Imitation of Complex Strategies

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.

[1]  HERBERT A. SIMON,et al.  The Architecture of Complexity , 1991 .

[2]  Weinberger,et al.  Local properties of Kauffman's N-k model: A tunably rugged energy landscape. , 1991, Physical review. A, Atomic, molecular, and optical physics.

[3]  Casey Ichniowski,et al.  The Effects of Human Resource Management Practices on Productivity , 1995 .

[4]  Dennis C. Mueller,et al.  Profits in the long run: Acknowledgments , 1986 .

[5]  Stuart A. Kauffman,et al.  The origins of order , 1993 .

[6]  G. Waring,et al.  Industry Differences in the Persistence of Firm-Specific Returns , 1996 .

[7]  Edwin Mansfield,et al.  How Rapidly Does New Industrial Technology Leak Out , 1985 .

[8]  S. Winter.  Knowledge and Competence as Strategic Assets , 1987 .

[9]  John Paul Macduffie.  Human Resource Bundles and Manufacturing Performance: Organizational Logic and Flexible Production Systems in the World Auto Industry , 1995 .

[10]  B. Kogut,et al.  Knowledge and the Speed of the Transfer and Imitation of Organizational Capabilities: An Empirical Test , 1995 .

[11]  S. Lippman,et al.  Uncertain Imitability: An Analysis of Interfirm Differences in Efficiency under Competition , 1982 .

[12]  Henry Mintzberg.  Musings on management. Ten ideas designed to rile everyone who cares about management. , 1996, Harvard business review.

[13]  K. Weick.  Educational organizations as loosely coupled systems , 1976, Gestión y Estrategia.

[14]  Paul R. Milgrom,et al.  The Economics of Modern Manufacturing: Technology, Strategy, and Organization , 1990 .

[15]  S. Wright.  Evolution in mendelian populations , 1931 .

[16]  S. Winter,et al.  An evolutionary theory of economic change , 1983 .

[17]  Kim B. Clark,et al.  Design Rules: The Power of Modularity , 2000 .

[18]  D. M. Topkis.  Supermodularity and Complementarity , 1998 .

[19]  J. Schumpeter.  Capitalism, Socialism and Democracy , 1943 .

[20]  I. MacMillan,et al.  Competitors' responses to easily imitated new products—exploring commercial banking product introductions , 1985 .

[21]  P. Ghemawat.  Commitment: The Dynamic of Strategy , 1991 .

[22]  Karel Cool,et al.  Asset stock accumulation and sustainability of competitive advantage , 1989 .

[23]  Dennis C. Mueller,et al.  Profits in the Long Run , 1987 .

[24]  Paul Milgrom,et al.  Complementarities and fit strategy, structure, and organizational change in manufacturing , 1995 .

[25]  R E Miles,et al.  Organizational strategy, structure, and process. , 1978, Academy of management review. Academy of Management.

[26]  Dennis C. Mueller,et al.  Profits in the long run: Index , 1986 .

[27]  Kim B. Clark,et al.  Design Rules: The Power of Modularity Volume 1 , 1999 .

[28]  Robert B. Glassman,et al.  Persistence and loose coupling in living systems , 1973 .

[29]  R. J. House,et al.  Organizations: A Quantum View , 1984 .

[30]  David S. Johnson,et al.  Computers and Intractability: A Guide to the Theory of NP-Completeness , 1978 .

[31]  M. Mazumdar,et al.  Avoiding Complexity Catastrophe in Coevolutionary Pockets: Strategies for Rugged Landscapes , 1999 .

[32]  L. Lovász,et al.  Geometric Algorithms and Combinatorial Optimization , 1981 .

[33]  J. Barney.  Firm Resources and Sustained Competitive Advantage , 1991 .

[34]  Alex Miller,et al.  ASSESSING PORTER'S (1980) MODEL IN TERMS OF ITS GENERALIZABILITY, ACCURACY AND SIMPLICITY , 1993 .

[35]  Michael T. Hannan,et al.  The complexity catastrophe in the computer industry: interdependence and adaptability in organizational evolution , 1997 .

[36]  Daniel A. Levinthal.  Adaptation on rugged landscapes , 1997 .