Imitation of Complex Strategies

Abstract

Researchers examining loosely coupled systems, knowledge management, and complementary practices in organizations have proposed, informally, that the complexity of a successful business strategy can deter imitation of the strategy. This paper explores this proposition rigorously. A simple model is developed that parametrizes the two aspects of strategic complexity: the number of elements in a strategy and the interactions among those elements. The model excludes conventional resource-based and game-theoretic barriers to imitation altogether. The model is used to show that complexity makes the search for an optimal strategy intractable in the technical sense of the word provided by the theory of NP-completeness. Consequently, would-be copycats must rely on search heuristics or on learning, not on algorithmic "solutions," to match the performance of superior firms. However, complexity also undermines heuristics and learning. In the face of complexity, firms that follow simple hill-climbing heuristics are quickly snared on low "local peaks," and firms that try to learn and mimic a high performer's entire strategy suffer large penalties from small errors. The model helps to explain why some winning strategies remain unmatched even though they are open to public scrutiny; why certain bundles of organizational practices diffuse slowly even though they lead to superior performance; and why some strategies yield superior returns even after many of their critical ingredients are adopted by competitors. The analysis also suggests roles for management science and managerial choice in a world of complex strategies.imitation, complexity, interactions, competitive advantage

Modern Resource-Based Theory(ies)

“…4 In fact, it is arguable that many RBV contributions have already been pushing the envelope quite significantly. Thus, as Gavetti andLevinthal (2004: 1311) points out, it is arguable that the seminal Dierickx and Cool (1989) (Peteraf 1993;Levinthal 1997;Knott et al 2000;Rivkin 2000;Winter 2000;Lippman & Rumelt 2003;Denrell, Fang & Winter 2003). The fundamental questions then becomes how firms search for new, valuable resource combinations.…”

Coping with uncertainties via resilient supply chain framework

“…Kauffman proposed a stochastic procedure to design fitness landscapes, which argues that a landscape can be more or less rugged depending on the distribution of fitness values and interdependences among the parts -the more complex a system, the more rugged the landscape. Kauffman's concepts have been applied in modelling organisational decision problems (Levinthal, 1997;McKelvey, 1999;Gavetti and Levinthal, 2000;Rivkin, 2000Rivkin, , 2001, new product development (Frenken, 2001), organisational design (Levinthal and Warglien, 1999;Rivkin and Siggelkow, 2003), strategic analysis (Gavetti et al, 2005), industrial collaboration (Schuh et al, 2008), supply chain management (Choi et al, 2001;Choi and Krause, 2006) and sustainable supply chains (Matos and Hall, 2007;Hall et al, 2012). …”

Agent-based modeling in managerial science: an illustrative survey and study

“…organizations with highly interrelated characteristics or high levels of K) ''can not engage in exploration without foregoing the benefits of exploitation'' while ''more loosely coupled organizations can exploit the fruits of past wisdom while exploiting alternative bases of future viability'' (p. 949). Based on Levinthal's seminal work (1997), Rivkin (2000) aims at identifying the optimal level of complexity within a firm's strategy in order to prevent imitation. Inimitability is regarded a major cause of competitive advantage in prominent schools of thought in strategic management.…”

“…(Caves and Porter 1977). In contrast to these hypotheses, Rivkin (2000), employing an agentbased model, argues that imitation could be effectively hampered by the sheer complexity of a strategy. In this study, the tension of exploration versus exploitation occurs in the form of different imitation strategies of the imitator: incremental improvement in terms of stepwise adoption of the strategy to be imitated versus informed copying in the sense that the imitator reconfiges radically the own strategy in the direction of the leading firm's strategy.…”

“…In this study, the tension of exploration versus exploitation occurs in the form of different imitation strategies of the imitator: incremental improvement in terms of stepwise adoption of the strategy to be imitated versus informed copying in the sense that the imitator reconfiges radically the own strategy in the direction of the leading firm's strategy. In particular, based on the framework of NK landscapes Rivkin (2000) provides evidence on the imitation-preventing effect of complexity in three steps: First, he shows that the complexity of interactions among elements leads to intractability with respect to finding the global optimum, since even for a moderate time required for the evaluation for newly discovered configurations, an exhaustive search is too time-consuming (NP completeness). In the second step, a simulation is applied to show that an imitator who engages in incremental improvements in order to copy a successful firm is doomed to failure in the face of complexity.…”