Sustainable Competitive Advantage - Literature review Example

SUSTAINABLE COMPETITIVE ADVANTAGE by Course Professor Institution City and state Date Sustainable Competitive Advantage Introduction Among the issues or rather subjects that has always been of major concern to shareholders, managers and even entrepreneurs in the work place today is the field of strategic planning and management. Businesses today are competing day in, day out with other competitors in order to push up their volume of sales, attract new customers and grow their share of the pie in the market concerned. While this kind of healthy competition is a key accelerator of growth in any industry or market, the reality on the ground is that businesses adopt different strategies that they execute in attempt to gain an edge over their rivals and be market leaders. In order for businesses to do this, managers are faced with the task of devising a strategy which is built around a competitive advantage that gives the company an edge over other competitors. To achieve this however it largely depends on the firm’s resources. In reference to Barney J.B (1986), a firm’s resources include all its assets, information, processes of the organization attributes of the firm and not to mention knowledge and capabilities that are in the firm’s control and facilitates the execution of strategies that streamline the firm’s efficiency. Strategy Managers who are able to attain the position of competitive advantage are no doubt bound to enhance their performance. The impact of adopting a strategy with competitive advantage are tremendous in today’s ever changing demands from clients and other threats that expose the company’s financial vulnerabilities. Failure to adjust to the changes and demands of the market places the company in the risk of recording poor performance. Wesley and Daniel (1990), defines strategy as a roadmap, method, outline or plans that have been clearly defined in order to bring or achieve a particular desired business goal or objective so as to improve the firm’s competitive capabilities. According to competitive capabilities refers to a collection of competitive advantages that the firm amalgamates and coordinates to have an all rounded and resourceful advantage that brings more value as compared to competitors. Competitive Advantage On the other hand Jay Barney (1991) refers to competitive advantage as the position a firm gains by acquiring factors that are of a superior differentiation when compared to other competitors in the particular industry thus enabling it to perform at a higher level than other rivals. In other words, competitive advantage can only be achieved only when value is created through the company’s strategy and no other players in the market have the same value created through their strategy. Take for instance the McDonalds and Kentucky Fried chicken case. While both of the restaurants are battling it out for the same clients, both restaurants have devised different strategies based on their capabilities and core competencies in attempt to gain a sustainable advantage over the other. On one hand McDonald is best known for its wide variety of ranging from the small burger to the Big Mac burger and its mouthwatering fries and premium quality chocolate shakes. Even though the company has recently been experimenting with healthy foods, McDonalds competes its competitors by ensuring that each of their restaurants provide the same and exact standard specification of all its products and services. This includes the presentation, weight size and even the time taken for service to be delivered to a customer. This formulae of consistency throughout its operations, coupled with quality and low affordable prices has given McDonald a competitive edge. On the other hand, Kentucky Fried Chicken (KFC) which is child company of Yum! Brand competes with McDonald and other players in the restaurant business. To compete favorably KFC chicken that is prepared using their special recipes that are known only to them. While McDonald is the market leader and competes through its great and affordable burgers, KFC gains its advantages by leading the market in the chicken segment market share of the entire restaurant industry. Even though KFC might be the leader of the chicken segment of the restaurant, it still faces stiff completion from smaller and start up chicken restaurants such as Popeye and many others. In an effort to neutralize these threats and striving for survival, KFC recently came up with new recipes and added new chicken food to their menu such as spicy wings, popcorn chicken as well mashed potatoes served with fried chicken amongst other products that are of that kind. Sustainable Competitive Advantage Wesley and Daniel (1990), clearly point out that the difference between competitive advantage and sustainable advantage is as distinct as day and night. Unlike competitive advantage, sustained competitive advantage is achieved only when other players in the market cannot easily copy or rather they are unable to imitate the advantage thus making it sustainable and maintained by the company in the long term. It is worth to bear in mind that if the competitors are able to easily copy the factor that gives the company the edge of others then the competitive advantage is not sustainable. Core Competencies Firms can further gain competitive advantage over their competencies by building on their core competencies or distinctive competence as it is also commonly referred to. In reference to Adner and Helfat (2003), core competence is defined as the unique firm’s capabilities, resources and skills that a firm has acquired that make it stand above the other players in the market. To put it simply, core competencies are those services or products that that the firm is known to do extremely well. Four criteria managers can use to determine which of their firm's capabilities have the potential to create a sustainable competitive advantage. While it is of paramount importance that firms ensure that they have sustainable competitive advantage over their competitors, good managers are aware that not all firm’s resources have the capability of producing a sustainable competitive advantage. Therefore, to determine which capabilities in the firm have the potential of producing a sustainable competitive advantage the managers are strongly advised to apply the criteria below so as to make an informed decision based on facts and not assumptions. Rarity (must be rare) It goes without saying that any resource that is shared among competing players of a certain industry or market does not make the cut to be an avenue through which competitive advantage or sustainable competitive advantage can be achieved. For a resource to be potentially able of producing competitive advantage rival competitors must have difficulty in having capabilities of exploiting this resource. It is vital to remember that some resources can be shared among a number of competitors as long their number is not huge, such firms can turn around and creatively utilize this common shared resource into a source of competitive advantage. Bowman Cliff (1990), states that while a resource can be rare it may not be rare for long since competitors are likely to imitate it, for these reason managers are also advised to be proactive at all times in identifying other alternatives. Resource must be Imitable For a resource to qualify as potentially holding a competitive advantage the manager should look into it that other firms do not have the necessary resources required to implement the strategy. A capability worth of sustaining a competitive advantage must be complex enough for the competitors to be able to copy or imitate the capabilities. Core competencies that give a firm sustainable competitive advantage can also be difficult for the competitors to clearly pinpoint and imitate what exactly the capabilities are since they can be engraved in the firm’s culture and history, making it seem as though it come naturally to them. Sustainability Resources with the potential for creating sustainable competitive resources must not have a substitute resource that has the capabilities of sustaining the same competitive advantage lest it is rendered not valuable to produce a sustained competitive advantage. In the event that other competitors can imitate or rather duplicate the same resource and use it to their benefit, then in that particular situation then the resource is no longer valuable and cannot sustain a competitive advantage for the firm. Valuable resource Providing added value to the firm is the center piece that qualifies a resource as valuable to the firm thus help sustain a competitive advantage over players in the market. Most importantly however, is the firm’s ability to ensure that customers get the value of this resource. Conclusion In conclusion, to achieve competitive advantage is one thing, while achieving sustainable competitive advantage is another. It goes without saying that a sustainable competitive advantage can only be achieved or rather gained, if only sufficient focus is placed on developing the distinctive and core competencies of a firm. On the same note, managers must pay close attention in not only identifying but also facilitating the development of capabilities that are vital to giving the firm a sustainable competitive advantage over their competitors lest they fail to compete favorably in the market. References Adner, R. and Helfat, C.E 2003, ‘Corporate effects and dynamic managerial capabilities’, Strategic Management Journal, vol. 24, no. 1, pp. 1011-1025. Barney, J.B 1986, ‘Strategic factor markets: Expectations, luck, and business strategy’, Management Science. Vol. 32, No. 10, pp. 1231-1241. Boeker, W., Goodstein, J., Stephan, J & Murmann, J.P 1997, ‘Competition in multimarket environment: the case of market exit’, Organization Science. Vol. 8, No. 2, 126-142. Bowman, Cliff (2001).Value’ in the Resource-Based View of the Firm: A Contribution to the Debate”, Academy of Management Review. Vol. 26, No. 4, 501-502. Cohen, W & Levinthal, D 1990, ‘Absorptive capacity: A new perspective on learning and innovation’, Administrative Science Quarterly, Vol. 35, No. 1, 128-152. Read More