Competitive Advantage of DMCs

The classifications of DMCs discussed in the previous section, which are LBDMC, IBDMC, PL, and RC, needed to be assessed in terms of achieving and/or sustaining competitive advantage in accordance with the stated research aim and objectives. The problem was that the DC literature had not produced a mechanism to do this with. The VRIO model, used to measure competitive advantage, has been foundational to the RBV literature. Nevertheless, it has not been used to assess DCs even though literature has called for its usage (Helfat et al., 2007; Barreto, 2010). (To date, there are no empirical studies assessing classifications of DMC using VRIO as is done here.)

VRIO was designed specifically in order to assess resources and capabilities. Recall that the framework uses four questions about a resource or capability to determine its competitive potential—value, rarity, imitability, and organization. If a capability was valuable, rare, costly to imitate, and exploited by the organization, it could provide a sustainable competitive advantage. If it was only valuable, the firm could achieve competitive parity using it. If it was valuable and rare, and could be imitated, then the firm would be expected to have a temporary competitive advantage only (Barney &

Hesterly, 2012, p. 84).

The classifications of DMCs derived from the multi-case data were assessed using VRIO as shown in Table 4.8. The following capabilities used by the managers led to achieving and sustaining competitive advantage in their firms: LBDMC, IBDMC, PL, and RCs enabled the insurer; LBDMC, IBDMC, and PL enabled the banker (although the RC with the insurer did so too, it was not a part of the data derived from case study of the bank); and LBDMC and PL enabled the realtor. Not all of the capabilities managers used in the case episodes, led to sustainable competitive advantage, as discussed below.

For example, the accounting firm had established an RC (episode 8H) that was not necessarily rare, and could be imitated by rivals. This would be an example of a capability that would not be expected to deliver a sustainable advantage to the firm.

Recall that if the capability is valuable, but not rare, then it helps the firm achieve competitive parity (the capability is analogous to one that is ordinary, and technically fit, and not achieving economic rent). If a resource is valuable and rare, a firm has achieved a competitive advantage, but others can imitate what is being done, so the advantage is temporary. But if a capability is valuable, rare, inimitable, and adopted throughout an organization, it is a source of a sustained competitive advantage.

In Table 4.8, the data show that each of the case episodes was assessed using the VRIO framework. The first column represents the SME/manager from the multi-case study. The remaining columns represent the DMC classifications. The case episodes are labeled 1A through 18R, as shown previously. The four classifications of DMCs were often used in combination with each other, collectively, as a portfolio of competitive intangibles. For example, in the aggregator model, as described in case episode 2B, the manager of the insurer used LBDMC, IBDMC, PL, and RC in order to achieve and sustain competitive advantage. The questions from the VRIO model are presented in the following sections, using illustrative date from case episode 2B.

Table 4.8 DMC—Competitive Advantage

Case Study Application of VRIO

LBDMC IBDMC PL ABDMC RC

The question of value: The question of value is answered in the affirmative. By creating a network of more than 600 agencies, across six states, with the ability to place coverage with larger carriers, a new and unique market opportunity was developed. The

aggregator generated increased demand for member services in the markets served, increasing revenues and income. This mitigated threats that were present in the “waves of consolidations” that were taking place during the recessions in the 1990s and 2000s, including the recession of 2007-2009, when smaller agencies were getting out of the market altogether.

4.5.2 The Question of Rarity

The question of rarity: If the market structure is perfectly competitive, the resource is not rare. Perfect competition dynamics are not present, however. A perfectly competitive market is one in which there are numerous sellers, there is unrestricted entry and exit, no ability to set price, no product differentiation, and long-run economic profit cannot be had (Miller, 2014). This is not the case here, because the aggregator (by design) operates in an imperfectly competitive market structure, (e.g., there is restricted entry into the aggregator, and the aggregator has earned above normal economic profits through time, net of opportunity costs). The aggregator is considered rare. It is unique in the markets it serves.

4.5.3 The Question of Imitability

The question of imitability: The aggregator model as a resource and capability is inimitable in that firms have not been able to duplicate it or offer substitutes for it. This is due to the fact that the resources and capabilities (i.e., DMCs) are imperfectly imitable due to isolating mechanisms (Rumelt, 2011) such as causal ambiguity and social complexity. Causal ambiguity occurs when the source of the firm’s competitive advantage is unknown (Peteraf, 1993), and stem from the DMCs used. (The most imperfectly inimitable resource is an individual, and the capabilities they possess.) The capabilities exhibit commonalities, yet are idiosyncratic in detail (Eisenhardt & Martin, 2000). The would-be imitators do not possess, for example the managerial “know how”

or “know why” embedded in the LBDMC used by the manager (such as the knowledge and experience gained in researching other aggregators, and the understanding of the moral hazard inherent in them). That the aggregator is inimitable is also a function of social complexity (Conklin, 2006). True, the source of the competitive advantage (e.g., the aggregator) is identifiable to would-be imitators. Nevertheless, would-be imitators are at a competitive disadvantage because it is difficult for non-member firms that lack the specific resources and capabilities that comprise the aggregator to replicate them.

4.5.4 The Question of Organization

The question of organization: To organize is to arrange into a structure. It is one of the functions of management (Fayol, 1916) that involve planning, organizing, leading, and controlling (Robbins et al., 2013). The organization involved the manager of determining what needed to be done, how, and who would do it. It involved dynamic capabilities (i.e., managerial learning-based) impacting on ordinary ones in reconfiguring resources to generate a new organizational capacity. This involved use of both formal and informal management controls. The formal mechanisms included such things as reporting activities (e.g., accounting, finance, and marketing), set forth in the business plan, which are more analogous with ordinary capabilities. Informal controls are more intangible and socially complex (i.e., dynamic) and, in the case of the aggregator, include such things as a culture of participative leadership facilitated by the manager, as illustrated in the “ideas to innovation” approach that gave rise to the aggregator at its inception.

Figure 4.3 Functions of Management

Source: Adapted from Robbins et al. (2013).

4.6 Summary

The sections above describe the data collection and analysis from the research conducted for the multi-case study. As shown in these sections, in accordance with the research aim and objectives, DMCs were identified, classified, and discussed in terms of achieving and sustaining competitive advantage in regimes of rapid change. Additional

data from the multi-case study is provided in Appendix B (semi-structured interview questions), Appendix C (constructs and linkages), Appendix D (sample case data), and Appendix E (a sample audit trail). The data collection and analysis for the survey study is provided in the next chapter.

Chapter 5: Data Collection and Analysis: Survey Study