Randomness, Variability, and Competitive Advantage: A Value-Based Analysis

This paper provides an explicit treatment of the link between competitive advantage and random variability in value creation. Using a series of value-based formal models, the paper addresses (1) why random variability in a firm’s value creation strategy should be considered positive rather than negative; (2) how horizontal differentiation, the level of competition, and the cost of variability determine the ideal tradeoff between random variability and a firm’s expected value proposition; (3) how firms differentiate from each other in ‘probability space’; and (4) which type of random variability in value creation a firm should select in competition with other firms. The paper’s focus on randomness and variability complements the traditional strategy focus on deterministic processes.