The objective of strategic planning is to achieve, sustain and enhance the competitive advantage. Within an industry some businesses are more successful than others because they have resources that are inherently different from those of their competitors, who furthermore cannot easily acquire these resources. Businesses should therefore try to acquire or develop such unique resources in order to attain competitive advantage (see Chart 6.2).
The following techniques can be used to identify unique resources and ascertain whether these resources will result in a competitive advantage. You can use them jointly or select the one best suited to your purpose. Many of the concepts used are similar, and the difference between one method and another is in the approach to analysis rather than anything fundamental.
Key differentiators and unique selling points
Each business is likely to have some unique attributes that differentiate it from its rivals.
Although the concept of a unique selling point (usp) is more related to marketing tactics, it can be associated with a fundamental difference that cannot be easily replicated by competitors.
To achieve competitive advantage, a business should leverage its key differentiators. A key differentiator does not have to be a financial asset. For example, a name such as Air France gives the airline an advantage when competing in the air-transport market to and from France but not when competing for traffic between Amsterdam and London. This is an important consideration in the context of the consolidation of the European airline industry. Another example is a company with rights to a brand or patent which it might be able to exploit.
Do not forget that a differentiator can also be a problem. For example, a company with a near monopoly position, such as an electricity supplier, may be heavily regulated and have
Source: Fahy, J. and Smithee, A., “Strategic Marketing and the Resource Based View of the Firm”, Academy of Marketing Science Review, Vol. 1999, No. 10, 1999
Chart 6.2 Resource-based model of sustainable competitive advantage
Management strategic choices Resource identification Resource development/protection Resource deployment
Key resources
Tangible assets Intangible assets Capabilities Value
Barriers to duplication Appropriability
Superior performance Sustainable
competitive advantage
Value to customers
Market performance Customer performance
little freedom to set prices. It may be forced to separate its business into a part that deals with power generation and distribution and a part that deals with retailing. Many telecoms operators and pharmaceutical companies find themselves in a similar position because they have a dominant market share or unique access to patents for medicines, such as drugs to combataids.
Start by making a list of your key differentiators. The next section describes a structured framework for analysing these and deciding whether they can be a basis for competitive advantage.
VRIO analysis
To conduct a resource-based analysis of a business, Jay Barney proposed a structured approach based on analysing whether a resource is Valuable, Rare and Imitable, and whether the Organisation is taking advantage of the resource.1
Valuable.A resource is valuable if it can be used, for example, to increase market share, achieve a cost advantage or charge a premium price. This question has to be answered first because a resource that is not valuable or is irrelevant cannot be a source of competitive advantage.
Rare.Rarity is important because if competitors possess the same resources, there is no inherent advantage in the resource. Of course, different businesses can configure the same resources differently to achieve competitive advantage, but this is not the focus of the resource-based view of the firm. If a valuable resource is not available to all competitors it is “rare” and therefore a potential source of competitive advantage.
Imitable.It must be difficult or expensive for competitors to imitate or acquire the resource. This can apply to patents and copyright, but also to other forms of
resources, such as brand perception. Although it is possible to change a brand and the perception of it, rebranding is expensive. If a resource is easy to imitate it confers only a temporary competitive advantage, not a sustainable one.
Organisation.A business must be capable of taking advantage of the resource. If a resource is valuable, rare and difficult to imitate, a business must be able to exploit it, otherwise it is of little use. This may require reorganising the business.
The vrioanalysis framework shown in Chart 6.3 on the next page links the vrioresource analysis with the competitive advantage, the likely economic impact on the business and what this means in terms of the swot(strengths, weaknesses, opportunities and threats) analysis (see Chapter 9).
Resource-based view of the firm 43
Core competencies
The concept of core competencies has two facets and they often overlap. First, one business may be better than another in running some aspects of the business; in other words, one business is more competent in key areas. These are organisational core competencies. Second, in order to fulfil their primary purpose, businesses generally carry out a range of core activities as well as support or peripheral activities.
Core competencies are identified in several ways:
They are identified as a strength in the swotanalysis.
The human resource audit identifies particular know-how within the business.
Value add analysis identifies the activities where most of the value add activities take place.
Organisational core competencies Core competencies are
a set of differential technological skills, complementary assets, and organisational routines and capacities that provide the basis for a business’s competitive capacities in a particular business.2
Once core competencies have been identified, managers can deploy resources to
strengthen and develop them. The four dimensions of core competence are qualifications, norms and values, organisational competence and managerial competence (see Chart 6.4).
Source: Based on Barney, J.B., Gaining and Sustaining a Competitive Advantage, Addison-Wesley, 1996
Chart 6.3 VRIO analysis framework
Resource characteristics Strategic implications
Valuable Rare Costly to
imitate
Organisation exploits it
Competitive implication
Impact on economic performance
SWOT category
No
Yes
Yes
Yes
–
No
Yes
Yes
–
–
No
Yes
Competitive disadvantage Competitive
parity Temporary competitive advantage Sustainable competitive advantage
Below normal
Normal
Above normal
Above normal
Weakness Weakness or
strength Strength and core
competence Strength and long-term core
competence No
Yes
An activity or human resource may be a core competence because it confers a unique competitive advantage. For example, a food retailer may have a unique ability to pick sites for its stores. Managing a property portfolio does not need to be a core activity for a food retailer, but in this case the retailer derives a significant advantage from it because once a particular site has been acquired, it is not available to a competitor. Therefore store site selection and acquisition is a core competence.
As businesses become more knowledge based, the importance of core competencies increases. Some businesses, such as consulting firms, are almost exclusively defined by the competencies of the individuals in the organisation and how they relate to each other.
Core activities
Focusing on core activities has been a management mantra for some time. In recent years, many companies have outsourced non-core activities. For example, many companies that previously ran their own staff canteen or employed cleaning staff now engage contractors to provide these services, and others have outsourced theiritdepartment. This concept of core competencies is associated with “organisational focus” and “the lean organisation”, the idea being that resources should be concentrated on where they achieve the greatest effect. However, this strategy also increases risk, notably because of the increased dependency on suppliers or contractors.
In the context of a business plan, ask whether some of the planned activities are really core, particularly if investment is required to perform them. Funding is always scarce. By focusing on core activities, available funds can be concentrated on these, thus decreasing the risk of a funding gap.
Strategic implication of core competencies
The overlapping of organisational core competencies and core activities comes about because a business should focus on the activities at which it is most competent. For example, a group of investment bankers setting up a new specialist investment bank may
Source: Leonard-Barton, D., “Core Capabilities and Core Rigidities: A Paradox in Managing New Product Development”, Strategic Management Journal, Vol. 13, 1992
Chart 6.4 The four dimensions of core competence
Qualifications
Norms and values
Organisational competence
Managerial competence Qualifications
Norms and values
Organisational competence
Managerial competence
Resource-based view of the firm 45
be excellent bankers, but they may have little knowledge of running an office, or payroll and itsystems. They may decide to outsource these non-core activities and concentrate on doing what they are most competent at: the business of investment banking.
If a business’s core activity is closely aligned with its core competencies, these become a factor that enables it to achieve competitive advantage. In contrast, non-core activities cannot leverage core competencies.