Benefits Of Strategic Management

Competitive Advantage in Strategic Management

A business without strategy is a business without direction. A strategy

without a competitive advantage is a business without a precondition of

success. Managing strategically is to make decisions and implement strategies

that allow an organization to develop and maintain competitive advantage.

Competitive advantage is a concept that motivates strategists to replicate the

strategies that make most successful companies successful. According to this,

we can learn that competitive advantage is a very important concept in

strategic management. Next, I will look deeper into ЎowhatЎЇs competitive

advantageÐŽ±.

Competitive advantage is what sets and organization apart. When a firm

sustains profits that exceed the average for its industry, it has something that

other competitors donЎЇt does something better than other firms do, or does

something that others canЎЇt, the firm is said to possess a competitive

advantage over its rivals. The goal of much of business strategy is to achieve a

sustainable competitive advantage. Getting and keeping it is what managing

strategically is all about. ItЎЇs tough to do, and getting tougher.1

There are 2 major views of alternative model of superior returns. Industrial

organization (I/O) view and resource-based view. The industrial organization

view focuses on the structural forces within an industry, the competitive

environment of firms and how these influence competitive advantage. The

external environment determines the potential for profits. Firms within the

same industry have similar resources and pursuer similar strategies.

Resources are mobile across firms (because of this, seemingly unique

differences among firms in the same industry will quickly vanish, competing

firms will adopt or purchase similar resources. Resource-based view takes the

approach that a firmЎЇs resources are more important than industry structure in

getting and keeping competitive advantage. It sees firms as very different

collections of assets and capabilities. The internal resources and capabilities

are the source of a firmЎЇs profitability, not the external environment. Firms each

have unique resources and capabilities. Resources are not necessarily mobile

across firms.2 Although the resource-based view focuses on analyzing

internal organizational factors, it doesnЎЇt ignore important external factors. It

links an organizationЎЇs internal capabilities with its external environment.

Competitive advantage will accrue to the firm that possesses unique assets or

capabilities. A resource-based view emphasizes that a firm utilizes its

resources and capabilities to create a competitive advantage that ultimately

results in superior value creation. According to the resource-based view, in

order to develop a competitive advantage the firm must have resources and

capabilities that are superior to those of its competitors. Without this, the

competitors simply could replicate what the firm was doing and any

advantage quickly would disappear.

below is to compare the I/O and RBV views of strategic management.3.

Table 2-1: comparison of I/O and Resource-based Views

Factor I/O Resource-Based View

Competitive Advantage Positioning in industry Possessing unique organizational assets or capabilities

Determinants of Profitability Characteristics of industry; firm's position within industry

Type, amount, and nature of firm's resources

Focus of Analysis External Internal

Major Concern Competition CompetenciesЎЄResources

Strategic Choices Choosing attractive industry; appropriate position Developing unique resources and capabilities

Resources are the firm-specific assets useful for creating a cost or

differentiation advantage and that few competitors can acquire easily. It can

include all of the financial, physical, human, intangible, and structural-cultural

assets used by a firm. The following are some examples of such resources:

Patents and trademarks, proprietary know-how, installed customer base,

reputation of the firm and brand equity and so on. Capabilities refer to the

firm's ability to utilize its resources effectively. An example of a capability is the

ability to bring a product to market faster than competitors. Such capabilities

are embedded in the routines of the organization and are not easily

documented as procedures and thus are difficult for competitors to replicate.

The firm's resources and capabilities enable innovation, efficiency, quality, and

customer responsiveness, all of which can be leveraged to