Frameworks Used To Analyse Competitive Advantage
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Question
What frameworks can be used to analyse a company’s competitive advantages?
Answer
There are a number of frameworks that can be used to analyse a company’s competitive advantage.
Michael Porter has suggested two frameworks that can help in analysing a company’s competitive advantage. One such framework is Porter’s Generic Strategies model. This can be used to analyse the type of strategy a company is pursuing in order to attain competitive advantage. There are three generic strategies; cost leadership, cost focus and differentiation. Another of Porter’s models that can help to analyse competitive advantage is Porter’s Value Chain. Value chain analysis helps to identify where a company specifically adds value to a product or service that customers value. Identifying the value making activity can help to show how a company can achieve competitive advantage.
Jay Barney is another academic who has suggested two frameworks that can help analyse competitive advantage. Both models are used to assess the internal resources that a company has in order to find out if they will allow them to establish a competitive advantage over rivals. The original framework, proposed by Barney in 1991, was called VRIN. According to the framework, for a resource to be considered as able to generate competitive advantage, a resource must be: Valuable, Rare, imperfectly Imitable and Non-substitutable. In 1995 Barney updated the framework to the following criteria: Valuable? Rare? Costly to Imitate? And is a firm Organized to capture the value of the resources? This framework is called the VRIO framework. Just like the VRIN framework a resource needs to meet all four of the criteria to be considered as a resource that will allow for sustained competitive advantage.
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