Question

Fact: there are always costs associated with imitating resources and capabilities.

a. Fully explain why socially complex resources and capabilities are costly to duplicate by competitors. In fact, these types of resources and capabilities might not be subject to duplication at all.

b. Using one (1) specific business example (real or fictitious) of a situation where socially complex resources and capabilities exist, illustrate how possessing these unique resources and capabilities can specifically translate into a positive impact on performance.

Answer 1

Answer a )

In a perfectly competitive market, there are several products and services with a price range that act as close substitutes of each other. While certain aspects of a competitor's products or services can be duplicated, socially complex resources and capabilities are costly to duplicate because there are certain intangible elements associated with a competitor's business that are extremely expensive and in some cases impossible to duplicate. Few examples of such socially complex resources are goodwill value, brand equity & identity, reputation & track record.

The reason why they're expensive to duplicate is that, elements like brand equity and identity depends on how a business has positioned itself historically. A good example of business attempting to pivot its brand image was Macy's. Macy's was bleeding cash due to its high fixed and operating costs as a result of its brick and mortar business. In an attempt to increase the department store's sales, Macy's briefly introduced kitchen and home appliances. It's important to understand that historically, Macy's was positioned as the go to store for affordable clothing which was offered at heavy discounts via the department store's coupons. Since consumer already had a perception of the department store's brand identity, Macy's found it difficult to convince home and kitchen appliance customers to shop at Macy's instead of Walmart or other department stores. This pivot required a major rebranding strategy to be deployed along with the acquisition of a completely new line of products and services. This pivot was quite expensive and didn't increase Macy's sales and was eventually scraped.

Answer b )

While it's extremely difficult to duplicate socially complex resources and capabilities, it's not impossible. One such example is Starbucks Coffee. While Starbucks had seen impressive growth under Howard Shultz, it wasn't able to grow sales during and after the 2008 financial criss. The reason being the 2008 financial crisis resulted in a severe credit crunch in the economy and there was a general distrust in brands and large corporate restaurant chains. Local mom and pop coffee shops on the other hand performed relatively well since they consumer had a positive perception about them and their personalised service. Post 2008, Starbucks began changing the way its store managers, baristas and other staff members behaved and interacted with customers. They did away with their bureaucratic corporate image and embraced a customer friendly and a customer centric approach. Starbucks was successful in repositioning their brand image as a neighbourhood coffee shop via a massive internal staff training program and by collecting customer feedback and implementing it.

While this operational and service restructuring was expensive, Starbucks was largely successful in its attempt to replicate such socially complex resources and capabilities.