Topic One Theories of Competitive Advantage
Topic One: Theories of Competitive Advantage
Introduction
Recent trends in business highlight the need for organizations to develop competitive advantage. The term “competitive advantage” refers to the fact that a firm possesses or develops a feature or collection of traits that allows it to perform better than its competitors. Having access to natural resources such as high-grade ores or low-cost power, as well as highly qualified and trained people and resources, are examples of such advantages (Bartosik-Purgat & Ratajczak-Mrożek, 2018). It is possible to use new technologies, such as robotics and information technology, to either assist or hamper the creation of a product. Robots and information technology are examples of such technologies. The importance of information technology in today’s business climate has increased to the point where it may aid a company in gaining a competitive advantage by outperforming its competitors when it comes to having a strong online presence (Nkuda, 2017). The aim of this section is to present theories of competitive advantage and show their relevance to managers in the current competitive business environment. overall, competitive advantage remains an important aspect of business as it enables a firm to have leverage over rival firms, attained through differentiation or cost advantages.
Competitive Advantage and is Use in Strategic Management
When it comes to allocating resources and activities, a strategy is a plan of action for dealing with the environment, gaining a competitive edge, and achieving the organization’s objectives. The term “competitive advantage” refers to what distinguishes a firm from its competitors and provides it with a distinct advantage in serving the demands of customers in the marketplace (Haseeb et al., 2019). The essence of strategy formulation is the selection of an alternative that will distinguish the firm from the competition. According to Nkuda (2017), businesses must concentrate on the most important skills, create synergies, and produce value in order to remain competitive. Organizational strategic management refers to the collection of decisions and activities that contribute to the formulation and implementation of strategies that are intended to achieve the goals of an organization. This process is also one that is continual and iterative, with the goal of retaining an organization’s overall fit with its environment. One of the objectives of strategic management is to identify a company’s performance as well as its strategic considerations and competitive advantage (Jones, Harrison, & Felps, 2018). In the course of the strategic decision-making process, the firm selects which markets to join and how it will position itself within those markets. It is focused with the large-scale planned and emergent activities undertaken by general managers in their capacity as agents of the owners, which Kuncoro and Suriani (2018) observed to include resource allocation in order to improve a company’s performance in its external environment. When assessing greater performance, competitive advantage is a critical factor to consider. Greater performance of a corporation comes as a result of the accumulation of long-term competitive advantages.
Theories of Competitive Advantage
On the issue of firms gaining an edge over their rivals, Michael Porter asserts that a company’s competitive advantage derives from its ability to perform certain tasks at a lower cost than competitors, or from its ability to conduct specific activities in innovative ways that add value to the consumer while permitting the company to charge a higher price than competitors (Khan, Yang, & Waheed, 2019). The following theories explore this relationship.
Structure Conduct Performance Framework
The Structure Conduct Performance (SCP) structure is the way an organization acts with reference to external forces that determine the market or industry’s direction. In this school of thought, it is argued that an industry’s structure determines the conduct (strategies) and that these strategies impact the performance. Konno and Itoh (2018) report that the key features of the SCP framework include market structure, conduct, and performance. In order to establish market structures, factors such as the degree of market concentration, product differentiation, entrance and exit barriers, vertical integration, and diversity are taken into consideration. Conduct, on the other hand, is determined by a company’s objectives, strategies, anti-competitive actions, research and innovation, and advertising, among other factors (Wood et al., 2021). Performance may be measured in a variety of ways, including output growth, sales revenue growth, profitability, technological innovation, employment, efficiency, increased shareholder value, and added economic value, among others.
According to the above analysis, the industrial structure is an important consideration in establishing a strategy. The majority of tactics are not suitable to all industries. Attempting to apply successful tactics in their existing form in a different environment might result in failure (inability to achieve the intended result). This linear paradigm, on the other hand, exhibits an excessive degree of deterministic behavior. When strategic managers use this approach, Konno and Itoh (2018) express that they are presumptively accepting of the existing industrial structure. As a result, it is their responsibility to automatically adjust to external pressures and create their goals in the context of a competitive environment assessment. However, in many organizations, the environment changes as a result of volatility in the marketplace (Wood et al., 2021). Strategy professionals aggressively shape change to their own interests and advantage, rather than simply observing it from a distance. In these circumstances, rather than the other way around, as the SCP paradigm suggests, the tactics dictate the industrial structure.
Resource Based View (RBV)
When it comes to resources and strategy, environmental competitive advantage models imply that all businesses within an industry are equal in terms of their resources and strategy. Furthermore, they predict that if resource heterogeneity develops inside a sector, it will not be able to thrive for long owing to the high mobility of essential resources (which can be sold or brought). Those assumptions are rendered obsolete by the resource-based approach that has been proposed (Dionysus & Arifin, 2020). The RBV model, according to Hoskisson et al. (2018), is predicated on the assumption that strategic resources are diversified and not completely transferable. The term “organizational resources” refers to all of the assets, capabilities, procedures, qualities, information, and knowledge that an organization has control over and that enable it to adopt efficiency-enhancing methods. It includes all of the assets, capabilities, procedures, qualities, information, and knowledge that an organization has control over and that enable it to adopt efficiency-enhancing methods.
When it comes to having the potential for sustained competitive advantage, a resource must have four criteria in order to be effective. First, it must be valuable in a way that enables exploiting of opportunities as well as the neutralization of possible threats. Second, resources must be rare when compared to the existing and possible competitors (Dionysus & Arifin, 2020). Rarity is a way to ensure sustained competitive advantage (Hoskisson et al., 2018). It is impossible to treat a valuable resource that is shared by a large number of firms as a source of competitive advantage since all organizations will have the potential to exploit it and will be driven to pursue the same strategic objectives. Third, a resource is required to be imperfectly imitable. If a firm is able to obtain rare and valuable resources, then they will achieve sustained competitive advantage (Dionysus & Arifin, 2020). Fourth, a resource must be such that there are no strategically equal substitutes in order for it to be considered as a source of sustained competitive advantage. When organizational resources may be deployed independently of one another to carry out the same plan, they are considered to be strategic similar. To put it another way, Hoskisson et al. (2018) assert that an organization may be able to use a similar resource to design and implement the same strategy as another business. Furthermore, resources that are diametrically opposed to one another might constitute strategic options. Therefore, as argued by the resource-based viewpoint paradigm, resource heterogeneity and immobility within an industry allow organization resources to be valuable and rare while also being imprecisely imitable and difficult to substitute. A long-term competitive advantage will be gained as a result of the deployment of such resources to exploit opportunities and counter threats.
The Capability-Based View
Capabilities can be said to be the main sources of a firm’s competitive advantage. Resources, on the other hand, are thought to be the main source of a firm’s capabilities. A similar point may be made about how, although resources do not contribute to a company’s long-term competitive advantage, its capabilities do (El Hanchi & Kerzazi, 2020). Researchers stress the relevance of capabilities, arguing that a company’s capacity to apply its knowledge to critical internal tasks can provide it a competitive advantage over its competitors. While capabilities are distinct from resources, they refer to a company’s capacity to deploy resources in order to achieve a certain purpose. According to Karimi-Alaghehband and Rivard (2020), this is frequently done in combination with organizational procedures. This category includes processes that are distinctive to a firm, data-driven, physical or intangible in nature, and that have formed through time as a result of complex interactions among the organization’s resources. The capacity of a corporation to integrate, extend, and reorganize internal and external skills in response to rapidly changing situations is referred to as dynamic capabilities.
It is believed that internal resources and core competencies developed via differentiated capabilities serve as the strategic foundation for a company’s long-term success. Capability-based strategies are founded on this notion. The assessment of these capabilities begins with the development of a corporate capacity profile, which evaluates a company’s strengths and weaknesses in four essential areas: management, marketing, finance, and technical (El Hanchi & Kerzazi, 2020). Organizational capability is the ability of a business to perform continuously given a productive activity that relates directly or indirectly to the organization’s capacity to create, value by implementing the transformation of various inputs to outputs. Some of the subcategories of capability that may be found include: broad-functional capabilities, cross-functional capabilities, specialized capabilities, and activity-based capabilities (Karimi-Alaghehband & Rivard, 2020). On the relevance of organizational learning, it is underlined that capacity and organizational learning are both implicit and explicit components of every firm’s strategy, which is supported by the literature. Many people believe that the capacity to learn and generate new information is essential for getting an advantage in a competitive environment.
The Positioning School
The basic premise of the positioning school is a strategic analytical approach centered on the notion of putting a corporation inside its industry, which is partially inspired by Michael Porter’s five forces paradigm. When viewed from an economic standpoint, the fascinating question that led to a positioning school of thought was why varied firms (in the US domestic brewing industry) achieved varying degrees of success despite being in the same industry with similar external environment. Using a different eight-variable model that comprised manufacturing strategy, marketing strategy, and environmental strategy, the researchers examined the impact of altering market structure on an individual firm’s profitability, as measured by return on common stock. The relevance of market structure may be found in the way it influences the behavior of businesses (Stonehouse & Snowdon, 2007). A gauge of the firm’s performance is provided by their actions in terms of adjusting price, outputs, product features, selling expenses and research expenditures. An environmental hazard is defined as any external factor or organization that has the ability to negatively impact the degree of performance of a company from a strategic standpoint (Hodgetts, 1999). In developing the positioning model, the goal was to assist managers in contrasting a competitive environment and analyzing and neutralizing potential threats. It was also intended to assist management teams in taking a more comprehensive view of the industry than is typically the case, resulting in the development of more competitive strategies that are uniquely tied to an individual firm and its resources or capabilities.
Conclusion
From the discussion of theories from various schools of thought, it is clear that competitive advantage arises from a company’s ability to do critical operations at a lower cost collectively than competitors, or to execute particular activities in a unique way that adds value to the client and allows the business to charge a higher price as a result. The SCP school of thought argues that an industry’s structure determines the conduct (strategies) and that these strategies impact the performance. The RBV environmental competitive advantage models imply that all businesses within an industry are equal in terms of their resources and strategy and predicts that if resource heterogeneity develops inside a sector, it will not be able to thrive for long owing to the high mobility of essential resources (which can be sold or brought). The capability-based perspective offers that capabilities are the main sources of a firm’s competitive advantage and the resources, on the other hand, are the main sources of a firm’s capabilities. Finally, the basic premise of the positioning school is a strategic analytical approach centered on the notion of putting a corporation inside its industry, which is partially inspired by Michael Porter’s five forces paradigm. Whichever perspective a firm decides to adopt, the key point is that there must be a way to gain an advantage over rival firms either through cost minimization or through differentiation advantages.
References
Bartosik-Purgat, M., & Ratajczak-Mrożek, M. (2018). Big data analysis as a source of companies’ competitive advantage: A review. Entrepreneurial Business and Economics Review, 6(4), 197-215.
Dionysus, R., & Arifin, A. Z. (2020). Strategic Orientation on Performance: The Resource Based View Theory Approach. Jurnal Akuntansi, 24(1), 136-153.
El Hanchi, S., & Kerzazi, L. (2020). Startup innovation capability from a dynamic capability-based view: A literature review and conceptual framework. Journal of Small Business Strategy, 30(2), 72-92.
Haseeb, M., Hussain, H. I., Kot, S., Androniceanu, A., & Jermsittiparsert, K. (2019). Role of social and technological challenges in achieving a sustainable competitive advantage and sustainable business performance. Sustainability, 11(14), 3811.
Hodgetts, R. M. (1999). A conversation with Michael E. Porter: a” significant extension” toward operational improvement and positioning. Organizational Dynamics, 27(1), 24-24.
Hoskisson, R. E., Gambeta, E., Green, C. D., & Li, T. X. (2018). Is my firm-specific investment protected? Overcoming the stakeholder investment dilemma in the resource-based view. Academy of Management Review, 43(2), 284-306.
Jones, T. M., Harrison, J. S., & Felps, W. (2018). How applying instrumental stakeholder theory can provide sustainable competitive advantage. Academy of Management Review, 43(3), 371-391.
Karimi-Alaghehband, F., & Rivard, S. (2020). IT outsourcing success: A dynamic capability-based model. The Journal of Strategic Information Systems, 29(1), 101599.
Khan, S. Z., Yang, Q., & Waheed, A. (2019). Investment in intangible resources and capabilities spurs sustainable competitive advantage and firm performance. Corporate Social Responsibility and Environmental Management, 26(2), 285-295.
Konno, Y., & Itoh, Y. (2018). Empirical analysis of R&D in the Japanese construction industry based on the structure conduct performance model. Cogent Business & Management, 5(1), 1429347.
Kuncoro, W., & Suriani, W. O. (2018). Achieving sustainable competitive advantage through product innovation and market driving. Asia pacific management review, 23(3), 186-192.
Nkuda, M. O. (2017). Strategic agility and competitive advantage: Exploration of the ontological, epistemological and theoretical underpinnings. Journal of Economics, Management and Trade, 1-13.
Stonehouse, G., & Snowdon, B. (2007). Competitive advantage revisited: Michael Porter on strategy and competitiveness. Journal of Management Inquiry, 16(3), 256-273.
Wood, B., Williams, O., Baker, P., Nagarajan, V., & Sacks, G. (2021). The influence of corporate market power on health: exploring the structure-conduct-performance model from a public health perspective. Globalization and health, 17(1), 1-17.
Topic Two: Organisational Structures, Innovation & Globalisation
Introduction
In today’s increasingly and aggressively competitive global business environment, firms are trying all possible strategic structures, innovations, and other practices to gain a sustained competitive advantage over rival firms. Several traditional and contemporary approaches have been favored by different research bodies as being relevant and useful to firms in different periods and in a variety of industries. For example, in terms of functional and effective organizational structures, Naqshbandi and Kaur (2013) argue for the use of strategic business units, a traditional subsystem that is specialized and separate in a firm that acts independently to plan strategies based on markets and segments. Similarly, others (such as Herrera (2015) and Ireland and Webb (2007)) advocate for more modern approaches such as the matrix or flat organizational structures that remove the traditional rigidity to include more inclusiveness and better and faster decision making in the organization. Regardless of the approach preferred, organizations are continuously trying to improve. This section looks at the VRIO analytical framework, against its claim that for a firm to achieve a competitive advantage, the firm should have resources that are valuable, rare and inimitable and should be organised to take advantage of its resources and capabilities. Specifically, Using Apple as a case study, the section discusses how contemporary firms have organised themselves to support their strategy with a particular focus on innovation in an era of globalisation.
VRIO Analytical Framework
Key questions that companies must answer today include what makes the organization special, how close the competitors are to overtaking the company, and if the strategies to achieve these aspects can be sustained in the long term. When used in conjunction with other strategic analytical tools, Ariyani and Daryanto (2018) report that the VRIO framework assists organizations in identifying and protecting the resources and talents that provide them a long-term competitive advantage. Note that this is not merely a list of corporate strengths, which are things that a firm does very well but which are not necessarily unique to the organization. This also excludes benefits that are just transient in nature. A sustainable competitive advantage includes the advantages that rivals will find difficult to reproduce in the near future; they are also a key component of business success since they are tough to imitate. VRIO stands for a 4-part framework that looks at the value, the rarity, inimitability, and organization, which are the criteria used to look at an organization’s resources and/or capabilities.
Figure 1: the VRIO structure
Source: (Buzatu et al., 2019)
From the above, the VRIO framework can be termed as a strategy tool that assists firms in determining what resources and capabilities they possess that will enable them to remain competitive for a long period of time. Companies often have a diverse variety of resources and capabilities. In the case of financial resources, they may be used in a variety of ways, while human resources, organizational resources, physical resources, and technology resources could all be utilised. VRIO is a type of internal study that helps firms determine how excellent and helpful their resources and abilities are in comparison to their competitors (Buzatu et al., 2019). The basic premise is that for a firm to achieve a competitive advantage, the firm should have resources that are valuable, rare and inimitable and should be organised to take advantage of its resources and capabilities.
Figure 2: VRIO framework in attaining sustained competitive advantage
Source: (Murcia, Ferreira, & Ferreira, 2022)
When used in conjunction with other analytical methodologies, the VRIO analysis can help in the comprehensive evaluation of available resources. For example, when it comes to financial resources, there are a number of distinct financial indicators that may be used to determine a company’s financial performance. Other specialized indicators, in a similar vein, describe the performance, efficiency, and quality of other departments or services, respectively. The simplicity and clarity of a VRIO analysis are its primary advantages. The VRIO framework is a subset of the RBV management framework, which is concerned with the link between an organization’s internal characteristics and performance. As a result, RBV complements Industrial Organization (IO) perspectives, which include external factors such as competition when assessing performance and profit potential (Murcia, Ferreira, & Ferreira, 2022). Therefore, organizations should seek competitive advantage within their own organization rather than outside it.
Valuable
The framework’s first question is whether a resource adds value by helping a corporation to capitalize on opportunities or mitigate dangers. If the response is yes, the resource is considered valuable. Resources are crucial if they help organizations boost consumer perceived value. This is done by increasing the product’s uniqueness or decreasing its cost. Those resources unable to meet this demand will be at a disadvantage. It’s vital to track resource value since changing internal and external situations may render them unusable.
Rarity
Only a single or a limited number of firms have access to rare resources. Rare and valuable resources can provide a competitive edge for a short length of time. In contrast, competitive parity occurs when a large number of enterprises share a resource or employ a capacity in an equal or similar manner. The reason for this is because businesses can pool their resources to achieve identical objectives, and no organization can constantly outperform the others (Ariwibowo, Saputro, & Haryanto, 2021). Even if achieving competitive parity is not the aim, a company should not overlook the existence of significant yet shared resources. The loss of essential resources and competencies would have a negative impact on a company’s ability to compete in the marketplace.
Expensive to Copy/Imitate
If other organizations that do not have access to a resource, are unable to replicate it, acquire, or substitute it for a fair price, it is termed as a resource or capability that is expensive to imitate. Imitation may involve directly replicating (imitation) resources or delivering similar products or services through substitution. Firms with resources that are rare, valuable, and whose features make it difficult to duplicate stand a better chance of attaining long-term competitive advantages. According to Miethlich and Oldenburg (2019), three reasons exist regarding why resources are expensive to imitate: historical conditions (resources developed over extended period of time), causal ambiguity (inability of rival firms to identify specific resources that may provide competitive advantage), and social complexities (a firm’s culture and its products including the interaction of people in an organization as a resource and capability).
Well Organized to Capture Value
If a company doesn’t do a good job of trying to get the most value out of its resources, it will be at a disadvantage. To fully utilize the potential benefits of its precious, uncommon, and costly to copy capabilities and resources, a company must organize and arrange its management frameworks, procedures, policies, organisational structures, and the corporate culture (Lee, Kim, & Park, 2020). Only then will businesses be able to maintain a competitive advantage in the long run.
Contemporary Organizational Strategies Focusing on Innovation: Apple Inc.
In an era of globalization, modern organizations have arranged themselves to support their strategy, with a special emphasis on innovation. A substantial source of growth and an important determinant of competitive advantage for many businesses is innovation. In order to generate innovation, a large number of different participants must work together, and activities must be integrated across specialist positions, knowledge disciplines, and application contexts. As a result, the establishment of organizational structures is critical to the process of innovation (Kaletnik & Lutkovska, 2020). For a corporation to be successful in its use of innovative resources and new technology, it must have the ability to innovate, a case that is perfectly exemplified by Apple Inc.. As a market leader in its industry, Apple regularly confronts significant possibilities and problems as a result of the introduction of new technology, which can result in changes in management practices and the formation of new organizational structures. From its success and practices over the years, Apple has shown that the advancement of organizations and the advancement of technology are inextricably linked (Podolny & Hansen, 2020). Previously, some experts believed that organizational changes, new things and processes, and new markets were the primary causes of creative destruction. This view has since been challenged.
Organisational Structural Designs and VRIO in Creating Sustained Competitive Edge
On its way to the top, Apple, headed by late founding genius Steve Jobs, continues to defy expectations and change the narrative of firms in its industry. As a result, the tech titan has set long-term technical trends throughout the world. Even more astounding, Apple continues to deliver game-changing gadgets on a regular basis, despite the fact that most other tech companies are struggling to stay afloat. Grimm et al. (2021) attributes a lot of this success to its innovative organizational structural design, innovative strategies, and its active intention to create sustained competitive advantage using the aforementioned elements.
Apple combines resources and capabilities that meet the VRIO criteria while also using a unique organizational structural design to create a lasting competitive advantage over other tech firms (Podolny & Hansen, 2020). One of the most important advantages created through innovation at Apple is the ability to establish a structure of the organization that aligns all of its resources and capabilities (especially the alignment of its employees, skills, finances, and stakeholder support) to create innovative products that drive exceptional performance. Apple uses a unitary organizational structure or a functional organizational framework. The company is structured by skills as opposed to products. The design function is organized under one department, product marketing in another, and operations is organized under a third function. The idea is to increase specialization while maintaining high levels of innovativeness and effectiveness of policies and ideas. This organizational structure is specifically meant to fulfil the O in VRIO. In short, Apple is organized to capture the value of its large base of resources and capabilities.
Apple has a great alignment between its organizational structure and culture, and innovation strategy because of the way it started with its mission statement and designed its internal business structure and development methods appropriately. An organization’s ability to compete in the IT, internet services and products, and consumer electronic markets depends heavily on how closely its corporate culture and its innovative thinking are aligned (Podolny & Hansen, 2020). It’s what sets Apple distinct from its rivals in the market. Therefore, Apple is truly built upon a system of innovation, one that continuously looks at ways of adding value, increasing rarity, reducing the chance of being imitated, and is ruthlessly organized to attain value of its resources and capabilities.
One of the most critical factors in a company’s long-term success and survival is innovation. Traditional meaning of innovation is to create new products or improve existing ones in quality. Using a new industrial approach is considered an innovation in a more current definition of the term (Ul Haq, Paracha, & Shakeel, 2020). As a company’s resources and the ways in which they are changed by inventive skills are characterized as its particular technological competence, it seeks to acquire and expand upon this. Changes in industrial functions and processes necessitate innovation. Technology expertise is sought out in these processes and services by companies. Apple’s technological competence is defined as the resources it has and the inventive capabilities it uses to change these resources (Podolny & Hansen, 2020). It has achieved this through using its large resources to create value in every process within the firm. Apple’s example shows that in order for a firm to flourish in dynamic marketplaces, it must have a distinct advantage over its rivals. Innovating is one way to achieve a competitive advantage. Existing products and services can be improved, or new ones can be introduced, via the use of innovative approaches. Businesses must innovate if they want to stay competitive and acquire an advantage over their competitors.
Conclusion
The present increasingly and aggressively competitive global business environment has forced firms to try all possible strategic structures, innovations, and other practices to gain a sustained competitive advantage over rival organizations. Regardless of the approaches preferred by organizations, the main idea is to improve via creating value through innovative means t create competitive advantage. The VRIO framework is an essential tool in helping firms to gain competitive advantage. Key questions that companies must answer today include what makes the organization special, how close the competitors are to overtaking the company, and if the strategies to achieve these aspects can be sustained in the long term. Apple’s example shows how well it has achieved value, rarity, inimitability, and a well-organized structure. From its success and practices over the years, Apple has shown that the advancement of organizations and the advancement of technology are inextricably linked.
References
Ariwibowo,
