Causal Ambiguity, Complexity, and Capability-Based Advantage

This paper presents the first 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 find that intrinsic ambiguity is a necessary but insufficient 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 firm strategies to seek performance enhancement using efforts of both types.