, all still stand asclassics. Modern classics, including The Little Mermaid, The Lion King, andBeauty and the Beast,built upon and reinforced Disneys valuable, rare, anddifficult to imitate brand and character resources, as well as its story-tellingcapabilities.

Eventually, however, a leapfrog technological innovation threatenedDisneys core source of competitive advantage. In 1986, Pixar AnimationStudios secured its first Oscar nomination for its animated short film, Luxo, Jr.The wonderful, family-friendly story of a small lamp signaled that computer

generated animation (CGA), coupled with a great story line, could prove aviable competitor to Disneys illusion-of-life capability.

With the development of its RenderMan software in 198736, Pixarcould produce settings that looked absolutely real, said Pixar director JohnLasseter.37Pixar used this new technology to produce a series of blockbusterhits, including Toy Story, Toy Story 2, Monsters Inc., The Incredibles, and Wall-


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E. Wiredmagazine would later peg Lasseter as the next Walt Disney.38Disney had used CGA since the production of Tronin 1982, but only asacomplement to, never a substitute for, hand-drawn animation.

Disney lacked the in-house skill or software to compete with Pixar.

The company also found itself boxed in strategically. Mickey Mouse turned60 in 1987, and the Disney brand evoked images of family entertainment.Furthermore, the look and feel of its animated character family appealedmore to children than to teenagers or adults. CGA posed a threat to Disneysbrand and character resources and to its illusion-of-life and storytellingcapabilities.

How did Disney respond? At first Disney captured a percentage ofPixars profits by partnering with Pixar, providing distribution for Pixarfilms, as well as financial resources for production and marketing. In return,Disney received a percentage of the films profits. The partnership prospered

through six movies, including the blockbusters just mentioned.

During the time it partnered with Pixar, Disneys own films, builtaround its illusion-of-life animation, such asTreasure Planet, were mostlyunsuccessful. Eventually, Disney decided it needed to own Pixars cutting-edge CGA capabilities. In 2006, Disney finally bought Pixar for $7.5 billion,adding Pixars capabilities to its own pool of Disney capabilities.

The Company Diamond: A Tool for Assessing Competitive Advantage

Weve introduced some important concepts to help you understand how a

companys internal resources and capabilities may allow it to deliver unique value and

achieve superior performance. Internal analysis depends on more than concepts, however,

and so now we present an analytical process and tool that allow you to identify and catalog

a firms potential for sustained competitive advantage. The Company Diamond tool will

help you in the academic work of this course, but it will prove even more valuable as you

decide whether to invest in or work for a particular company. You can also use the

diamond after you take a job, when you work on teams assigned to create strategy for your


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company or to understand the strategic strengths of your competitors. This tool will prove

particularly helpful should you want to start your own company.

The diamond also invokes a powerful metaphor about internal sources of

competitive advantage. Diamonds are valuable, but the creation of that value depends on

the actions of people and organizations. The diamonds you see in a jewelry store have been

taken from their original, raw state and cut, shaped, and graded to increase their value.

Companies create sustainable competitive advantages by taking raw factors or production

and molding them into VRIO resources and capabilities.

Figure 3.4 illustrates the Company Diamond. The diamond shape helps you to

integrate the different internal elements that create layers of competitive advantage.39In

the top layer are the activities that create strengths and weaknesses. Resources and

capabilities lie below, in the center layer, because they lay the foundation for and fuel the

activities in the top layer. The bottom of the diamondthe deepest driver of competitive

advantagecaptures the values and priorities that guide the development of resources and

capabilities.

The numbered questions can be answered in order to help you move down the

diamond to discover the different sources of competitive advantage for a company. When

you are finished gathering and analyzing data to answer them, you should be able to draw a

diamond or create a table for the company that provides a robust and detailed picture of

the companys strategic advantages.


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Gathering Data for Company Diamond Analysis

Data to complete a diamond profile may come from a number of sources. You can

use three main types of data:

Archival data - Written or numeric information that you can find in the library or

on the Internet

Interviews Interviews can range from personal questions to impersonal

surveys.

Observation Your own experiences, such as visits or use of products or

services

If you want to create a Diamond profile for a private company, you may find very

little archival data, but you may find it simpler to locate people willing to grant interviews

or to directly observe the company. For public companies, the reverse often proves true.


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Abundant archival data exists, but company firewalls make interviews difficult and the size

of the company means that observations provide only a limited view of the company.

Appendix 1 helps you know what to look for as you perform a Diamond analysis, and

Appendix 2 describes in detail different data sources you can use to do the analysis.

As you gather data and use the questions to sort and categorize what you find,

remember the GIGO principle from computer programming: Garbage in; garbage out.

Stated more elegantly, the more attention you pay to gathering, verifying, and comparing

the data, the richer, more robust, and more insightful your finished product will be. You

should always rely on at least two types of data (e.g., archival records and interviews), and

use multiple sources of data within each type. For each strength, weakness, resource,

capability, value, or priority that you identify, include the source from which you drew your

data. If your data all comes from a single source such as a website, Business Week, Fortune,

or Wall Street Journalarticle, then your diamond will be weaker than if drawn from

multiple sources. Tapping other data sources, such as doing an interview or scheduling a

plant visit, may seem daunting, but doing so will pay great dividends in creating a richer,

more complete profile of the company.

Be very careful to balance your data sources. Dont rely exclusively on data provided

by the company or solely on data that comes from the companys detractors. Both have a

point of view that differs from the real company. If you are thinking about accepting a job

with a company, or one of its competitors, youll want to dedicate significant time and

energy to developing the richest diamond you can.

Using the Company Diamond


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You can use the diamond to focus on a companys strengths or its weaknesses. It is

often simpler to create a separate analysis for strengths and weaknesses as a first step.

Table 3.1 shows the results of a simple Diamond Analysis to compare the strengths

of two excellent national retailers: Wal-Mart and Nordstrom. As you can see from the table,

both Wal-Mart and Nordstrom have clearly identifiable strengths that customers, suppliers,

and others can readily see.

Company

Questions Wal-Mart Nordstrom

What is company good

at?

Low prices Customer service

What resources and

capabilities create those

strengths?

Stores located in rural

areas

Number of stores

Logistics, planning

Distribution centers

IT systems

Pricing policies

Posh stores

Talented staff

In-store Merchandising

Selection and retention of

staff

How does the company

create value for

customers?

Low prices enable

customers to purchase

more total items,

Pleasure and satisfaction

through the shopping

experience and the goods

purchased


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What priorities support/

sustain those resources

and capabilities?

Frugality

Striving for excellence

Outstanding service

Empowered employees

Competitive Advantage

Rare? Yes size and scale Yesreputation/brand

Inimitable? Yescomplexity Yescausal ambiguity

Organized to exploit? Yescentralized Yesdecentralized

Sources: Author interviews with selected organizational members, store visits and

tours, various articles in popular press such as The New York Times, Wall Street

Journal, Business Week, Fortune,and Forbes.

What if you wanted to create a Diamond profile to focus on a companys weaknesses?

Consider Sears Holdings, the company created by the 2004 merger of Sears and K-Mart. K-

Mart began operations in the late 19thCentury and was a competitor of Wal-Mart until Wal-

Mart drove them into bankruptcy. Sears opened its first retail store in 1925 and enjoyed a

run as Americas largest retailer through most of the 20thCentury.

A visit to a Sears store would allow you to observe both the companys strengths

and weaknesses. Sears boasts a broad line of major national brands and some very famous

house brands, including Kenmore appliances and Craftsman tools. Sears offers its goods at

multiple price points.40However, while you would see a broad selection, you would also

likely see a store with outmoded lighting, worn carpeting or tile, and a merchandising and

product mix that lacks excitement. Articles in the popular press indicate that Sears


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strategy centers on store closings and layoffs, rather than on investing in new

capabilities.41

A read of Sears Holdings 2011 Annual Report of 10-K filings would reveal a

company with a 2011 loss of over $3 billion and cash resources that declined from $1.3

billion to $754 million over the same period.42

The mission and values statements at the companys website talk about building

lifetime relationships with customers, quality products, and positive energy. You may

notice, however, that these values dont translate into priorities that connect with the

companys current strategy of selling off its assets, which one commentator sees as the

early stages of liquidation.

If you use the VRIO process described in Figure 3.3, you would see that the rareness

of Sears resources diminishes with each sale of a valuable set of assets, a brand, or a retail

operation. Specialty retailers, such as local appliance stores or dedicated tool shops, not

only imitate Sears broad selection of products, they often exceed it and provide more

knowledgeable service and support. Discount and big-box retailers such as Sams Club,

Costco, or Home Depot match any price advantage Sears offers. Finally, you might notice

that, as of 2012, Sears seems to be organized to sell, rather than grow, any superior profit

returns from its resources and capabilities.

Questions Sears Holdings

What is company good at? Broad Selection of goods

Appliances, tools


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What are the companys

weaknesses?

Outmoded stores

Poor merchandizing

Unmotivated employees

What resources and capabilities

are lacking and contribute to those

weaknesses?

Lack of financial resources for reinvestment

Lack of strategic consistency to support

training, merchandizing

How does the company create

value?

Better value can be had through specialty

stores or discounters, such as Wal-Mart or

Home Depot

What values support/sustain

those resources and capabilities?

Stated values and goals not consistent with

current actions.

Priority seems to be survival

Competitive Advantage:

Rare? Diminishing through asset sales

Inimitable? No. Specialty retailers offer better products,

services. Low-cost retailers offer better

prices.

Organized to exploit? No. Corporate focus is on creating cash flow

through asset sales.

The diamond profiles for Wal-Mart, Nordstrom, and Sears Holdings help you

understand the variety of strategies available to retailers. Company Diamond analysis also

reveals the level of alignment between strengths, resources, capabilities, and values at


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winning companies Wal-Mart and Nordstrom, and the misalignments that plague Sears

Holdings. The profiles help you understand why Wal-Mart and Nordstrom generate

superior returns for their shareholders and why Sears loses money.

Chapter Summary

Internal analysis matters! This chapter has introduced you to a powerful set of

strategy tools you can use to understand better how companies create and sustaincompetitive advantages through their own efforts, as opposed to merely relying on theindustrys structure.

The value chain provides a broad and comprehensive roadmap for you to identifythe sources of a firms strengths and weaknesses among its different value-creatingfunctions and infrastructure elements.

The factors of production that a firm uses to create competitive advantages can bedivided into three categories: Resources, capabilities, and priorities. Priorities supportthe development of capabilities, and they enable the creation and deployment of uniqueand valuable resources.

Valuable and rare resources and capabilities create competitive advantages forfirms. The durability or sustainability of those resources depends on inimitabilityhowdifficult it would be for a competitor to imitate the resource. Finally, the firm must beorganized in legal and administrative ways that capture the rents created by thoseresources.

The Company Diamond is a tool to help you identify, categorize, and assess theoverall strategic advantages of a firm. The Company Diamond allows depth of analysisand understanding about the root causes of a firms competitive advantages.


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Appendix 1: A Framework for Identifying Resources and Capabilities

Resource Measures

Physical Resources

Productive capacity

Annual revenues Number of Full-timeequivalent (FTE) employees

Annual revenues production square feet

Location Number of locations per relevant marketversus competitors

Ease of access for customers/suppliers versus

competitors

Financial Resources Data and figures can be calculated from a companysfinancial statements and other online or archivalindustry sources. Online resources like Investopia,and even Wikipedia, can help you calculate thesenumbers if they are unfamiliar to you.

Borrowing Capacity Debt ratio versus industry average

Debt-equity ratio versus industry average

Net cash flow to Total Invested Capital

Liquidity Quick Ratio

Current Ratio

Inventory turns versus industry average

Credit rating Gross cash flow net cash flow to equity

Sustainable growth rate ROE (1- Dividend payout ratio)

Human Resources

Education Sum of employees years of education FTE

Employees

Training Training hours/year FTE Employees

Employee commitment

Percent of absentee days versus industryaverage

Total amount of sick leave taken Totalamount of sick leave available

Trust Annual number of workplace thefts

Annual number of complaints (such as to theEqual Employment Opportunity Commission,


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Occupational Safety and HealthAdministration, or Consumer Product SafetyCommission)

Intangible Resources

Organizational Knowledge Average FTE employee tenure

Employee turnover versus industry average

Reputation/Brand Customer satisfaction scores (e.g., NetPromoter ScoreSee Chapter 5)

Percent of revenue from repeat customers

Average length of customer relationship Brand equity measures (if available)

Patents and Intellectual Property

Total number of patents, trademarks, andcopyrights

Capabilities Indicators

Raw materials and logistics Exclusive control over raw material supplies(e.g., ownership)

Size and dispersion of distribution network

Distribution costs sales compared to industry

average

Research and development Revenue from products less than 5 years old

Number of new products introduced annually

R&D expenditures revenue versus industryaverage

Product design Design awards won (e.g., J. D. Power awards)

Presence of unique design features versus

industry competitors

Manufacturing

Average plant size versus industry average Plant output versus industry average

Manufacturing costs sales, net of input costsversus industry average

Maintenance expense/ revenues versusindustry average

Unique plant layouts, designs, or workflows


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versus competitors

Technology Sophistication of website versus close

competitors

Number of personal computers, smart phones,

and handheld devices and upgrade cycles

Financing Cash flow position versus industry average

(Earnings Before Interest, Depreication, andAmortization (EBIDTA) versus industryaverage

Weighted cost of capital versus industryaverage

Sales and marketing Advertising expenses sales versus industry

average

Advertising awards won Breadth and depth of product line versus

competitors

After sales service and warranty Warranty revenue /warranty costs versuscompetitors

Customer service awards (e.g., J. D. Power

ratings)

Source: Adapted from Warren D. Miller, Value Maps, 2010. Wiley


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Appendix 2: Sources for Internal Analysis of a Firm

Data exist for you to use the Company Diamond tool, but finding, filtering, and usingthose data can be challenging. Here are some important rules to follow as you look for andcollect data:

Be sure to include multiple types of data.Researchers call this the principle of

triangulation. Each data type offers you a particular view of a firm. Financialreports give you a picture of the firms financial condition. Interviews withemployees open a window to give you a view of the firms culture andoperating procedures. Observations offer you the chance to see the firm inaction. Triangulation allows you to create a composite view of the firm usingall of the different views youve collected.

Be sure to include data beyond the information provided by the firm itself.Company information may be biased toward presenting a positive view ofthe firm, and if you only rely on information the company provides you willnot have a complete picture. Conversely, dont rely solely on the firms critics,whether disgruntled employees, customers, regulators, or social activists.

They have their own biases, which can also obscure the true nature of thefirm.

Use multiple sources within each type.Your goal in doing a Diamond analysis

is NOT to get a quick, superficial picture of a company, but rather to uncoverthe rich variety of resources, capabilities, and values that underlie the firmsstrengths and weaknesses. It will take time, but using multiple sourceswithin each data type, as described below, will help you create a robustportrait of the firm.

The goal is to see a motion picture, not just a snapshot.To truly understand

where a firm is today, and where its headed tomorrow, you have tounderstand where it came from. Make sure that, whatever type of data you

use, your data provides a view of the firm across a span of time rather thanonly at a single moment in time. Search financial results and archival sourcesfor multiple years of data. Take time to understand the history of thecompany, either through written histories or interviews. Lookingdynamically over time helps you see how resources and capabilities havedeveloped, and how values and priorities have guided the company overtime.

Private companies will require more reliance on interviews and observations.Private companies have no obligation to disclose their financial results andmany private companies receive little media attention. That means thatarchival sources of data for private companies may not exist, or they may bequite thin. You may need to rely heavily on interviews, surveys, andobservations to gather meaningful data on private companies. However, youmay find it easier to talk with stakeholders of private companies becausemany, but not all, have fewer bureaucratic restrictions and firewalls thantheir public company counterparts.


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Sources of Data

Data Type Source of

Data

Where to find the Source Notes

Archival(written

data that arestoredsomewhere)

Books(histories,

analyses,stories,exposes, etc.)

Your universitylibrary

Amazon.com. WorldCat global

library searchengine(www.worldcat.org)

Books are excellent sourcesfor values and priorities,

path-dependent resourcesand capabilities.

Articles(academicjournals,magazines,newspapers,trade

journals)

ABI/Inform

(www.proquest.com)

EBSCO(www.ebscohost.com/academic)

Factiva(www.dowjones.com/factiva)

JSTOR

(www.jstor.org)

Excellent sourceforcurrent information onstrengths andweaknesses.

Good source forcapabilities and theirdevelopment.

Your university librarymay have subscriptions tothese and other sources

Company

financial

reports: 10Q,10K, 8Q,Annual

Reports(Publiccompaniesonly.)

Annual reports areusually availablethrough a companyswebsite. Look for theInvestor Relations tab.

8Q, 10Q, and 10Kreports are available atwww.edgar.sec.gov(asearchable database).

Excellent sourceforunderstanding the resources(tangible and intangibleassets) of a firm

Company

and business

databases

Factiva (listed above)

IBIS World(www.ibisworld.com)

LexisNexis Academic

(http://www.lexisnexis.com/en-us/products/lexisnexis-

academic.page)

Websites Company websites

Better Business Bureau

Chambers of Commerce

Google searches forcomplaints, problems,
http://www.worldcat.org/http://www.worldcat.org/http://www.worldcat.org/http://www.proquest.com/http://www.proquest.com/http://www.ebscohost.com/academichttp://www.ebscohost.com/academichttp://www.ebscohost.com/academichttp://www.ebscohost.com/academichttp://www.dowjones.com/factivahttp://www.dowjones.com/factivahttp://www.dowjones.com/factivahttp://www.dowjones.com/factivahttp://www.jstor.org/http://www.jstor.org/http://www.jstor.org/http://www.edgar.sec.gov/http://www.edgar.sec.gov/http://www.ibisworld.com/http://www.ibisworld.com/http://www.ibisworld.com/http://www.lexisnexis.com/en-us/products/lexisnexis-academic.pagehttp://www.lexisnexis.com/en-us/products/lexisnexis-academic.pagehttp://www.lexisnexis.com/en-us/products/lexisnexis-academic.pagehttp://www.lexisnexis.com/en-us/products/lexisnexis-academic.pagehttp://www.lexisnexis.com/en-us/products/lexisnexis-academic.pagehttp://www.lexisnexis.com/en-us/products/lexisnexis-academic.pagehttp://www.lexisnexis.com/en-us/products/lexisnexis-academic.pagehttp://www.lexisnexis.com/en-us/products/lexisnexis-academic.pagehttp://www.lexisnexis.com/en-us/products/lexisnexis-academic.pagehttp://www.lexisnexis.com/en-us/products/lexisnexis-academic.pagehttp://www.ibisworld.com/http://www.edgar.sec.gov/http://www.jstor.org/http://www.dowjones.com/factivahttp://www.dowjones.com/factivahttp://www.ebscohost.com/academichttp://www.ebscohost.com/academichttp://www.proquest.com/http://www.worldcat.org/


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success stories,testimonials

Interview

Data(stakeholder

groups)

When done properly,interviews will help youunderstand all levels of the

Diamond.Customers Customers are a rich source

of data on strengths andweaknesses as they perceivethem.

Employees and Suppliers Employees, suppliers, andpartners can provide someinsight on assets, but deepinsights into a companyscapabilities.

Regulators Regulators and investors

have valuable insights onresources and capabilities.

Investors Owners will provide theirview of all elements of theDiamond, but they, alongwith community activists, areexcellent sources tounderstand underlyingvalues and priorities.

InvestorsOwners

Community Activists

Tips oncreating goodinterview/survey questions

Academic sources:http://owl.english.purdue.edu/owl/resource/559/06/Industry sources:http://help2.surveymonkey.com/?l=en_UShttp://survey-software-review.toptenreviews.com/

tips-to-creating-a-good-survey.html

Observatio

nObservation allow you to see and evaluate

the outcomes (products orservices) that firms create.

Plant tours You can see resources in
http://owl.english.purdue.edu/owl/resource/559/06/http://owl.english.purdue.edu/owl/resource/559/06/http://owl.english.purdue.edu/owl/resource/559/06/http://owl.english.purdue.edu/owl/resource/559/06/http://help2.surveymonkey.com/?l=en_UShttp://help2.surveymonkey.com/?l=en_UShttp://help2.surveymonkey.com/?l=en_UShttp://survey-software-review.toptenreviews.com/tips-to-creating-a-good-survey.htmlhttp://survey-software-review.toptenreviews.com/tips-to-creating-a-good-survey.htmlhttp://survey-software-review.toptenreviews.com/tips-to-creating-a-good-survey.htmlhttp://survey-software-review.toptenreviews.com/tips-to-creating-a-good-survey.htmlhttp://survey-software-review.toptenreviews.com/tips-to-creating-a-good-survey.htmlhttp://survey-software-review.toptenreviews.com/tips-to-creating-a-good-survey.htmlhttp://survey-software-review.toptenreviews.com/tips-to-creating-a-good-survey.htmlhttp://survey-software-review.toptenreviews.com/tips-to-creating-a-good-survey.htmlhttp://survey-software-review.toptenreviews.com/tips-to-creating-a-good-survey.htmlhttp://help2.surveymonkey.com/?l=en_UShttp://help2.surveymonkey.com/?l=en_UShttp://owl.english.purdue.edu/owl/resource/559/06/http://owl.english.purdue.edu/owl/resource/559/06/http://owl.english.purdue.edu/owl/resource/559/06/


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capabilities in action duringplant visits.

Office visits andinformation interviews

You can get a feel for thecompany culture andoperating procedures

through an office visit.Product placements (instores, etc)Company advertisementsProduct trial and/or use

References

1Seehttp://thewaltdisneycompany.com/,accessed 10 December, 2012. Youll find Mickey displayed in the latest

news section and on the flash video images that dominate the home page.2Bob Thomas, Building a Company : Roy O. Disney and the Creation of an Entertainment Empire(New York:

Hyperion, 1998).pp. 46-47.3J. P Telotte, The Mouse Machine Disney and Technology(Urbana: University of Illinois Press, 2008). P. 27.

4Thomas, Building a Company., pp. 57-58.

5Ron Grover, The Disney Touch(Homewood, Ill: Irwin, 1991). P. 7

6Telotte, p. 15.

7Thomas, p. 178-187

8http://www.1920-30.com/movies/.Accessed 28 November, 2012.

9NAICS 512110.

10Warren D Miller, Value Maps Valuation Tools That Unlock Business Wealth(Hoboken, N.J.: Wiley, 2010),

http://site.ebrary.com/id/10388356., pp. 35-3611

Brian Gardiner, Glass Works: How Corning created the ultrathin, ultrastron gmaterial of the future, Wired, 24

September, 2012. Available athttp://www.wired.com/wiredscience/2012/09/ff-corning-gorilla-glass/all/,accessed

03 January 2013.12

Clayton M Christensen, James Allworth, and Karen Dillon, How Will You Measure Your Life?(New York, NY:

Harper Business : Imprint of HarperCollins Publishers, 2012).13

Jay Barney, Firm Resources and Sustained Competitive Advantage,Journal of Management17, no. 1 (March 1,

1991): 99120, doi:10.1177/014920639101700108., quotation from page 101.14

Stice and Stice, Financial Accounting, 7th

Edition, p. 537.15

D. Ricardo, Principles of Political Economy and Taxation, in The Works of David Ricardo, ed. J. R. McCulloch

(Honolulu: University Press of the Pacific, 1817), 584., pp. 35-36.16

Margaret A. Peteraf, The Cornerstones of Competitive Advantage: A Resource-Based View, Strategic

Management Journal14, no. 3 (March 1, 1993): 179191.17

Research firm IBIS Worldwide has data on the major competitors in the fast food industry as of 2012. See

http://clients1.ibisworld.com/reports/us/industry/majorcompanies.aspx?entid=1980#MP347824,accessed 05December 2012.18

For a discussion and definition of dynamic capabilities, see David J. Teece, Gary Pisano, and Amy Shuen,

Dynamic Capabilities and Strategic Management, Strategic Management Journal18, no. 7 (August 1, 1997): 509

533, doi:10.2307/3088148.19

Ibid.

21Janet Wasko, Understanding Disney : the Manufacture of Fantasy(Cambridge, UK; Malden, MA: Polity ;

Blackwell, 2001). pp 85-86. See also Sprigman, C. 2002. The mouse that ate the public domain: Disney, the
http://thewaltdisneycompany.com/http://thewaltdisneycompany.com/http://thewaltdisneycompany.com/http://www.1920-30.com/movies/http://www.1920-30.com/movies/http://www.1920-30.com/movies/http://www.wired.com/wiredscience/2012/09/ff-corning-gorilla-glass/all/http://www.wired.com/wiredscience/2012/09/ff-corning-gorilla-glass/all/http://www.wired.com/wiredscience/2012/09/ff-corning-gorilla-glass/all/http://clients1.ibisworld.com/reports/us/industry/majorcompanies.aspx?entid=1980#MP347824http://clients1.ibisworld.com/reports/us/industry/majorcompanies.aspx?entid=1980#MP347824http://clients1.ibisworld.com/reports/us/industry/majorcompanies.aspx?entid=1980#MP347824http://www.wired.com/wiredscience/2012/09/ff-corning-gorilla-glass/all/http://www.1920-30.com/movies/http://thewaltdisneycompany.com/


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Copyright Extension Act, and eldred v. Ashcroft. Available at

http://writ.news.findlaw.com/commentary/20020305_sprigman.html,accessed 17 November, 2012.22

Mullich, J. 2011. Disneys GC Works His Magic. Super Lawyers Business Edition. September. Available at

http://business.superlawyers.com/california-southern/article/Disneys-GC-Works-His-Magic/83da6d0f-3047-4a9e-

8464-36710c6be140.html,accessed 17 November 2012.23

Peter F. Drucker, Managing Oneself, Harvard Business Review83, no. 1 (January 2005): 100109.24

A statement of Toyotas values can be found atwww.toyota-industries.com/corporateinfo/philosophy/,and the

story of the Prius at Alex Taylor, Toyota: The Birth of the Prius, Fortune, 21 February, 2006. Available at

http://money.cnn.com/2006/02/17/news/companies/mostadmired_fortune_toyota/index.htm,accessed 12

January, 2013.25

Walter Isaacson, Steve Jobs(New York: Simon & Schuster, 2011). P. ??26

A list of Disney movies, by year, can be found athttp://d23.disney.go.com/archives/a-complete-list-of-disney-

films/,accessed 06 December 2012.27

The Boeing 707 was not the first jet aircraft, but the first one to hold the jet-transport formula right. See

http://www.boeing.com/stories/timeline.html,accessed 07 December 2012.28

Richard R. Nelson and Sidney G. Winter,An Evolutionary Theory of Economic Change(Harvard University Press,

1982).29

Richard Reed and Robert J. Defillippi, Causal Ambiguity, Barriers to Imitation, and Sustainable Competitive

Advantage, The Academy of Management Review15, no. 1 (January 1, 1990): 88102, doi:10.2307/258107.30

Ingemar Dierickx and Karel Cool, Asset Stock Accumulation and Sustainability of Competitive Advantage,

Management Science35, no. 12 (December 1, 1989): 15041511.31

Wesley M. Cohen and Daniel A. Levinthal, Absorptive Capacity: A New Perspective on Learning and Innovation,

Administrative Science Quarterly35, no. 1 (March 1990): 128, doi:10.2307/2393553.32

Marvin B. Lieberman and David B. Montgomery, First-Mover Advantages, Strategic Management Journal9

(July 1, 1988): 4158, doi:10.2307/2486211. Marvin B. Lieberman and David B. Montgomery, First-Mover

(Dis)Advantages: Retrospective and Link with the Resource-Based View, Strategic Management Journal19, no. 12

(December 1, 1998): 11111125, doi:10.2307/3094199.33

Chris Gaither, Internet: eBay exits Japan for Taiwan. New York Times, 27 February, 2002. Available at

http://www.nytimes.com/2002/02/27/business/technology-briefing-internet-ebay-exits-japan-for-taiwan.html,

accessed 07 December, 2012.34

Russell W. Coff, When Competitive Advantage Doesnt Lead to Performance: The Resource-Based View andStakeholder Bargaining Power, Organization Science10, no. 2 (March 1, 1999): 119133, doi:10.2307/2640307.35

Data compiled from Pankaj Ghemawat, Commitment : the Dynamic of Strategy(New York [N.Y.]: Free Press

[etc.], 1991); Vrooman, John, The Economic Structure of the NFL, in The Economics of the National Football

Leauge: The State of the Art, ed. Quinn, K. G. (New York [N.Y.]: Springer Science + Business, 2012), 335.36

Information drawn from Pixar Animation Studios History, available at

http://www.fundinguniverse.com/company-histories/pixar-animation-studios-history/,accessed 19 November,

2012.37

Wasko, Understanding Disney. p. 160.38

Daly, James, et al. Hollywood 2.0. Wired 5.11 (1997): 200-215. Cited in Wasko, p. 163.39

Michael E Porter, What Is Strategy?(Boston, Mass.: Harvard Business School Press, 1996). Or the Strategy

Canvas suggested by W. Chan Kim and Rene Mauborgne, Blue Ocean Strategy : How to Create Uncontested

Market Space and Make the Competition Irrelevant(Boston: Harvard Business School Press, 2005).40Author visits to local Sears stores, 2011-2012.41

Dana Mattioli and Karen Talley, Pared-down Sears posts profit on asset sales, Wall Street Journal, 17 May,

2012. Available athttp://online.wsj.com/article/SB10001424052702303360504577409722818223112.html ,

accessed 04 January, 2013.42

See Sears Holdings, 10-K filing, pages 24 (profit reporting) and 37 (cash reserves). Available at

http://www.searsholdings.com/invest/docs/SHC_2011_Form_10-

K.pdf#pagemode=thumbs&page=1&zoom=100,0,0,accessed 04 January, 2013.
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