Firm Resources And Sustained Competitive Advantage
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The main aim of this literature review is to compare literatures written by various experts revolving around a firms, their resources and sustainable competitive advantage. It explains how a firm maintains its competitive advantage with the help of its resources. It also briefly states various resources used by firms to attain an edge in the industry to how to maintain it. While some authors might agree with each other, few others may have contrasting views. This review might be able to answer questions about types of resources in the recent times and how can they help in achieving a sustainable competitive advantage, whether the theories written a few years ago are valid as of the current business models and strategies, etc. Further, we will also look at the gaps between these theories and what scope will this study have in future. IntroductionSince almost 5 decades people have been researching and writing about the resources in a firm and how do these resources aid in creating a value for the firm. Authors like Porter (1980, 1985)and Jay Barney(1991) have explained ‘five forces model’ and resource based view to attain sustainable completive advantage respectively. Barney (1991) also explains the VRIN model i. e. competences required by firm resources to in order to create value. (Yadav, Han and Kim, 2016) has provided with a brief study of the Stakeholder Theory whereas (Albert and Whetten, 1985; Whetten, 2006) has explained about the importance of Organization Identity Theory. Few of these theories are based on an environment that is stable is nature while others suggest a dynamic environment. Various authors have suggested a number of sustainable firm resources that can be used to achieve SCA.
Some of the firm resources used to attain SCA are Knowledge (Rademakers 2005; Caiazza et al. 2015; Drucker, 1985), Information Systems (Wamba et al. , 2017), Servitization (Bustinza et al. , 2015), Customer engagement (Gupta, Lehmann, and Stuart 2004), Self Competition (Hamel and Prahalad, 1994), Cost leadership and differentiation strategy (Porter, 1980). The models suggested by Bareny 1991 and Porter 1980, 1985 are based in a stable environment. All the firms have evelved digitayl now due to globalization thus creating a dynamic environment to operate them. Most of the knowledge shared by the earlier experts do not stand valid now due to continuous mobility of frim resources. The gap in the structure is further explored by (Beechler and Javidan, 2007; Bloodgood and Sapienza, 1996; Stulz, 1999; Parey and Waldinger, 2011). Literature Reviewmodels to obtain Sustainable Competitive AdvantageResource Based View/Theory, OI organization Identity Theory and Stakeholder theory. After various various theories, the above mention three theories have been obtained. The RBV indicates that economic rationalities such as efficiency, effectiveness, and profitability is the driving force behind selecting and the appropriate use of firms’ resources (Conner, 1991). As per (Porter, 1980; Barney, 1986; Amit and Schoemaker, 1993) a firm can achieve competitive advantage if the resources are valuable, rare, imperfectly imitable and non-substitutable (VRIN). This theory is based on an environment where resources are heterogeneous in a homogenous industry. Barney also suggests that these resources if competitive advantage are controlled by the frim itself. (Arthur, 1983, 1984a, 1884b; Arthur, Ermiliev, & Kaniovski, 1984) suggested that, a competitive advantage is dependent not on the firm’s performance but also by the unique chosen path in history to reach where it is now.
Another theory explained here is the Stakeholder theory. This theory advises that when decisions are made, the management and firm should consider the desires of the business stakeholders. (Yadav, Han and Kim, 2016)Incorporating stakeholder’s theory into the RBV perspective, we postulated that improvements in firm environmental. He also suggests, merging the RBV and Stakeholder Theory enhances the overall performance of an organization thus increasing profitability. This is supported by analyzing a firms' profits one year after implementing the merged theories. (Albert and Whetten, 1985; Whetten, 2006) suggested that often the task of maintaining organization identity if neglected till a point where these organizations become unrecognizable since it has gained multiple identities. According to (Whetten, 2006) the attributes of an organizational identity are central, enduring, and distinctive/distinguishing (CED).
When a company satisfies all of the three attributes, only then it is considered to be an organizational identity. The management must be able to clearly answer the question-‘who are we as an organization?’ which will assist them to define themselves. Firm Resources In this paper, we are mainly going to consider the RBV while explaining firm resources and how does it assist in gaining and maintaining competitive advantage. What are firm resources?Things, tangible or intangible example organizational processes, capabilities, knowledge, information, etc. which enable a firm to excel and implement its strategic plans to grow are known as resources (Daft, 1983). These resources can be mainly classified into 3 main categories- Physical Capital Resources (Williamson, 1975), Human Capital Resources (Becker, 1964), and Organizational Capital Resources (Tomer, 1987). Human Capital resources include the physical servers that are used, the land used to set up the organization, its employees, etc. Human Capital Resources include the decisions made, the actions taken, the intellect used, relationships maintained by the physical employees in the organization. Organization Capital Resources are the hierarchies maintained, the reporting system, its controlling strategies, etc. (Dierickx & Cool, 1989, Bareny 1991) have proved that the resources must have the following competencies for a firm to achieve competitive advantage. These attributes are- value, rareness, inimitability, and non-substitutability. However, If a firm does not possess resources with these attributes, it either generates these competencies in its current resources or device a plan to strategically gain resources with these competencies or outsource the resources (Lyaidh- cannot find its cutting).
Firm Resources, Competitive Advantage and Sustainable Competitive Advantage
Competitive advantage and sustained competitive advantageWhen a firm can implement a strategy that adds value to the firm which no other firm is implementing parallel, then this firm is said to have attained a competitive advantage over other firms. A firm is said to have sustained competitive advantage when no other existing or potential forms are parallelly implementing its value-creating strategy and are no able to duplicate the profits from this strategy. (Barney, 1991). The period of time or calendar days for which a firm is said to achieve a sustainable competitive advantage is however not specified or researched yet (Jacobsen 1988; Porter, 1985). Strategies to attain SCAFor around the past 5 decades, a single strategy is being used to identify sources of sustainable competitive advantage for firms (Andrews, 1971; Ansoff, 1965; Hofer & Schendel, 1978). This frame is widely known as the (Strengths, Weaknesses, Opportunities, and Threats)SWOT analysis. In SWOT analysis, the internal strengths and weaknesses in the firms are evaluated (Hofer & Schendel, 1978; Penrose, 1958; Stinchcombe, 1965), and the external opportunities and threats are identified to help a firm sustain its competitive advantage (Porter, 1980, 1985). The external analysis is nothing but them environmental conditions that favour a firm to perform highly (Caves & Porter,1977; Porter, 1980, 1985) for example Porter’s ‘five forces model’ (Porter 1980). Firm Resources and Sustainable Competitive Advantage.
As explained above, resources are assets that create value for a firm to grow and gain an edge over other competing or potential firms. Similarly, when these resources of competitive advantage help a firm stay a market leader in the industry for a longer period of time, then they are resources of sustainable competitive advantage. (PUT CITATIONS)In the coming paragraphs, we will explore various resources that can be used by firms to attain a sustainable competitive advantage. Knowledge as a source of SCAIt is said that learning is a never-ending process. Tools, techniques, strategies, etc will always have to keep on enhancing as per the changing surrounding over a due course of time. It is this knowledge that has developed over years needs to be adapted and transferred within the firm to stay ahead of its competitors along with retaining this knowledge in the organization itself (Rademakers 2005; Caiazza et al. 2015). In fact, (Drucker, 1985) considers knowledge the only source of an enterprise’s CA. Due to this reason, firms are always looking out for ways to strengthen their knowledge to strategically use it. Knowledge is considered as the deciding factor for the efficiency of a firm (Kogut and Zander, 1992). Maximum firms merge the newly gained knowledge along with the pre-existing knowledge to stop imitation and mirroring by their competitors thus creating a path for sustained competitive advantage. Information Systems as a source of SCA Information Systems is an internal firm resource that is considered a source of SCA as it drives the firm to lead the market. Ultimately, efficient and strategic use of a firm’s information systems to create value to the frim wholly depends upon the firm’s Physical Capital Resource such as the management and employees. The more quickly they adapt technology to implement it in their business strategies, the faster they will gain value from this source (Wamba et al. , 2017).
The use of information systems as an advantage creates other competitive advantages such as a reduction in cost and differentiation (Lubit, 2001; Porter & Millar, 1985). First mover advantage as a source of competitive advantage. This strategy defines itself by its name. A firm in an industry that implements a particular strategy before any other firm in that industry, then this frim is said to have an advantage to succeed over other firms. The reason being, this firm may be able to get access to the best distributors or suppliers in the industry thus creating SCA (Lieberman & Montgomery, 1988). However, Barney(1991) argues that not every first mover can gain SCA. When then the resources in an industry are homogenous and mobile, all other competing firms can implement the same strategy and gain a competitive advantage. For a firm to gain SCA, they should be heterogonous in terms of resources they control. Servitization as a source of SCA Servitization represents a strategy where organizations transformation their business-model from selling only goods to selling a combination of both goods and services. Competitive advantage is one outcome of this shift. Nowadays more and more companies across almost all sectors are proceeding towards this shift to attain an SCA by providing unique service along with goods to satisfy their customers (Bustinza et al. , 2015)Customer engagement as a source of SCA This type of strategy is generally used in the B2B or B2c environment. The main purpose of this strategy is to actively engage customers with the firm to achieve an SCA. This can be implemented by various customer-based activities, i. e. , customer feedback, customer referrals, customer purchases (Gupta, Lehmann, and Stuart 2004), customer influence, and customer knowledgeCustomer referrals help in attracting new clients towards the firm by various marketing strategies who were earlier not interred in it (Kumar et al. 2010; Schmitt, Skiera, and Van den Bulte 2011). Existing customers have an impact on social media which in turn causes a ripple effect on attracting more clients based on customers’’ influence. (Trusov et al. 2009; Hogan, Lemon, and Libai 2003). Customer knowledge is achieved when an existing and loyal customer contributed towards the firm’s development, for example by giving continuous feedback (Joshi and Sharma 2004). Self Competition as a Source of Sca. It was observed that competitive advantage can also be gained byCompeting for the future.
Firms must not only be concerned with the present-day profitability but also consider its long term benefits as their source of SCA. To achieve this, firms must devise strategies to think about how they will compete in case their current strategy becomes obsolete and is duplicated by competitors. (Hamel and Prahalad, 1994). Cost leadership and differentiation strategy as a source of SCA. (Porter, 1980) had put forward this strategy wherein for a firm to achieve an SCA over other competing firms, it should cut its cost and keep the profit margins low. This will help to gain the trust of the mass which is mainly economic friendly. This can be achieved in three ways- high asset utilization, low direct and indirect operating cost, and controlling its value chain process. The differentiation strategy applies to an industry where the customers are not price-sensitive, they are very specific about the choices, and the firm has those unique resources to serve the customers. The firms will have a high-profit margin and customer loyalty. Here the customer is more focused on the brand value rather than the brand-cost. GAPS in the Resource Based View. Bareny (1991) suggests resources having attributes of value, rareness, inimitable and non-substituablbiliyy, He also proses two conditions for resources to achieve SCA- uncertainty and immobility. Similarly Porter’s five forces model also is based on a world that is stable (D’Aveni, Dagnino and Smith, 2010). However, this was suggested in 1991 when globalization had not entered. At present, the assumption of resource uncertainty stands valid but the second assumption stands void. This is due to easy and cheap cross-border communications and transportations facilitating quick mobility of frim resources. (Beechler and Javidan, 2007; Bloodgood and Sapienza, 1996; Stulz, 1999; Parey and Waldinger, 2011). This suggests that the assumption of imperfectly mobile factors is increasingly challenged and weakened even though some location-bounded resources or assets, such as land, remain immobile.
Therefore, a firm possessing resources or capabilities with the attributes suggested by the RBV may no longer attain a sustainable superior performance (Huang et al. , 2015). Hence firms that possess resources of attributes suggested by RBV may no longer be able to attain SCA. Also, in the RBV lacks in explain how actors come to hold those beliefs about resources. It is weak in explaining how firms create value, rarity, inimitability no substitutability (Priem & Butler, 2001). THE RBV is built on an assumption that a SCA is achieved with the help of firm resources which are available in the firm. However it does not mention scenarios where resources of SCA are not available or the firm does not control them and these resources might be owned or controlled by the some external firm than the firm needing them. This concept is explained by the Resource Dependency Theory. When the firm resources are not contained in the organization, the only option left for them to obtain SCA is outsourcing. (Kabue and Kilika, 2016). Similarly Organizational identity theory is lacks in demonstrating the shift in identity because one of the prominent characteristics of identity is its persisting nature (Albert & Whetten, 1985). Modification in identity has been observed as achievable by means of managing the gap between identity and image (Dutton & Dukerich, 1991) or by generating dynamic instability in the identity that leads to its change (Gioia, Schultz, & Corley, 2000) or via constructing a desired image that leads to change (Gioia & Thomas, 1996).
