The Design of Firms: Part 2 - Competitive Advantage

Abstract One of the essential aspects of a company's design is its source of competitive advantage. Extrapolating from Raymond Loewy's famous design strategy acronym, MAYA—the Most Advanced Yet Acceptable Principle—and treating the firm as the object of design, this article explains the competitive advantage of firms from a design perspective. Our design-based recommendation for the competitive advantage of firms is to focus on shaping heterogeneity-based advantages of the firm in ways its paying customers would deem valuable. The novelty and conventionality dynamics of its industry will influence the degree of heterogeneity of the firm. Firms can shape their heterogeneity-based advantages through policies relating to organizational structure, routines, and product portfolio to name a few. Going beyond the role of a design in creating rents above and beyond what other firms can imagine, our claim focuses on the ways in which heterogeneity is a fundamental driver of its competitive advantage. If correct, the design-based view suggests that the ideal level of heterogeneity of the firm relative to current competitive conditions and evolution paths adopted by the firm and its competitors is more fundamental to firm profitability than its resources.