Causal Ambiguity as a Source of Sustained Capability-Based Advantage

This paper presents the …rst formal examination of role of causal ambiguity as a barrier to imitation. Here, the aspiring imitator faces a knowledge (i.e., “capabilities-based”) barrier to imitation that is both causal and ambiguous in a precise sense of both words. Imitation conforms to a well-explicated process of learning-by-observing. I provide a precise distinction between the intrinsic causal ambiguity associated with a particular strategy and the subjective ambiguity perceived by a challenger. I …nd that intrinsic ambiguity is a necessary but insu¢ cient condition for a sustained capability-based advantage. I also demonstrate that combinatorial complexity, a phenomenon that has attracted the recent attention of strategy theorists, and causal ambiguity are distinct barriers to imitation. The former acts as a barrier to explorative/active learning and the latter as one to absorptive/passive learning. One implication of this is that learning-by-doing and learning-by-observing are complementary strategic activities, not substitutes – in most cases, we should expect …rm strategies to seek performance enhancement using e¤orts of both types. I wish to thank R. Cassadesus-Masanel, D. Chickering, G. Cooper, J. Denrell, J. Gans, B. Gibbs, P. Ghemawat, H. Harmon, A. W. King, M. Lenox, D. Levinthal, G. MacDonald, J. Rivkin, S. Rockhart, O. Sorenson and participants at the 2006 ACAC and AoM conferences, as well as strategy workshops at Rice and U. T., Austin.