asset stock accumulation and sustainability of competitive advantage ingemar dierickx and karel cool...

Asset Stock Accumulation and Sustain-ability of Competitive Advantage

Ingemar Dierickx and Karel Cool (1989)Management Science, 35(12): 1504-1511.

Jae Kyun Yoo

Foundations of Strategy Research (Fall 2013)

Introduction

• Strategy literature focuses too narrowly on privileged product market positions as a basis for competitive advantage and above-normal returns (Gabel 1984; Wernerfelt 1984; Barney 1986).

Ingemar Dierickx and Karen Cool (1989)Asset Stock Accumulation and Sustainability of Competitive AdvantageManagement Science, 35(12): 1504-1511.

• Opportunity cost of deployment of scarce assets to achieve market position needs to be assessed.

• Barney’s “strategic factor market”: a market where the re-sources necessary to implement a strategy are required”

• Firms may obtain above normal returns only when they have superior information, when they are lucky, or both.

• Firms should focus on their “unique skills“.

Limitations, complementary framework, and guidelines for assessing sustainable competi-

tive advantage.

Incomplete vs. Imperfect Factor Markets

Barney’s (1986) assumption: All required assets can be bought and sold.

The implementation of a strategy may require assets which are non-appropriable.

Complementary framework to gauge quasi rents generated through deployment of non-tradeable assets.

Successful implementation of a strategy often requires highly firm-specific assets.


Accumulation of Asset Stocks


• Examples: reputation of quality, firm specific human capital, dealer loyalty, R&D capability, etc.

Strategic asset stocks are accumulated by choos-ing appropriate time paths of flows over a period

of time.

With Non-tradeable Asset

Without Non-trade-able Asset

Deploy

Build

Accumulation of Asset Stocks (cont.)


While flows can be adjusted in-stantaneously, stocks cannot.

“bath-tub” metaphor

stock of know-how at a particu-

lar moment in time R&D spend-

ing

depreciation of know-how

A key dimension of strategy formulation may be identified as the task of making appropriate choices about strategic ex-penditures with a view to accumulating required resources and skills.

Sustainability of Privileged Asset Positions


Imitation of Asset Stocks

Time Depression Diseconomics

• “strictly convex adjustment costs”• “law of diminishing returns” when one input, viz. time, is held

constant• MBA students’ accumulation of knowledge in a one-year pro-

gram vs. a two-year program.• Given rate of R&D spending over a particular time interval

vs. twice the rate of R&D spending over half the time inter-val.

Asset Mass Efficiencies

• “success breeds success”• When asset mass efficiencies are important, building asset

stocks starting from low initial levels may be difficult.

• Setting up a dealer network in a new geographic area.

Sustainability of Privileged Asset Positions (cont.)



• New product and process developments find their origin in customer requests or suggestions -> difficult for firms with-out extensive service networks

• All asset stocks “decay” in the absence of adequate “mainte-nance” expenditures.

• R&D know-how -> technological obsolescence• Brand awareness -> consumer population not stationary, con-

sumers forget

Interconnectedness of Asset Stocks

Asset Erosion

Causal Ambiguity

• Accumulation asset stocks may be stochastic and discontinu-ous

• May stem from inability to identify some of the relevant vari-ables as well as our inability to control them

• “uncertain imitability”

Sustainability of Privileged Asset Positions (cont.)



Substitution of Asset Stocks

Time Depression Diseconomics: decreasing returns to the fixed fac-tor time

Asset Mass Efficiencies: the initial level of an asset stock signifi-cantly influences the pace of its further accumulation

Interconnectedness of Asset Stocks: the pace of an asset’s accumu-lation is influenced by the level of other asset stocks

Asset Erosion

Causal Ambiguity

Conclusions


Quasi rents generated through nontrade-able assets

Asset stocks are built or accumulated through consistent time pattern of expen-

ditures or flows.

Sustainability of asset stocks

Imitabil-ity

Sustitutabil-ity

Asset stocks are strategic when they are nontrade-able, nonimitable, and nonsubstitutable.

Time Compression Diseconomies

Asset Mass Effi-ciencies

Interconnectedness

Asset Erosion

Causal Ambiguity

Asset Stock Accumulation

asset stock accumulation and sustainability of competitive advantage ingemar dierickx and karel cool...

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