Nokia/Finland (MOC, Monday, Week 2)
microeconomics-of-competitivenessyear-twoFirms have embraced operational effectiveness at the expense of strategy. Both are important.\
Operational effectiveness: doing activities better than your rivals
Strategy: doing different activities than your rivals
One of these can be easily copied (OE), one provides a sustainable competitive advantage.
Careful choice of firm activities creates tradeoffs that prevent easy copying because:
-- some activities are incompatible
-- firms need a consistent image/reputation (can't be both the quality leader and the cost leader)
-- limits on internal coordination (can't run both a high-touch and a low-touch sales force)
At a national level, comparative advantage (a la Ricardo and Adam Smith) is flawed because choice of industries CREATES relevant factors of production. If you choose to produce wine, your nation makes sustained investment in capacity and creates specialized factors of production --- so you get better at making wine and not better at making cloth.
Cluster theory of business environment --- competitiveness in an industry requires:
-- Context for firm strategy and rivalry (competition between firms)
-- Factor [Input] Conditions (access to high-quality inputs)
-- Demand Conditions (sophisticated and demanding local consumers)
-- Related and Supporting Industries (available suppliers and supporting industries)