Strategic Management and Sustained Competitive Advantage - Essay Example

Student Name: Instructor name: Unit Name: Date: Introduction If a company achieves a higher than average profit margin, as compared to other players in the industry, it is said to have a competitive advantage over them. This is the purpose of most business strategies. This advantage can be of two types; price and differentiation advantages. A price advantage means that the firm is able to supply the same goods at a lower cost to its customers while a differentiation advantage means that certain benefits accrue to the customer which is not provided for by the competition. Together, these provide a positional advantage to the firm. Resource-Based View vs. Competitive Positioning; a Journal Review Resource based strategy relies on superiority of wherewithal as well as the firm’s capabilities, that create a value-added benefit to the consumer. These benefits are very specific to the company and are difficult to replicate. They include such like items as patents, trademarks, brand equity, company standing, etc. (Porter, 1985). According to the Western New England Law Review, resource based strategy embodies resources that are specific to that firm, and should be precious, unusual, matchless, non-tradable (or traded in inadequate dynamic markets), and non-replaceable, in order to produce Ricardian rents. The bedrock advantage of this strategy is possession and use of these various assets shrewdly to create a niche that cannot be imitated or duplicated by competitors (Eunni, 2009). The competitive positioning theory on the other hand, fosters the notion that maximizing earnings in the long term, and maintaining the upper hand with competitors, is the main purpose of commerce. The industrial/organisation perspective is the bedrock of this view which takes the place of the firm in the external marketplace as decisive (Porter, 1981). The journal of supply chain management views it as an existing economic strategy that concern the way the firm is viewed and operated. According to Conner (1991), an ideal neoclassical model of competition has the company as a production tool that converts input into output although the process of how this takes place is not outlined. There are certain assumptions made about the stated firm, viz, that all companies in that field are similar, and that a prolonged perch as market leader in profit making is not sustainable for just one player. The spotlight of the model is actually on the market in which the company does business and not on the individual company at all. This focus is illustrated by the structure-conduct-performance (S-C-P) method that is found in the Organization Theory. The main areas of focus in this theory are the structure of industry, what outcomes of barriers to ingress would cause size of the company, and the domination in prices. The argument advanced is that there is a cause and effect between market extent and nature of competition versus company behaviour vis a vis prices, marketing, etc, all lending credence to financial performance Ramsay (2001). The European Journal of Sciences has a different take, where Raduan et al, (2009) focus on the perspectives of different aspects of management. It proposes that a firm’s competitive edge stems from its in-house assets, rather than external positioning. This means that instead of simply assessing the competition and the external market forces, the firm also has to evaluate its internal resources and capabilities (Barney, 1995). The resource-based view has the ability to take the firm to eventual market domination (Ainuddin et al., 2007). The journal of Business and Economics research (Moran, T & Meso, P., 2008), views manufacturing strategy as a tactical asset, key to the success of the business; If, as defined by the resource-based view, a tactical asset is one that is of value, rare, not completely imitable, and non-replaceable. It is only these types of assets that separate the firm from its competitors: that is, company, product and employee reputation, as well as internal organisational culture (Meso, 1999; Michalisn 1997; Smith 1999). The value of a resource is gauged by its ability to limit the influence of the competition and to maximise market penetration. Differences and Similarities All resources are not created equal and the value of any one resource depends upon the importance the client puts upon it. Industrial structure has a strong impact on competition, as well as the tactics generally available for use by companies. This means that strategy influences competitive positioning, which then gives access to domination of rents (Teece, 1984). To assist in the location of such positioning, Porter, (1980), came up with a ‘five-force model’ which consists of; entry barriers, danger of replacement, bargaining power of purveyor, bargaining power of consumer and competition among business forces which together bring about what profits may be had in the industry. This notion is nevertheless not upheld by practical surveys. Resources are considered to be either tangible, or intangible. The former include finance and technology while the latter embodies skills and reputation (Barney, 1991, 1997). Those that provide a sustainable benefit are usually; Causally vague Communally multifaceted or Rare. In the field of IT, firms create value in the attainment and retention of good management rather than in the development of technology per se (Mata et al. 1995). Theory suggests that there are three frontier circumstances that lead to success; Attractive markets (Collis and Montgomery, 1995; Levinthal and Myatt 1994; Porter 1990) A somewhat secure situation prevalent in the nation. Limited capacity to influence sustained advantage by Manager. (Barney 1997). Literature Evaluation of the Different Schools of Management in Developed Economies In the El Norte case of Mexico City, where an IT firm was established in less than ideal conditions it turned out that the singular characteristics of the specific firm made a difference to the bottom line. It was concluded that competitive lead based on internal resources and abilities is found to be potentially more sustainable than banking solely on merchandise and competitive positioning. (Javenpaa and Leidner, 1998) An example of a company that utilized this theory is LeaseCo, which by now and then bidding for complicated new or volatile lease opportunities (like leasing P.C’s in1980) managed to leverage these experiences into profits while blocking competitors from doing the same. The benefits that accrued to LeaseCo were twofold, namely, investing in its tactical information platform and gaining enough knowledge on the client to tailor future leases to their needs thus becoming first choice firm for the client’s future business. Ergo, it created for itself a sustainable bulwark against competition. Lincoln Re, utilized the same strategy through its "experimental underwriting" procedure, by investing in its data accumulation by insuring tactically chosen new and complicated risk groups at competitive rates. The beauty of strategic alliances is explained by the Long lead time. These alliances provide a vehicle to acquire knowledge faster. Newer players in the industry often enjoy a different knowledge base from the veterans. A good illustration of this is in industries that have been translated from analog to digital. Image Corp. for instance, is undergoing a paradigm shift from physical film substrates to digital imaging. The core competencies necessary to make this shift are completely different, and therein lies the challenge; to grow sufficient know-how to assimilate the new technology and markets before competitors completely take over while maintaining the hold it has on physical imaging that is its niche.  This ‘knowledge friction’ emphasizes the essential nature of benchmarking and examining strengths, weaknesses, opportunities and threats (SWOT) analyses to gauge the company’s position in terms of knowledge and skill levels. This data provides the baseline for growth and/or reevaluation in order to understand the company’s competitive position and plan for the medium to long term (Zack, 1998). Conclusion Business enterprise is linked to a certain way of thinking; the generation of profit, satisfying the needs of shareholders; essentially it is aimed at value creation while shouldering the risks involved in bringing this about (Robinson et al, 2007:413) i.e. modernization, risk and performance. Strategic planning is about accentuating earnings, eliminating risk and enabling innovation. To that end, both resource-based strategy and competitive positioning have a role to play in bringing this about. Future research on strategic planning has various cerebral roots and strands, with a multifarious theoretical record that has been influenced by many companies. These include the RAND Corporation, Stanford Research Institute, etc (Godet, 1987, Ringland, 1998, van der Heijden, 1996). Coming up with an overall strategy map helps to bring into focus the critical elements in a firm’s future plans. The strategy map encompasses all aspects of planning including a balanced score card as developed by Kaplan and North. The advantage of these is; It outlines the objectives for expansion and productivity in line with satisfying shareholders’ needs. Identifying market and account share and acquisition of new customers who spur growth. Value promotions that encourage higher spending amongst clients. Promoting innovation and quality in products and services that encourage retention of old clientele and conversion of new ones. This method encourages uniformity throughout all areas of the firm in terms of standards and expectations which enhances reputation and creates for the firm, a niche from which to compete. References Ainuddin, R.A., Beamish, P.W., Hulland, J.S. and Rouse, M.J. (2007). Resource attributes and firm performance in international joint ventures. Journal of World Business, 42 (2007) pp. 47-60 Barney, J. 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(1996) Scenarios: the Art of Strategic Conversation, Wiley, Chichester Zack, M.H. Developing a Knowledge Strategy. California Management Review, Vol. 41, No. 3, Spring, 1999, pp. 125-145 Read More