ISSS2007

August 2007

A TIME-SERIES DESCRIPTIVE MODEL OFCOMPETITIVE ADVANTAGE TRAJECTORY-Building Intermittent Competitive Advantage in Hyper-moving Market-

M. WAKABAYASHI & T. NEGORO
Research Institute of Information Technology and Management
WASEDA University, Tokyo Japan
August 6th, 2007
ISSS, Tokyo Japan

Agenda1.

Introduction Background-Environmental changes

2.

Objective

3.

Previous Literature-RBV as conventional strategic theory (Barney, 1997)-Hyper-competition (D’Aveni,1994)

4.

Propose new descriptive model
1.

Breakdown of competitive advantages

2.

Structure of descriptive model

3.

Image of RBV and Hyper moving market

4.

Case study –online equity trading market

5.

Conclusion/Implication

6.

Further studies

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Introduction –Environmental changes
The conventional RBV (resourced based view) approach e.g. the VRIO
analysis (Barney, 1997) presents the condition for the resources thatbring about sustainable competitive advantage in a rather stable market
conditions, which are difficult to imitate.
⇒arguing that the aim for businesses is to find a way in which toconstruct a sustainable competitive advantage on a long-term basis.

Environmental changes


From the 1990s, businesses are experiencing unknown speediness in thecompetitive environment in which the conditions for the competitions areconstantly changing, engendering the imminent birth of a newenvironment where market share and profitability fluctuate dramaticallye.g. digital products and the online business markets.
⇒Life cycle of products and services rotate at hyper-speeds, in which asevere competition commences from the creation phase of the market,
and quickly reaches maturation phase.

Is conventional RBV fit for competition in rapidly changing environments?
3Objective

Develop a theory of RBV that is fit for competition in such rapidlychanging environments.
-Propose a descriptive model for a competitive advantage trajectory1.

focus on the change in competitive advantage of resource
based on time-series,

2.

Identify the difference between the sustainable competitive
advantage pattern that the conventional resource based view
approach implicitly aims to attain and the competitive
advantage pattern that is considered to be effective under
rapidly changing competitive circumstances (IntermittentCompetitive Advantage).

Competitive Advantage
9

possessing more competitive value (in a market) and higher profitability in relation toother businesses by construction of a system that is isolated from them.
⇒assume the source of advantage of a business (the result of aggregate ofresources and activities) lies in its business system.

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Previous Literature 1) –VRIO, Barney (1997)
VRIO analysis cannot accommodate the Schumpeter-type changes e.g. rapid
development of new technologies or unexpected shifts in demand.
⇒VRIO assumes the Ricardian rent theory:
Profit generated from resource differential where relative advantage does
not shift with time.

Image of conventional RBV approach, represented by the VRIO analysis (Barney, 1997)–building competitive advantage in a rather stable market conditions.
Economic profitability

Growth ofadvantage

Sustainment ofadvantage

Deterioration ofadvantage
time

5

Previous Literature 2) – Hyper competition, D’Aveni (1994)
The sustainable period of competitive advantage is shrinking in many markets.
In such environments, businesses have to perpetually develop sources forcompetitive advantage in order to sustain economic benefit (rent).
9Hyper-competition bears completely different characteristics to former
competitive environments.

9

Shift the strategic focus from “how to sustain competitive advantage on along term basis (aim of conventional theory), to “how to build a stream of
new competitive advantages consecutively”

Image of Hyper-competition(D’Aveni,1997)-theorize that the process of progress and decline of competitive advantage isoccurring faster than ever experienced, and that this speed is accelerating each year.
Economic Profitability
Hyper Competition

Advantage1 Advantage2 Advantage3 Advantage4

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A Time-series Descriptive Model for Competitive Advantage Trajectory
1) Breakdown of competitive advantage
The source for competitive advantage can be broken down into “isolationof resources” and “value of resources” (Negoro, 2006).
1. Isolation of resource: established by the inimitability of the resources
2.

Value of resource:

determined by customer satisfaction/market needs
i.e. value in competition (competitive value)

ProfitCompetitive
Advantage

Growth ofadvantage

Sustainment ofadvantage

Deterioration ofadvantage

time
Resource advantage

Isolation advantage

Isolationof Resources
資源の隔離

Valueof Resources Substitution of products
資源の価値
Deterioration of market needs

Imitation byCompeting companies

Change in regulations

Resource Utilization

Resource utilization
×Development of resource
Formation ofisolation

Placing on the market

Sustainment ofisolation

Deterioration ofisolation

Creation ofvalue

Sustainment ofvalue

time

Deterioration of
value
time

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A Time-series Descriptive Model for Competitive Advantage Trajectory
Take in the conventional perspective of “inimitability” in the RBV approach into thetheoretical structure of “isolation of resources”, while simultaneously include theshift in competitive advantage in a market as a change in “value of resources”.

The model sets a fixed time period, and describes the shift in competitive advantage
during that period.

Structure of Descriptive Model
Original resources are isolated
Development of new resources
First Cell
Exploration of a newCompetitive axis

Possession ofoverwhelming advantage
Second Cell
Fortification

Time progresses
outwardlyTime /Path

Fourth Cell
Price and attached quality
Competition of attrition
by small variations

Third Cell
Competition withinstrategic group
Strategic Group advantage

Resources have competitive value

A situation wherebusinesses with similartypes of sets ofresources compete
over small variations.

Resources do not have competitive value

A business attempts toadvance thecompetition axis basedon a new resource(unique resource) that
does not currently exist
within the market.

A situation where anew competitive axis is
accepted by themarket, and no otherbusinesses possess
this resource.

A number ofbusinesses own agroup resource(mobility barrier) that
contributes to thecompetitive value ofthe strategic groupthey belong to.

Original resources are not isolated
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Target Images on Building Competitive Advantage-Conventional RBV and Hyper-moving market
Conventional RBVHyper-moving Market(Long-term/stable market)(Short-term/volatile & intense competition)

Original resources are isolatedPossession ofoverwhelming
advantage

Fourth Cell
Price and attached quality

Third Cell
Competition withinstrategic groupFirst Cell
Exploration of a newCompetitive axis

１

Fourth Cell

Third Cell
Competition withinstrategic group’Price and attached quality

Original resources are not isolated

Second Cell
Fortification（Resources have competitive value

Fortification

Original resources are isolated
Resources do not have competitive
value

Exploration of a newCompetitive axis

Second Cell

Resources have competitive value

Resources do not have competitive
valueFirst Cell

Original resources are not isolated

Establish a “sustainable competitiveadvantage” via isolated, unique
resources that are inimitable.

Establish an “intermittent competitiveadvantage”, which intermittently
accedes to the fortification position witha new competitive axis while
continually being pursued bycompetitors.

9Case Study–Japan Online Securities Market1.

Equity Trading Online Penetration

Competitive structure of the market
itself has changed dramatically by
the spread of internet (1999-).

Penetration

50

Fierce competition from theformation stages of the market.

3.

Comprehensive information of thebusinesses necessary to trace theroute of the changes of competitive
advantages for the sample casestudy are available via publicizedsources.

Active Online Traders:
99940
49%
30

Seek variety of product/service lineup

52%

55%

80%

60%
32.0

43%
40%

34%
20
19%
100

11.2

12.5

14.6 14.3
20%

8.1

7%

Hold multiple accounts
Opt for the providers that provides the best
services and lowest transaction fee.

71%

Transaction
VolumeTrillion（兆円）
JYen

2.

6.9

4.50%

下期
下期 上期2001
下期 上期
下期 2003
上期1999上期2000
2002
99年度

00年度

01年度

オンライン売買代金

02年度

03年度

オンライン比率⇒Information System development
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Case Study –Matsui Securities–Changes in profit ratioChange of ordinary profit of Matsui shows significant higher figures thanindustry-wide.
Comparison of ordinary profit ratio(Industry-wide and Matsui Securities)

70.0%
60.0%
Matsui
Securities

50.0%
40.0%

OverallMarket

30.0%
20.0%
10.0%
0.0%
-10.0%

2000

2001

2002

2003

2004

2005

Source: Account Settlement of Securities Companiesand Stock Market Trends(Japan Securities Dealers Association Sept, 2005)11

Case Study –Matsui Securities–Competitive Actions (1990-2004)
1990-1998

1999-2000

Preparation for
financial Big Bang

Beginning of online
Equity trading market



Alter traditional
business system (faceto face sales in storesby salespersons.

Switch all transactions
to call center operation.
(1996)



Restructure operation
system, conducting
exhaustive costcutting.



Shut down call center,switch all transaction
to web (Net Stock 1998).

Launch online margintrading.

2001-2002

2003-2004

Stagnation

Expansion

Full deregulation oftransaction fee (bigbang -1999).

Fierce competition
for transaction fee
in the market.

Launch of no time
limit margin trading(2003).



Launch flat-rate low
fee transactional
fee system (Boxrate).



Make spot trading(less Jyen100K)freeof charge(2004).

Enthusiastic
support from highly
active investors.

Employed strategy
to avoid the pricecutting race and topursue good profit
ratio.

Succeeded in alarge expansion incustomer base.

Dominate in margin
trading,establishing solid
profitable position.

Go public in thefirst section of theTokyo Stock
Exchange.

Etrade, equipped
the lowest
transaction fee
surpassed Matsuiin market share(2002).

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Case Study –Matsui Securities–Competitive Resources
1.

Information Technology
Enable to focus on launch of differentiated services e.g. margin trading arena
in contrast to the competing companies which remained focus on spot
trading during the rising period of online equity market.

2.

Active Investors
Exclusively target active investors while competitors employ a strategy ofwidening the customer base, results in significantly higher turnover rate andin holding high loyalty investors (which can be regarded as a type ofresources).

3.

Accumulated know-how on securities services
The experience of call-center sales allows to accumulate knowledge on
investor needs, which led to the introduction of a differentiated service (e.g.
margin trading) from the initial stages of the market activity.

4.

Financial Power
Establish the high-profit structure since the nascent day of the market. The
gained rent (profit) is invested in new, differentiated services, which in turnwould attain further rent to form a cycle of higher profitability.
Financial power is an isolated resource that is difficult to imitate.

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Case Study –Matsui Securities–Position as Innovator
The high profit ratio of Matsui stems from the retaining of active investors as a resource, by
being a constant innovator in the industry.



Those active investors accept the value of differentiated services supported by inimitable IT,
and remain steadily loyal, in turn conferring Matsui to gain further rent (profit).

Matsui Securities as innovator
時期

革新的な施策Innovative measureFirst
日本初inJapanApril 1996

Free safe deposit fee of stocks○Feb 1997

Half price of commission forover-the-counter shares and convertible bonds○May 1998
Oct 1999
Dec 1999

Launching of Internet trade “Net Stock”
Introduction of fixed rate transaction fee system“Box Rate”
Deposit assets protection system “Account Protection”
IntroducedFirst inｵﾝﾗｲﾝ初online○○○

Aug 2001

Listed on the first section of Tokyo Stock Exchange○

Sep 2002

Introduction of “Stock Deposit” system○

July 2003

No time limit margin trading system launchedMarch 2004

Free transaction fees if less than
100,000 yen/day○○14

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Case Study –Matsui Securities–Dynamics of Competitive Value and Isolation of Resources
Matsui Securities Competitive Value and Isolation of Resources
1999

Cell#Isolation of Resource
Sole possession

Competitive Value: Low

2

Sole possession

Competitive Value: High3

Possession ofStrategic group

Not isolated

4

2000

2001

2002

2004

No time limit
margin trade Free Trading *Fixed rate
Margin trade
No time limit
marginFixed rate

Competitive Value:
Mid to highMargin Trade

Competitive Value: Low

Fixed rate

Fixed rate
Margin Trade

Resource

2003

Value of Resource

Fixed rate

Fixed rate

Margin Trade

Margin Trade

1. Info-technology

XXXXX

XXX

2.Active customers

XXXXX

X

X

X

3.Know-how of service

XXXXX

X

X

X

X

X

4.Financial Power

Assessment

Isolation of Resource

531

1

35

Value of Resource

331

15

5

*=Cash transaction ¥100,000 or lessNote: the dynamics of competitive advantage is analyzed by using the dynamics of ordinary
profit as a proxy indicator.
15

Case Study –Matsui Securities–Dynamics of competitive advantage trajectory
Show a pattern close to the model which intermittently accedes to the fortification position with a
new competitive axis (similar to the pattern described as “intermittent competitive advantage”).

Closer look, but slight gap with the ideal pattern of intermittent competitive advantage due to theMatsui’s stagnation in forth cell (competition of small variations) during 2001-2002.
Matsui Securities Dynamic of Competitive advantage Trajectory
Original resources are isolated
Second Cell
Fortification
0404
８0303
99

9900
010204

Third Cell
Competition withinstrategic group

Fourth Cell
Price and attached quality

Resources have competitive value

Resources do not have competitive valueFirst Cell
Exploration of a newCompetitive axis

Original resources are not isolated
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Conclusion/Implication
Propose a descriptive model, where the source of competitive advantage isseparated into “isolation of resources” and “value of resources” which are
combined to form four cells to display the dynamics of competitiveadvantage.

Matsui securities, used as the case study has shown to a competitive
advantage trajectory akin to the establishment of intermittent fortificationthat has been introduced as an ideal pattern in the rapidly changing market.
*It is not clear whether this is the result of a conscious pursuit of such pattern orwhether it is the consequence of reactions to environment.

The case study implies:1.

the validity of a strategy which specifically aims to attain intermittent
establishment of competitive advantage, instead of sustainable
competitive advantage in the rapidly changing market environment.

2.

This strategy is possible when isolated resources are constantlyexplored and the existent resources that are the foundation of thecompetitive advantage are continually replaced by them.

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Further studies
1.

Further objectification of the method of measurement on isolation and valueof resources.

2.

In this study, the “resources” cover [tangible] and [intangible] resource sets,
however not cover the area of activity system, which influences isolation andvalue of a business system.

3.

Require analysis on organizational capability to respond to the rapidlychanging environments.

How do we build these factors into the proposed descriptive model?

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References
Barney, J.B., (1997). Gaining and Sustaining Competitive Advantage, Pearson
Education, Inc. New Jersey
Besanko, D., D.Dranove, and M.Shanley 2000). Economics of Strategy (2nd ed.). JohnWiley & Sons, Inc., New Jersey.
D’Aveni, R.A.,(1994).Hypercompetition: Managing the Dynamics of Strategic
Maneuvering. Free Press, New York.
Eisenhard K.M.and D.N.Sull (2001).“Strategy as a Simple Rule,” Harvard Business
Review, January:107-116
Kawai, Tadahiko (2004). “Dynamic Strategy – Beyond positioning theory and resource
theory”, Yuhikaku (in Japanese)
Matsui Securities Document “The influence of IT on the securities business and the IT
strategy of Matsui Securities” (2003) (in Japanese),
http://www.jicio.gr.jp/nihongo/jyohoforum/20030205-18/CIOkouenmatsui030205.pdNegoro, Tatsuyuki (2006). “What is the Starting Point of Strategy Formation? : toward
the Strategic Theory of Inner-outer Integration”, Waseda Commercial Review, vol.
407. (in Japanese)
Takai, Fumiko (2004) “Case Study: Early stages of the inter-business competition as
seen in online securities market” Akamon Management Review pp.333-370,
vol.1.3, No.7. (in Japanese)

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Thank you!!

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