Management Consulting and Competitive Advantage - Term Paper Example

A look into the probability and assessment on how may a consulting firm differentiate itself and achieve competitive advantage Generally speaking, the term comparative advantage is more of a relative term. The term can be used for an infinite number of variables. In this case it is to be taken into consideration that a consultancy firm may generate enough potential to govern the absolute majority in altering the time tested paths of the usual tricks and trade of a genuine organisation by differentiating itself and thereby gaining a significant amount of comparative advantage over its rival companies, which in this case are consultancy firms. Nevertheless, it is hard to underestimate the strategic significance of a consulting firm achieving comparative advantage by differentiating itself from other rival firms. This differentiating technique is a substantial tool that could transform the nature of products, processes, companies, industries, and even competition itself. Until recently, most managers treated differentiating principals as a support service. Now, however, every company and especially consulting firms must understand the broad effects and implications of the new differentiating principals and how it can create substantial and sustainable competitive advantages. (Wood, W., Lundgren, S., Oullette, J. A., Busceme, S., & Blackstone, T., 341) The principals of differentiating itself from the rest of the industry are in the process of a silent revolution and this revolution is sweeping through our economy. No company can escape its effects. Dramatic reductions in the cost of obtaining, processing, and transmitting information are changing the way we do business. (Williams, J. R. 1) Most general managers know that the revolution is under way, and few dispute its importance. As more and more of their time and investment capital are absorbed in market evaluation and their effect, executives have a growing awareness that the differentiating principals can no longer be the exclusive territory of the elite panels and theoretical niche departments. As they see their rivals use differentiating principals for competitive advantage, these executives recognize the need to become directly involved in the management of the new theories and principals. In the face of rapid change, however, they dont know how. The goal is now to analyse how the framework of differentiating principals can be combined with behavioural evidence on comparative advantage to understand the differential performance of organizations. First, we describe the emerging role of knowledge as a basis for the competitive advantage of organizations. Then we apply our framework to explain why successful differentiating principal is difficult and to organize the evidence regarding knowledge that is more easily transferable. Finally, we present evidence indicating how organizations can develop the knowledge that is a basis for competitive advantage. (Hollingshead, A. B. 279) The recent trend in the field of strategic management has been to emphasize the role of organizational principals as a basis of the competitive advantage of particular organizations. Explanations of competitive advantage that rely primarily on the positioning of organizations in an industry or the deployment of organizational assets through competitive interaction with rival firms have been relatively deemphasized. (Nelson, G. Silverberg, & L. Soete, 268) Novel work continues on industry structure, but that work integrates organizational differentiating principal perspectives with industry or rivalry perspectives. Empirical findings have shown that differences between organizations may account for more variance in firm performance than differences between industries. Although important industry effects may be present, organizational-level differences are now acknowledged as a critical source of variation in firm performance over and above industry differences. Although empirical findings make the case for organizational resources as a basis of competitive advantage, theoretical arguments have been powerful for identifying the types of resources that are keys. Barney (1986) pointed out that for resources acquired through competitive markets, the value that the resource brings to the organization should be reflected in its price to the organization. For this reason, the focus for competitive advantage should be on resources developed or made valuable inside the organization rather than those purchased from outside it. The set of relevant resources is further limited by the recognition that resources cannot be the source of competitive advantage if many competitors have them. Therefore, to be the source of competitive advantage, resources must also be difficult for competitors to imitate. The focus on resources that are developed within the organization and difficult to imitate puts knowledge of differentiating principals in a pre-eminent position as the principal source of competitive advantage. Despite variance in terminology for differentiating principals (competencies, capabilities, routines, or innovations), there is growing agreement that it is what the organization comes to know that explains its performance. The problem for those who want to develop competitive advantage for their organizations, however, is that, in the field of business strategy, more effort has gone into identifying knowledge as the basis of competitive advantage than into explaining how organizations can develop, retain, and transfer that differentiating principal. As Spender and Grant (1996, p. 6) observed, "The surge of interest into organizational capabilities and competencies has directed attention to organizationally embedded knowledge, but has made only limited progress in understanding its anatomy and creation." To the extent there has been progress, it has been at the level of identifying consistencies in organizations knowledge of differentiating principal development paths and almost never at the level of the human interactions that are the primary source of knowledge and knowledge transfer. Against this backdrop, there is a clear opportunity for the research effort represented in this special issue to contribute to the understanding of how organizations gain competitive advantage through knowledge. The framework of differentiating principal knowledge reservoirs outlined represents the "anatomy" of knowledge of differentiating principals in organizations. We show how the framework can be applied to illuminate the problem of differentiating principal knowledge transfer, indicating when organizations can be expected to derive competitive advantage by transferring knowledge internally and preventing its transfer to competitors. However there is always the chance that differentiating principals would illuminate the process by which organizations can create knowledge. It is also evident that this can well contribute social psychological guidance for the task of developing competitive advantage in firms. (Wegner, D. M., Erber, R.,&Raymond, P. 925) Managers must first understand that differentiating principals is more than just principals. Today, differentiating principals must be conceived of broadly to encompass the information that businesses create and use as well as a wide spectrum of increasingly convergent and linked technologies that process the information. In addition to computers, then, data recognition equipment, communications technologies, factory automation, and other hardware and services are involved. Effective use of differentiating principals can broaden this scope and evoke productivity thereby enhancing the totality of absolute utility. (Leonard-Barton, D. 266) The revolution of differentiating principals can change thought processing within the consultancy firm could and potentially effect the competition in three vital ways: It can change industry structure and, in so doing, alters the rules of competition. It can create competitive advantage by giving companies new ways to outperform their rivals. It can spawn whole new businesses, though generally speaking, often from within a companys existing operations. (Wood, W., Lundgren, S., Oullette, J. A., Busceme, S., & Blackstone, T. 334) It has been discussed the reasons why differentiating principals has the potential of acquiring strategic significance and how it could affect all businesses from the perspective a definite consultancy firm. It could also be assumed and described how the differentiating principals hold the key potential to change the nature of competition and how astute companies could exploit this. Finally, it can be outlined as a pro forma of a procedure that managers can use to assess the role of differentiating principals in their business and to help define investment priorities to turn the technology and other principals to their competitive advantage. (Hollingshead, A. B., 264) Most products have always had both a physical and an information component. The latter, broadly defined, is everything that the buyer needs to know to obtain the product and use it to achieve the desired result. That is, a product includes information about its characteristics and how it should be used and supported. For example, convenient, accessible information on maintenance and service procedures is an important buyer criterion in consumer appliances. (Teece, D. F. 2) Historically, a products physical component has been more important than its information component. The new differentiating principal, however, makes it feasible to supply far more information along with the physical product. For example, a consultancy firm can generate appliance service data base supports a consumer hotline that could help differentiate its service support from its rivals. (Wood, W., Lundgren, S., Oullette, J. A., Busceme, S., & Blackstone, T. 229) Similarly some other consultancy firm can offer up-to-the-minute information on the whereabouts of client related updates, which can improve coordination between the firm and the client. The new differentiating principal is also capable of making it increasingly possible to offer service with just the outline of the proposed results. Customers can also be made available with the firm’s data whereby the customer can have access to corporate financial data filed with the Securities and Exchange Commission, and many companies can easily utilise the probability to perform better use analyses of statements. (Zander, U., & Kogut, B, 81) More generally, future empirical studies should examine the conditions under which knowledge is embedded in the various reservoirs. For example, how do the member-member, the member-task, and the member-tool networks develop? Research should also empirically determine the extent to which knowledge in the various reservoirs transfers to new contexts. Factors that support or impede such transfer should be identified. Information about these issues will greatly advance our understanding of differentiating principal knowledge transfer in organizations. (Argote, L., & McGrath, J. E, 338) Finally, the new differentiating principal has a powerful effect on competitive scope. Differentiating principals can also create many new interrelationships among businesses, expanding the scope of industries in which a company must compete to achieve competitive advantage. Thus, the processes underlying knowledge transfer provide a basis for understanding the competitive advantage of consultancy firms. Reference: Argote, L., & McGrath, J. E. (1993). Ideas in organizations: Continuity and change. International Review of Industrial and Organizational Psychology, 8, 333-389. Hollingshead, A. B. (1998). 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