The Role of Business Strategy in Achieving Competitive Advantage - Essay Example

Assess the role of business strategy in achieving competitive advantage Executive Summary This look into competitive advantage models includes four business strategy areas to evaluate their usefulness. It uncovered that their primary benefits are derived from their point in time assessment of situations or conditions. It was discovered that competitive advantage models are indicators need further analysis approaches to ascertain areas of strength and weaknesses that are too broad under the models to serve as a final determination. Competitive advantage models provide a look back at what has been and are occurring, but do not serve as adequate models to look into the future without further analysis and research tools. AC1.1 Assessment Criteria In defining competitive advantage, Barney and Clark (2007) explain that in 1981 Wernerfelt’s (1984) definition of competitive advantage utilised the resource-based view of a firm. Newbert (2007) describes the resource-based view as an inside-out assessment of the assets, organisational processes, capabilities, information, firm attributes, and knowledge of a firm. This is weaved into Wernerfelt’s competitive advantage definition that a company implements a strategy of value creation that is not being used by other firms. The competitive advantage model (Strategic Management Insight, 2013) utilises internal VRIO resources, unique competencies and innovative capabilities in its process (Appendix 1). It is a detailed competitive advantage model that uses internal VRIO (valuable, rare, costly to make, organised to capture value) resources, unique competencies, and innovative capabilities combined with looking at external situations such as changes concerning PEST areas, and the ability of the firm to rapidly respond to changes (Strategic Management Insight, 2013). This model is applicable to Mintzberg’s (2007) emergent strategy theory that postulates variables that are seemingly insignificant in terms of initial conditions can potentially have dramatic outcomes and effects when things change. The emergent strategy theory is based on the concept that strategies and outcomes can diverge from intentionally devised strategic plans (Mintzberg (2007). The internal and external considerations of the competitive advantage model (Strategic Management Insight (2013) provides a means to explore and uncover these aspects. This model can be useful in determining cost advantage aspects since it takes this into consideration as a part of the model framework (Appendix 1) (Strategic Management Insight (2013). The model can also serve to ascertain emergent aspects under differentiation where new conditions have changed in terms of the original business strategy. The above example in terms of how the competitive advantage model (Strategic Management Insight (2013) has a linkage with Mintzberg’s (2007) emergent strategy theory provides an approach using analytical models that will be used in the next section that will delve into four business strategy examples. AC1.2 Analysis Models In assessing competitive advantage models, four business strategy types will be utilised. These consist of growth, product differentiation, price-skimming, and acquisition strategies (Suttle, 2018). Under a growth strategy, this can consist of the introduction of new products or features to existing models (Teece, 2010). It can also represent expanding into new markets where a broad number of variables need to be considered and accounted for that include competition posed by rival companies (Teece, 2010). The competitive advantage model (Appendix 3) provides analysis areas such as knowledge and intellectual property, along with human capital, technology, and property as well as equipment that are useful in determining the aspects of new products, adding new features or expanding into a new market (Mar, 2011). These are the strengths of the model that also include business capabilities and differentiation. The weakness of this model is that it does not have a segment that includes external factors that would provide information on competitors, consumers or client considerations and economic variables that are important components in the introduction of new products, product features or new market entry (Teece, 2010). The McKinsey growth pyramid (Appendix 4) (Riley, 2012) provides a graphic illustration of how the above strengths and weaknesses are considerations in a growth strategy business model as it provides a number of variables not included under the competitive advantage model (Appendix 3). The product differentiation business strategy is what a firm typically uses this to distinguish their service or product from competitors (Bharadwaj et al, 2013). This represents a company understanding and using its distinct resource endowments as a means to construct a specific or group of distinguishing factors that are difficult for a rival to emulate (Bharadwaj et al, 2013). Porter’s Sustainable Competitive Advantage Model (Appendix 2) (JBDON, 2015) represents a fit for this category. This is due to the fact that its strengths are derived from its use of resources, distinctive capabilities and capabilities that feed into cost or differentiation advantages (JBDON, 2015). The analysis model involves another Porter contribution under five forces (Dobbs, 2014). The weakness of Porter’s Sustainable Competitive Advantage Model is its lack of external forces considerations. These are revealed under the analysis model (five forces) that evaluates supplier and buyer bargaining power, threats of substitutes and new entrants as well as industry rivalry (Dobbs, 2014). The price-skimming business strategy aligns well with the competitive advantage model (Appendix 1) (Strategic Management Insight, 2013), as this model considers external areas such as changes in PEST factors as well as the ability of the company to respond quickly to changes. This model also takes into account the internal aspects represented by VRIO resources, unique competencies, and innovative capabilities as its strengths. Price skimming involves a firm charging the highest initial price and then lowering it over time as the first tier customers are satisfied in order to appeal to second-tier customers (Lowe and Alpert, 2010). The analysis model represents pricing against demand and customer profile saturation that forecasts and then assesses when the initial and successive price tipping (lowering) points are reached (Lowe and Alpert, 2010). These added analysis factors represent the weakness of the competitive advantage model (Appendix 1) (Strategic Management Insight, 2013) as it is used to determine the start of the process rather than ongoing changes and evaluations to modify pricing. The model for acquisition strategies is aligned with Porter’s Sustainable Competitive Advantage Model (Appendix 2) (JBDON, 2015). The endpoint value creation aspect of this model uses resources, distinctive capabilities and capabilities that feed into cost or differentiation advantages (JBDON, 2015) offers a means to evaluate an acquisition that is based on what it has done in the past. The weakness of this model is that it needs an analysis model that considers external variables, risk evaluations and valuation (Lubatkin, 2013) that take into account the costs of the acquisition and its ability to repay the investment over time (Lubatkin, 2013). This is because an acquisition competitive advantage model is looking at a point in time based on the past where an acquisition, whilst considering these aspects, needs to project where the ramifications of acquiring another company will impact the market, competitors and its own operations in the future. Appendix 1 Figure 1 - Competitive Advantage Model (Strategic Management Insight, 2013, p. 1) Appendix 2 Figure 2 - Porter’s Sustainable Competitive Advantage Model (JBDON, 2015, p. 1) Appendix 3 Figure 3 - Competitive Advantage Model (Mar, 2011, p. 1) Appendix 4 Figure 4 - McKinsey Growth Pyramid - Growth Strategy (Riley, 2012, p. 1) References Barney, J., Clark, D. (2007) Resource based view of a firm. Oxford: Oxford University Press. Bharadwaj, A., Sawy, O., Pavlou, P., Venkatraman, N. (2013) Digital business strategy: toward a next generation of insights. MIS Quarterly. 37(2), pp. 471-482. Dobbs, M. (2014) Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review. 24(1). pp.32-45 Lowe, B., Alpert, F. (2010) Pricing strategy and the formation and evolution of reference price perceptions in new product categories. Psychology and Marketing. 27(9), pp. 33=41. Lubatkin, M. (2013) Merger strategies and stockholder value. London: Taylor and Francis. Mar, A, (2011) Competitive Advantage Model. (online) Available at (Accessed on 4 October 2018) Mintzberg, H. (2007) Tracking strategies: Toward a general theory. Oxford: Oxford University Press. Newbert, S. (2007) Empirical research on the resource‐based view of the firm: an assessment and suggestions for future research. Strategic Management Journal. 28(2), pp. 31-42. Riley, J. (2012) McKinsey Growth Pyramid - Growth Strategy. (online) Available at (Accessed on 4 October 2018) Strategic Management Insight (2013) Competitive Advantage. (online) Available at (Accessed on 4 October 2018) Suttle, R. (2018) Different Types of Business Strategies. (online) Available at (Accessed on 4 October 2018) Teece, D. (2010) Business models, business strategy and innovation. Long Range Planning. 43(2), pp. 172-194. Wernerfelt, B. (1984) A resource-based view of the firm. Strategic Management Journal. 5(2), pp. 44-51. Read More