Value Creation And Sustainable Competitive Advantage

Definition of Key Concepts

Discuss about the Value Creation and Sustainable Competitive Advantage.

Technological advancement and increasing popularity of the internet have created major difficulties for the organizations for gaining competitive advantage in the market. Innovation might be the answer for getting a sustainable competitive advantage. A competitive advantage for a company enhances the performance and is often related to the resources a company has and how they will be managed (Volberda et al. 2011).

In this report, I will discuss the value creation and sustainable competitive advantage. For that reason, relevant theories will be included and discussed so that it can able to provide in-depth information about the sustainable growth perspectives. The report will highlight the prime resources that will be required for securing sustainable competitive advantage for an organization. It will also provide an idea about the process through which organizations can add value to the competitive advantage perspectives.

In this section, various models including firm resources, competitive advantage and sustainable competitive advantage are defined to make sure that there is no confusion about the concepts used in this report.

Firm’s resources include all assets, capabilities, firm attributes, organization processes, information, knowledge, etc. All these are controlled by the firm and it enable them to improve its efficiency and effectiveness by implementing strategies. (Barney, 1991)

Firms implement value creation strategy for achieving competitive advantage in the market. Many studies have highlighted the fact that the competitors cannot copy value creation strategy, as it heavily depends on the internal and external resources (Barney, 1991).

A firm must know how to manage its resources in the best way possible to create value for the consumers. A firm can achieve strategic competitiveness when their unique core competencies are efficient at taking advantage of opportunities of the external environment to create value for customers. If the resources are effectively a firm can innovate to get a competitive advantage. Employees of the organizations play a crucial role for optimal use of the organizational resources.  If a firm attaches a high value to its employees, it will make room for them to develop their own ideas. Talent is the key to innovation, creativity and economic growth. It is very hard for competitors to duplicate value-creating strategy of an organization, if that particular organization can have employees who can manage resources well. These kind of employees are critical for the performance of a firm. The competitive advantages can be duplicated at any time.

Firm Resources

The three factors of the sustainability of competitive advantage function are as follows:

The rate of the core competence becomes obsolete because of environmental changes.

The availability of core competence for substitutes.

The core competence has specific limitability.

It’s challenging for firms to effectively manage current core competence while trying to develop new ones at the same time. When a firm’s competitive advantage gets contributed by a continuous stream of capabilities they achieve strategic competitiveness and they will stay ahead of its competitors. (Volberda et al. 2011).

Understanding sustainable competitive advantage requires a lot of research in strategic management. In this report we assume that strategic resources are heterogeneously is stable and distributed across firms.  The link between a firm’s resources and sustainable competitive advantage will be examined. The potential of a firm’s resources will be discussed with the four empirical indicators to generate sustainable competitive advantage; Value, Rareness, Imitability and Sustainability. By analyzing the potential of the resources a firm have the VRIN model will be applied to see how sustainable competitive advantage are being generated. (Jay Barney, 1991)

Not every firm holds resources that have sustainable competitive advantage potential. For the firm resources to have this potential, as said, it must have four indicators.

If organizations can utilize valuable resources effectively, it will achieve competitive advantage or sustainable competitive advantage. Resources are valuable when, as suggested in the definition of key concepts, they improve its efficiency and effectiveness by implementing strategies. Sources of competitive advantage can have other attributes then Value, Rareness, inimitability, non-substitutability (Jay Barney, 1991). The tradition “Strength-weakness-opportunities-threats” model suggest that firms improve only when their strategies exploit opportunities or neutralize threats Pickton, Wright (1998). For the attributes to become resources they have to exploit opportunities or neutralize threats in the environment of the firm for the resources to be considered a possible source of sustainable competitive advantage it must be valuable. The environmental models of competitive advantage and the resource-based model has points of important complementarity and can help isolate the firm attributes that exploit opportunities or neutralize threats. That they a firm can specify which attributes are considered resources (Jay Barney, 1991). The resource-based model can specify how these resource can generate resource-based model sustainable competitive advantage Barney, J. and Clark, D. (2007). 

If multiple competitors or potentially competing firms possess a resource, the resource will no longer be a source of competitive advantage or sustainable competitive advantage for the organizations. When a firm is implementing a value-creating strategy that is not being implemented by any competitors it enjoys a competitive advantage. A firm can’t have a competitive advantage if multiple competitors possesses the same resource and have the capability to exploit that resource the same way.

Competitive Advantage and Sustainable Competitive Advantage

Firms can have their resources classified in two categories; Tangible- and Intangible resources. The physical items that a firm possesses are tangible resources and the intangible resources are the registered designs, reputation patents, copyright, contracts, trademarks trade secrets, and networks as well as know-how (Doyeon Won, Packianathan Chelladurai, 2016). If a firm is in the possession of relevant capabilities that differentiate them they obtain sustainable competitive advantage. These capabilities are an intangible resource. As stated, the employees are critical and a form of an intangible resource. The know-how of the employees contributes to the firm’s success (Richard Hall, 1992).

Rare and valuable resources may be a source of competitive advantage and firms with those kinds of resources are most likely to be strategic innovators. Other firms that lack to obtain the rare and valuable resources won’t be able to conceive or implement any of the strategies because they don’t have the relevant firm resources to do so. This kind of a competitive advantage is another way of the first-mover advantages and firms with the relevant resources will have that advantages.

For a firm to obtain sustainable competitive advantage by the rare and valuable resources other firms may not have the possibility of obtaining them. These kind of resources are called imperfectly imitable. The imperfectly imitable can only be imperfectly imitable one or a combination of three reasons.

Obtaining a resource is dependenting of a unique historical condition

Causally ambiguous; the link between a firm’s sustainable competitive advantage is its possessed resources

Socially complex: the competitive advantage that is generated by the firm’s resources. (Jay Barney, 1991)

A unique history of a firm can be a very important resource. A culture that emerged early in the history of the firm may obtain an imperfectly imitable advantage (Volberda et al. (2011).  The culture of a firm is an intangible resource (Satterfield; Gregory; Klain; Roberts; Chan, Kai M, 2013). If a firm obtains this kind of resource may have a competitive advantage over other firms. (Jay Barney, 1991).

Firms can have a difficult time trying to imitate resources. The most argued reason for the trouble firms are going true trying to imitate those resources is that firms have isolating mechanisms that is protecting their resources from being imitated by its competitors. (Ambrosini. 2003, P.6). Causal ambiguity is one of the mechanisms (Lippman and Rumelt, 1982 P. 433). The factors those are responsible for the performance differentials “will resist precise identification’” (Lippman and Rumelt, 1982 P. 418).  Competitors don’t know the reasons why the rival firms are so effective when causal ambiguity limits imitation (Ambrosini. 2003, P.6). Imitating firms have a lot of trouble attempting to duplicate firms with a sustainable competitive advantage due poor understanding of the successful firm’s resources. This is the reason Barney implies that a firm should ignore the link between its resources and their competitive advantage because if the successful firm can understand this link, then its competitors will too. Competing firms can reproduce the resources by purchase them and acquirer the same advantage (Barney, 1991 P.109). Immobility can be explained by how unique it is Lippman and Rumelt (1982, p. 420) states that uncertaintya and uniqueness are independent. A unique resource can be duplicated in the absence of uncertainty, and thereby its uniqueness is destroyed.

Resources of a Firm

It constrains the ability for other firms to imitate these resources when complex social phenomena contribute to the firm’s competitive advantage. Examples on socially complex resources include the interpersonal relations, friendship, trust among managers, culture, reputation and customers. Little or no causal ambiguity surrounding the link between its resources and their competitive advantage due to these socially complex resources can be specified how they make the firm more valuable. However, the socially complex resources improve the efficiency and effectiveness of the firm. The socially complex resources are imperfectly imitable (Barney, 1991 P.110). It is difficult to how to the socially complex is created and why they are valuable due to the intangible resources (Viedma, Jose; Cabrita, Maria, 2012 P.67-68) Tangible resources can be exploited by other firms by being purchase or possessed (Barney, 1991 P.110-111).

Non-substitutable capabilities are the last requirement to be a source of sustainable competitive advantage. The value of capabilities becomes more valuable when they are difficult to substitute (Barney, 1991 P.111). The competitors will face a great challenge imitating a firm’s value-creating strategies when the capabilities are invisible. Causal ambiguity will be difficult to obtain due to the firm now knowing how to improve processes that are not easily codified (Volberda et al. (2011). 

Porter (1985) argues that there are two basic types of competitive advantage: low cost and differentiation[1] (Porter, 1985, P.11). The generic strategy[2] is a choice a firm can follow. The relative position of a firm within its industry is chosen by its competitive advantage and competitive scope. Each of the generic strategies are different and involves four different routes to competitive advantage. There are different risk each four strategies and firms has to make sure they don’t get stuck in the middle.

Another framework for achieving competitive advantage is Treacy and Wiersemas (1995) value disciplines. The framework has highlighted three disciplines are Product leadership, operational excellence, and customer intimacy (Treacy and Wiersemas 1995, Chapter 3).

Conclusion

From the report, it can be assessed that achieving sustainable growth is not an easy in this competitive market. Therefore, organizations need to implement various strategies for creating maximum impact to its desired market. In this report, several factors have been highlighted that can have major impact on the business development perspectives of the organization. The report has included several models and theories for add value to the study. For instance, the report has highlighted that the significance of core competencies of the organizations that can have major affect on gaining competitive advantage in the market.  The report also has highlighted that environmental changes and social changes can have major impact on the competitive advantage perspectives of the organizations. The study has highlighted influence of peer groups, values and ethics of the society can influence the needs and wants of a particular customer. For that reason, the study has highlighted the significance of proper execution of the market research strategies for creating desired impact on the market. From the analysis, it can be assessed that any changes in the environmental and social factors can create major impact on the perception level of the customers that eventually will create major impact on the spending pattern. Therefore, it can be assessed that any changes in the spending pattern of the customers will create direct adverse impact on the sustainable competitive advantage perspectives of the organization.  Thus, the study highlighted the fact that organizations need to be extremely careful at the time of implementing strategies for achieving sustainable competitive advantage in the market.

Reference list

Ambrosini, Veronique, Tacit and Ambiguous Resources as Sources of Competitive Advantage, 2003

Barney, J. and Clark, D.(2007). Resource-based Theory: Creating and Sustaining Competitive Advantage, Oxford: Oxford University Press. Page 67

David W. Pickton, Sheila Wright (1998) What's swot in strategic analysis? Strategic Change, 03/1998, Volume 7, Nummer 2

Doyeon Won , Packianathan Chelladurai (2016) Competitive Advantage in Intercollegiate Athletics: Role of Intangible Resources

Jay Barney: ‘Firm resources and sustained competitive advantage’, Journal of Management, vol. 17 (1991), no. 1, pp. 99–120.

Lippman, S. A. and R. P. Rumelt (1982) ‘Uncertain imitability: an analysis of interfirm differences in efficiency under competition’, The Bell Journal of Economics, vol. 13, no. 2, pp. 418–38

Porter, Michael, Competitive Advantage creating and sustaining superior performance, 1985.

Richard Hall (1992). Strategic Management Journal, Vol. 13, No. 2, pp. 135-144

Satterfield, Terre; Gregory, Robin; Klain, Sarah; Roberts, Mere; Chan, Kai M, Culture, intangibles and metrics in environmental management, Journal of environmental management, Volume 117, 2013

Treacy, M., F. Wiersema, The Discipline of Market Leaders, 1995.

Viedma Marti, Jose Maria; Do Rosario Cabrita, Maria, Entrepreneurial Excellence in the Knowledge Economy: Intellectual Capital Benchmarking Systems, 2012

Volberda et al. (2011). Strategic Management: Competitiveness and Globalization. Cengage Learning. Chapter 3