The Link Between Strategy And A Sustainable Competitive Advantage

Introduction

Nowadays, the business environment is changing more than ever (Wangchuk Chungyalpa & Bedanta Bora, 2015). These changes could be devoted to the fact the world is becoming increasingly knowledgeable, due to the availability of resources such as the internet. However, not only resourcessuch as the internet compose these changes. Globalization is another factor that stimulates a fast pace in social, political, economic, and technological forces (Gunter & Van der Hoeven, 2004). According to Cigno, Rosati, and Guarcello (2002), globalization is ‘The process by which an increasing share of world production is traded internationally, and the productive systems of different countries become increasingly integrated’ (p. 1579). In short, globalization is the process of expansion and growth all over the world.

Considering these rapid changes of knowledge and globalization, one can say that it is crucial for companies to continuously look at strengths, weaknesses, opportunities, and threats (Daraboš Longin, 2016). In advance, Burke and Litwin (1992) state that ‘Change is mostly initiated by forces from the organization’s external environment’ (p. 529-530). Logically, companies should closely look at the opportunities and threats in their business environment. One of those threats is the growing competition of other companies from all over the world. To keep up with the competition, is it important for companies to constantly adjust themselves to the changes in their specific business environment (Wangchuk Chungyalpa & Bedanta Bora, 2015). Additionally, it is vital for firms to adjust to the needs and wants of its stakeholders (Servera-Francés & Fuentes-Blasco, 2016).

For companies to adjust themselves to the specific needs and wants of stakeholders, and to keep up with competition, companies need to aggressively and proactively undertake actions (MacMillan, 1989, as cited in Daraboš Longin, 2016). Moreover, they have to be able to develop and follow a structured plan of action in order to survive (Wangchuk Chungyalpa & Bedanta Bora, 2015). This is where strategy comes to the fore.

In this paper, the focus will be to examine the link between strategy and a sustainable competitive advantage. I argue that the creation of a strategy in today’s hyper-competitive market could lead to obtaining a sustainable competitive advantage for a company. This paper is divided into four sections. Firstly, the concept of strategy will be explained in more detail to create a clear view of the subject. As part of this chapter, innovation and relationship management will be discussed. Secondly, the concept of a sustainable competitive advantage will be described. Thirdly, the link between the two of them will be examined. Fourthly, the main findings of this paper will be summarized and lastly, the main findings will be put up for discussion and limitations will be described.

Strategy

Generally, strategy is considered to be a complex concept, as it can differ from company to company (Mintzberg, Ahlstrand & Lampel, 2009, as cited in Wangchuk Chungyalpa & Bedanta Bora, 2015). Although the concept of strategy can be confusing, some researchers attempt to clarify the idea of strategy. According to Wangchuk Chungyalpa and Bedanta Bora (2015) strategies can be defined as ‘plans to achieve organization’s objectives and goals’ (p. 74). Likewise, strategy can be used to realize firm’s desired results (Wangchuck Chungyalpa & Bedanta Bora, 2015). Daraboš Longin (2016) elaborates further on this definition, by stating that strategy involves possible behaviours of a firm regarding their stakeholders. Additionally, there are some researchers who claim that strategy can be seen as relationship management between a company and his stakeholders (Peck & Jüttner, 2000). Due to the complexity of strategy, Kotler and Keller (2006) have identified five pillars for a strategy to be useful. Those five pillars are: plan, pattern, position, perspective, and ploy (Kotler & Keller, 2006). Plan is the most vital, as it refers to the path of action in the future (Wangchuk Chungyalpa & Bedanta Bora, 2015). The P of Pattern regards consistent behaviour over time, position concerns the industry in which the firm operates, perspective refers to the vision in a company, and ploy to their manoeuvres (Kotler & Keller, 2006). The five pillars can be seen as gripe in developing an effective strategy (Kotler & Keller, 2006). The five pillars to create an effective strategy of Kotler and Keller (2006) and the multiple definitions of strategy clarify that in order to develop a decent strategy, a company must evaluate the internal business environment as well as the external business environment (Mintzberg, 1994, as cited in Wangchuk Chungyalpa & Bedanta Bora, 2015). In other words, in order to make a clear plan of action, a company must know what the current internal and external situation is (Wangchuk Chungyalpa & Bedanta Bora, 2015).

On the one hand, evaluating the internal business environment concerns the assessment of a company’s strengths and weaknesses (Barney, 1991). Moreover, it involves the evaluation of a company’s available resources and dynamic capabilities (Barney, 1991; Eisenhardt & Martin, 2000). Resources can be defined as all possessions of a company that could advance the efficiency and effectiveness of that company (Daft, 1983, as cited in Barney, 1991). Dynamic capabilities could be described as the antecedents of resources, as dynamic capabilities could combine different resources in to processes that are adjusted to the market changes (Eisenhardt & Martin, 2000).

Additionally, Winter (2003) states that ‘dynamic capabilities typically involve long-term commitments to specialized resources’ (p. 993). Thus, dynamic capabilities do not arise instantly. On the other hand, the assessment of the external business environment concerns the estimation of external factors, so not the company’s resources or dynamic capabilities, that could influence either the performance or profitability of a company (Thompson & Strickland, 2001, as cited in Wangchuk Chungyalpa & Bedanta Bora, 2015). Hence, the evaluation of the external business environment regards opportunities and threats (Barney, 1991). When a company succeeds in assessing both the internal and external business environment, an effective plan of action to achieve a company’s specific goals could be developed (Wangchuk Chungyalpa & Bedanta Bora, 2015). However, when does a company succeed in assessing the internal and external business environment?

As mentioned above, the evaluation of a company’s external business environment concerns considering external factors that could influence a company’s performance or profitability (Thompson & Strickland, 2001, as cited in Wangchuk Chungyalpa & Bedanta Bora, 2015). Examples of those external factors could be technological developments, demographic changes or economic variations (Wangchuk Chungyalpa & Bedanta Bora, 2015). The key to successfully evaluate the external business environment, is to monitor that business environment carefully (Kotler & Keller, 2006, as cited in Wangchuk Chungyalpa & Bedanta Bora, 2015). The assessment of a company’s internal business environment concerns the assessment of their internal resources and dynamic capabilities (Barney, 1991; Eisenhardt & Martin, 2000). Barney (1991) argues that a for a resource to be successful, it should have four characteristics. Resources should be rare, valuable, imperfectly imitable, and non-substitutable (Barney, 1991). Eisenhardt and Martin (2000) claim that resources are the foundation of unique valuable strategies. Additionally, they consider dynamic capabilities as ‘the drivers behind the creation, evolution, and recombination of other resources into new sources’ (Eisenhardt & Martin, 2000, p. 1107). However, people tend to think of resources and dynamic capabilities if as they are unlimited, while in fact, they are exhaustive (Johnson & Williams, 2017). To explain why resources and dynamic capabilities are not always unlimited, a simple example is used. Time could be a resource, while it could improve the efficiency of a company, the effectiveness of a company, or both of them. Still, time is not unlimited.

Therefore, in order to keep up with changes in the external business environment, for resources to simply ‘stay a resource’, for the resources to be rare, valuable, imperfectly imitable, and non-substitutable, and for dynamic capabilities to arise, innovation is needed (Nelson, 1991, as cited in Hagendoorn & Duysters, 2002). Moreover, in this dynamic business environment innovation is crucial to strategy (Zhou, Kin, & Tse, 2005, as cited in Rangus, 2017). 2. 1 Strategy and innovation Although the definitions of strategy have been discussed widely in this paper, one definition is left to be added. Porter (1980, as cited in Wangchuk Chungyalpa & Bedanta Bora, 2015) refers to a strategy as ‘delivering a unique mix of values by pursuing sets of activities that are different from the competitors’ (p. 76). In order to deliver this unique mix of values, other than the mixes of competitors, innovation is necessary (Nelson, 1991, as cited in Hagendoorn & Duysters, 2002). Yet, what exactly is innovation?

According to Addison (2016, as cited in Rangus, 2017) ‘Innovation is all about making new decisions’ (p. 62). In other words, innovation is about renewing, and adjusting a company to a company’s target market (Rangus, 2017). Hence, the general idea of innovation is the exploitation of internal sources, the exploration of knowledge and technology, and the cooperation with external partners or stakeholders (Rangus, 2017). Subsequently, innovation does not necessarily only have to be radical (Coca & Stefan, 2016). Besides developing new products or services, innovation can also be a small adjustment to a technical progress (Coca & Stefan, 2016). Additionally, Ionescu (2015, as cited in Coca & Stefan, 2016) state that ‘innovation is, for the present society, the most important way of economic growth and improve the overall performance of the business’ (p. 313). In other words, innovation can be used as a tool to increase the functioning of a company.

Looking at these definitions, the general idea of innovation can be clearly understood. Moreover, companies have to understand the significance of innovation because of the continuously changing markets (Patton, 2014, as cited in Coca & Stefan, 2016; Rangus, 2017). Furthermore, Coca and Stefan (2016) add that ‘Innovation allows companies to gain a competitive advantage through a continuous process of innovation’ (p. 314). Accordingly, companies must constantly seek for innovation to hold their resources and dynamic capabilities up-to-date (Nelson, 1991, as cited in Hagendoorn & Duysters, 2002). That continuous process of innovation, requires a company to connect with their stakeholders (Peck & Jüttner, 2000). Moreover, innovation and relationship management could be the key to the development of a clear strategy (Rangus, 2017; Del Rowe, 2017). 2. 2 Strategy and relationship management Companies have to recognise that the needs and wants of their stakeholders are constantly changing (Servera-Francés & Fuentes-Blasco, 2016). In order to keep up with the needs and wants of stakeholders, it is important to apply relationship management with stakeholders (Peck & Jüttner, 2000). Relationship management can be described as preserved engagement between a company and the company’s stakeholders (Del Rowe, 2017). For relationship management to succeed in today’s hyper-competitive market, personalization is needed (Del Rowe, 2017). However, is relationship management so crucial?

Stakeholders, such asemployees, shareholders, suppliers, and communities, are those who are of interest for a company. Logically, a company could never survive without stakeholders. Hansen and Bunn (2009) approve this by stating that ‘the success of a firm is a function of its ability to satisfy stakeholder demands’ (p. 200). Neely, Adams, and Kennerly (2002) elaborate that ‘If companies do not give their stakeholders the right level of focus, both their corporate reputation and their market capitalisation, are likely to suffer in one way or another’ (p. 97). Logically, a company should do their utmost to satisfy the wishes of stakeholders (Servera-Francés & Fuentes-Blasco, 2016).

Stakeholders are becoming more knowledgeable. That knowledge makes the stakeholders become more demanding than ever (Del Rowe, 2017). Dolphin (2004) even states that ‘Failure to meet the expectations of stakeholders, may well have a negative impact on a business’ (p. 79). Therefore, it is has become increasingly important over time to fulfil these demands. Personalization is a method to create a feeling that the demands of stakeholders are been taken seriously. Moreover, it is a tool to create custom-made services (Del Rowe, 2017). Furthermore, Dolphin (2004) claims that stakeholders could be helpful in the reflection of an organization. He states that ‘the perception of the quality of the firm through the eyes of its stakeholders, could benefit the organization’ (p. 79).

Thus, companies should apply relationship management, firstly because it could be helpful for the organization (Dolphin, 2014). Secondly, to identify which innovations they should employ for their stakeholders to be satisfied (Servera-Francés & Fuentes-Blasco, 2016). In conclusion, relationship management could be the key to innovation, and therefore in creating a clear strategy (Del Rowe, 2017; Hansen & Bunn, 2009; Servera-Francés & Fuentes-Blasco, 2016).

Sustainable Competitive Advantage

A clear plan of action to realize goals or in short, a strategy, could be a source for a competitive advantage (Daraboš Longin, 2016). As said before, a competitive advantage is needed to survive in a world that is changing. However,Daraboš Longin (2016) claim that ‘maintaining a competitive advantage is becoming increasingly difficult’ (p. 667). Therefore, it is crucial for companies to look at obtaining a sustainable competitive advantage.

Magretta (2002, as cited in Wangchuk Chungyalpa & Bedanta Bora, 2015) states that ‘Strategy is a way to differentiate oneself from the competitors and hence, gain an advantage over the competitors in focused areas’ (p. 74). In short, a company that can create a decent strategy, could obtain a sustainable competitive advantage over other companies (Daraboš Longin, 2016). To comprehend this statement, it is important to understand what exactly is a competitive advantage, and what the difference is between a competitive advantage and a sustainable competitive advantage. Barney (1991) defines a competitive advantage as the implementation of a strategy to create value that is not implemented by any other competitors of a company at the same time. Porter (1990, as cited in Weerawardena and Sullivan-Mort, 2000) adds that ‘firms create a competitive advantage by conceiving new ways to conduct activities’ (p. 1388). Moreover, once a company implements a value-creating strategy that is not implemented by others at the same time, and when the other competitors are not able to replicate the benefits of the value-creating strategy, one can say that a company could obtain a sustainable competitive advantage (Barney, 1991; Daraboš Longin, 2016). Thus, when a company would like to obtain a sustainable competitive advantage, the company should develop a strategy that adds value and that is not replicable (Daraboš Longin, 2016). Such a strategy can only be created, when using innovation (Weerawardena & Sullivan-Mort, 2000). 4. 0 The link between strategy and a sustainable competitive advantage

Daraboš Longin (2016) argues that when a firm has a clear strategy in today’s competitive market, firm performance will increase, and a sustainable competitive advantage could be established. However, other researchers disagree by stating that business strategies are becoming obsolete and companies should not focus on creating business strategies anymore (Thompson, Arthur & Strickland, 2001, as cited in Wangchuk Chungyalpa & Bedanta Bora, 2015). Looking back at the previous chapters it has been proven that, for a competitive advantage to be sustainable, a company should create a strategy that is valuable and not replicable (Barney, 1991). For a strategy to become valuable and not replicable, it is important to evaluate both the internal as well as the external business environment (Wangchuk Chungyalpa & Bedanta Bora, 2015).

Regarding the external business environment, it is crucial to look at external factors that could influence the performance and profitability of a company (Thompson & Strickland, 2001, as cited in Wangchuk Chungyalpa & Bedanta Bora, 2015). In the internal business environment, a company must evaluate his own resources as well as dynamic capabilities (Barney, 1991; Eisenhardt & Martin, 2000). Resources should be rare, valuable, imperfectly imitable, and non-substitutable (Barney, 1991). However, it must be noted that resources are not always exhaustive. In order for resources to have those four characteristics, a company should continuously seek for innovation. Hence, a company should apply relationship management as it fuels the right innovations that satisfy the needs of all stakeholders, in a market that is changing more than ever (Coca & Stefan, 2016; Rangus, 2017; Del Rowe, 2017).

Discussion and Limitations

This paper examined the link between strategy and a sustainable competitive advantage. The results have shown that a strategy could indeed lead to obtaining a sustainable competitive advantage (Daraboš Longin, 2016). Furthermore, Wangchuk Chungyalpa and Bedanta Bora (2015) claim that ‘Strategy no doubt occupies a prominent place in all business organizations’ (§82) and I agree, even though some researchers are believing that strategy is losing significance. Without a plan of action, a company would lose track instantly. Without a plan of action to achieve goals, a company would not survive, not even for a day. However, for that strategy to eventually lead to a sustainable competitive advantage, it must be a strategy that is valuable and not replicable (Barney, 1991). Hence, if a company just implements whatever strategy it would like to implement without engaging stakeholders, and without looking at innovation, it would not lead to a sustainable competitive advantage (Wangchuk Chungyalpa & Bedanta Bora, 2015). Furthermore, the results of this study are based on several studies that have been combined. Thus, this study is based on a literature review. Therefore, it is difficult to generalize the results over the whole population. Hence, the results should be viewed with caution when conducting further research. Additionally, the results of this study are collected using different methodologies, which also make it difficult to generalize them. Although the results cannot be generalized over the whole population, I still believe that strategy is the key to creating a sustainable competitive advantage. However, the strategy must be relevant, and in order for a strategy be relevant, companies should evaluate their business environment with caution. Furthermore, they should take the effort to create stakeholder relationships and continuously seek innovation (Coca & Stefan, 2016; Rangus, 2017; Del Rowe, 2017). Further studies could examine which strategies are suitable for specific branches, because different branches ask for different strategies. Since, in the end, a strategy has to be custom-made in order for it to be effective, and for it to eventually become a source for a sustainable competitive advantage.