Sustainable Competitive Advantage
Alternatives
Dynamic Capabilities
Temporary Competitive Advantage
Theoretical Backgrounds
Outside In perspective
Inside Out / Resource Based View
firm looks at its internal competencies first before deciding on which products and services to concentrate on
Porter
External Environment Shapes Strategy
SCA results from a stronger market position relevant to competitors
As a result of barriers to entry etc
Firms maximise their competitive advantage by positioning itself in its optimum market
Barney
SCA achievable when firms possessed resources and capabilities with particular characteristics
VRIN - valuable, rare, imperfectly imitable & not substitutable
Later changed to VRIO (organisation for value)
Challenges to Theory
Environment is not stable
Immediately subject to erosion
D'Aveni
Firm should constantly reposition itself to maintain competitive advantage in face of changing environment
Series of temporary competitive advantages
Use one to hopscotch to another
Teece
ordinary capablities permit completion of basic functions
do not provide opportunities for growth
Are unable to help an organisation respond to volatility
Definitions
Strategic management requires a firm to align its objectives with its environment, however cognizance must be taken of the competitive nature of the environment, and firms needs to develop a competitive advantage over their rivals in order to succeed (DeWit & Meyer, 2014).
Grant
"the match an organization makes between its internal resources and skills . . . and the opportunities and risks created by its external environment”
Grant(1991)
greater emphasis needs to be focused on how these internal resources form part of the firm’s strategy, and could be leveraged on to stay ahead of competitors
dissatisfaction with the static, equilibrium framework of industrial organization economics
A five-stage procedure for strategy formulation is proposed by Grant (1991):
- Analysing the firm's resource base;
- appraising the firm's capabilities;
- Analysing the profit-earning potential of firm's resources and capabilities;
- Selecting a strategy;
- Extending and upgrading the firm's pool of resources and capabilities.
Prahalad and Hamel (1990)
"core competencies"
"the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technology."
Essentially, it is management’s ability to consolidate technology and production skills into competencies so the business can adapt quickly to changing opportunities & circumstances.
Generally built over a long period, difficult to identify precisely and hard to imitate.
By failing to recognize and expand on core competencies, many firms miss the opportunity to develop profitability in the longer term.
Collis and Montgomery (2004)
strategically valuable resources (physical, intangible & capabilities) must satisfy five descriptor characteristics.
These include being hard to copy, slow depreciation, control of the resources by the corporate and not any particular stakeholder, not easily substituted, and comparatively superior to competitor resources.
four characteristics of resources and capabilities necessary for sustainability of competitive advantage:
• Durability: Longevity is affected by technology and changing trends; as mentioned earlier, brand reputation erodes more slowly
• Transparency: Imitation is often described as the sincerest form of flattery however a firm must carefully guard its IP, trademarks, employees and capability
• Transferability: Certain industries such as med tech and pharmaceuticals have limited timeframes to recoup investment in R&D while others such as financial services change often hourly
• Irreplaceable: Cannot be reproduced in current format
Disadvantage
Path Dependency
Resistance to change
Porter (1985)
A competitive advantage exists when a firm consistently outperforms other companies in the same industry.
two basic forms of competitive advantage a firm an possess: low cost or differentiation
Also add focus combination of previous two
(Coyne 1986)
“The most important condition for sustainability is that existing and potential competitors either cannot or will not take the action required to close the gap. If the competitors can and will fill the gap, the advantage is by definition not sustainable”