BADM 350 Lecture 6 Outline of Current Lecture I. Competitive advantageII. Primary ComponentsIII. Secondary ComponentsIV. Network EffectsV. Porter’s 5 ForcesVI. Economies of ScaleCurrent Lecture Sustainable competitive advantage- financial performance that consistently outperforms industry averagesResource –based view of competitive advantage- firms must control exploitable resources- Must be 1. Valuable 2. Rare 3. Imperfectly Imitable 4. Non-substitutable- Does not say which of the four are most important, up for discussionThe primary components are:- Inbound logistics—getting needed materials and other inputs into the firm from suppliers- Operations—turning inputs into products or services- Outbound logistics—delivering products or services to consumers, distribution centers, retailers, or other partners- Marketing and sales—customer engagement, pricing, promotion, and transaction- Support—service, maintenance, and customer supportThe secondary components are:- Firm infrastructure—functions that support the whole firm, including general management, planning, IS, and finance- Human resource management—recruiting, hiring, training, and development- Technology / research and development—new product and process design- Procurement—sourcing and purchasing functionsThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Fast follower problem- when competitors watch a pioneer, learn from their successes and missteps, then enter the market quickly with a comparable/superior product before the first mover can dominateNetwork effects/ Metcalfe’s Law- when a product or service becomes more valuable as more people use it- In cases where network effects are strong or a seller’s goods are highly differentiated, the Internet can strengthen supplier bargaining power- Ex. The customer base of an antique dealer used to be limited by how many likely purchasers lived within driving distance of a store. Now with eBay, the dealer can take a rare good to a global audience and have a much larger customer base bid up the price. - Early version of network effects: currency in different countries- Facebook is by far the most dominant social network worldwide. Microsoft Windows hasa 90 percent market share in operating systems. EBay has an 80 percent share of online auctions. Why are these firms so dominant? Largely due to the concept of network effects Porter’s five forces- The five forces this framework considers are (1) the intensity of rivalry among existing competitors, (2) the threat of new entrants, (3) the threat of substitute goods or services, (4) the bargaining power of buyers, and (5) the bargaining power of suppliersEconomies of scale- When the cost of an investment can be spread across increasing units of production to serve a growing customer baseSwitching costs - when consumers incur an expense to move from one product or service to another- Tech firms often benefit from strong switching costs that cement customers to their firms- Users invest their time learning a product, entering data into a system, creating files, andbuying supporting programs or manuals. These investments may make them reluctant toswitch to a rival’s