Aspirations Of A Firm To Outperform Competitors Business Essay

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Every firm aspires to outperform their competitors. In order to do so, the firm must possess an appropriate competitive strategy and a sustainable competitive advantage to have superior performance. The resource-based view explores the accessibility of valuable resources to form strategy for improved firm performance (Sheehan and Foss, 2007). This view emphasises more on the internal environment of the firm itself. When the resource-based view is used to develop the firm's strategy, the management's involvement and capabilities are important. A framework is explained on how RBV is best used to create strategy for maximum performance. For corporations to operate in a dynamic environment, capabilities developed under the resource-based view such as management capabilities are vital (Prahalad and Hamel, 1990; Zubac et al., 2009; Andersen, 2010). However, scholars, such as Porter (1979), claim that the analysis focusing on the external environment is important when formulating strategy. Furthermore, the firm can have competitive advantage and create value if the resource-based view is utilised. According to Pertusa-Ortega et al. (2010), proper usage of resources and capabilities can lead to creation of competitive advantages. Nevertheless, other researchers have asserted that resource-based view leads to competitive disadvantage instead. Hence, the best method a firm should employ is to adopt both the resource-based view and external environment to achieve superior performance.

2.0 Introduction

A critical analysis has been carried out concerning the relationship on the resource-based view, a concept which looks more unto the firm's internal environment or also known as the inside-out approach (Henry, 2008), with the firm's performance in achieving a sustained competitive advantage. From the analysis, it is concluded that the best method a firm should adopt is by utilising the resource-based view while also concentrating on the external environment as well. Both the internal and external environments are important as they influence the firm's performance (Fahy, 2000). This report will mainly focus on the resource-based view itself. Therefore, this report comprises of the evaluation on the resource-based view as the most appropriate method on strategy formulation and whether this concept actually helps to achieve a sustainable competitive advantage. Real-life examples are provided on firms outperforming their rivals. Then, the report will conclude by restating my stand on this matter.

3.0 Analysis

The aim of every profit-oriented organisation is mainly to achieve profit or even better, supernormal profit. Companies have to develop a strategy as the management's plan to attain such results. Fahy (2000) explains that strategy involves complex competitive moves by the firm and the firm's responses toward competitors' moves in order to be in a position of advantage. He further continues to state that it is actually an effort by an organisation to have sustained competitive advantage (SCA) over its competitors. According to DeSarbo et al. (2007), the appropriate strategy is crucial to have better firm performance. Therefore, the resource-based view (RBV) can be utilised as one method to recognise the availability of strategic resources in an organisation that the organisation can use as a basis for its formation of strategy (Sheehan and Foss, 2007).

The resource-based view generally requires four important elements that must be possessed by the organisation's resources. The firm's resource must be valuable, rare, cannot be imitated and cannot be substitutable by other firms (Barney, 1991; Collis and Montgomery, 1995; Clulow et al., 2003; DeSarbo et al., 2007) so that the organisation will be able to carry out better strategies (Ketchen et al., 2007). The organisation can achieve SCA when it has ownership and distinguishes its valuable resources with successful development and utilisation (Clulow et al., 2007). Fahy (2000) emphasises that the RBV must have important components that include SCA to achieve outstanding performance, attributes of resources that provide the firm with leverage and ability for the management to have strategic options. This shows that having a sustainable competitive advantage is necessary to develop a successful strategy under the resource-based view. According to Pertusa-Ortega et al (2010), RBV focuses on the internal environment in which researchers can change the perception of strategy and structure by examining the firm's structure as an important resource and the basis of competitive advantage. Other economists have explored further into RBV by explaining that it is essential for the firm to have heterogeneous resources (Fahy, 2000) and the resources should be immobile so that the heterogeneity could be maintained for a long-term (Barney, 1991; Clulow et al., 2003). A firm can have heterogeneity in their performance and sustained profitability when they have a variation of resources as well as capabilities (DeSarbo et al., 2007; Bakar and Ahmad, 2010).

In the resource-based view, a firm needs valuable resources to obtain competitive advantage in order to develop a wining strategy. This is in line with the study by Pertusa-Ortega et al. (2010). In order to achieve superior performance, the management must transform the organisation's important resources to be of SCA (Fahy, 2000) by utilising a mixture of various resources and capabilities (DeSarbo et al., 2007). Thus, it is crucial in RBV that the firm has a variety of resources and to make use of that range of resources with the firm's capabilities in order to develop a winning strategy to achieve high performance. Furthermore, this analysis does not look at the firm's individual resources by itself but actually examine bundles of resources which create advantages. Such resources are categorised into three categories that are tangible resources, intangible resources and capabilities (Fahy, 2000). This is in accordance with the study by Zubac et al. (2009) which notes that RBV clarifies the variance in performance of organisations as it rationalise that a high performing organisation constitutes of bundles of resources which the said organisation can be of a favourable position.

The benefit of using the resource-based view analysis is that this approach is comprehensively relevant (Sheehan and Foss, 2007; Anderson, 2011). It is general and covers many areas for firms to develop their strategies. RBV is beneficial for corporations as it is able to easily explain the differences in rival companies' profits, ways to carry out core competencies and ways to create appropriate diversification strategies (Collis and Montgomery, 1995). Meanwhile, Porter's concepts which focus on the external environment such as his five forces do not describe the means for corporations to gain superior strategic performance (Sheehan and Foss, 2007). RBV includes the need for management capabilities to exploit the firm's core competencies to develop strategy and is suitable to be used in a dynamic environment. Management capabilities, in relation to RBV, are crucial in such changing environment (Prahalad and Hamel, 1990; Zubac et al., 2009; Andersen, 2010).Collis and Montgomery (1995) further explain that inimitability cannot be sustained indefinitely. Therefore, managers' involvements are crucial to deter competitors from copying their resources by developing strategies on strategic resources. Prahalad and Hamel (1990) emphasise that RBV concentrates on core competencies which underpins the matching of the corporation's range of manufacturing and technological abilities that develops a distinctively cohesive system which competitors are unable to imitate. Core competencies are not easy to have and be copied by rivals as these are activities which provide competitive advantage (Johnson et al., 2008). With core competencies, firms can mix and remix its dynamic capabilities to manage strategic issues (Zubac et al., 2009).

Grant (1991) suggested a framework which starts by identifying and organising the firm's resources and then recognising capabilities which the firm can do better than its competitors. Next, the firm must then assess resources and capabilities that can generate rent in terms of SCA and returns appropriation. Subsequently, the firm has to choose a strategy which takes most advantage of the resources and capabilities (Grant, 1991). Finally, the firm can opt for further investment to enhance its resource base if there is any resource gap. This shows that the resources and capabilities of a firm, important elements in RBV, are the backbone to developing the best strategy. Both elements present the fundamental route to form strategy and they are the prime source of profit generation (Henry, 2008). Therefore, Grant (1991) explains that a firm utilising RBV to develop a strategy must understand the links between the firm's resources, capabilities, SCA and performance.

However, there are some setbacks of RBV on strategy development. According to Sheehan and Foss (2007), the broad generalisation of this model indicates insufficient explicit explanation. This model is worded in vague terms and this concept is assumed that it can be used to resources wherever in the organisation (Sheehan and Foss, 2007) for strategy development. Hence, it is not clear enough to identify how this concept influences value creation thus creating strategy. Additionally, Porter (1979) states that strategy formulation could also be considered as creating resistance against competitive powers as well as entering into industries with lowest powers. He further emphasises that the most essential factor in formulating strategy is the degree of competitive forces as they greatly influence the firm's performance (Porter, 1979). This shows that Porter recognises the external environment as an important determinant to develop strategy. This contradicts with RBV which mainly focuses on the internal environment and little for the external environment for strategy creation (Clulow et al., 2003). Porter (1979) also explains that strategy can be developed by manipulating the competitive forces via strategic actions. However, RBV is not able to follow Porter's notion as it does not influence the external forces to create strategy.

To explore firms outperforming its competitors, this can be seen in the study on Walmart. Walmart practices the resource-based view model. According to Pottabathni (2009), Walmart concentrates on its competitive advantages which are differentiation feature, cost leadership and focus. By following RBV, the organisation's valuable resources and capabilities contribute a lot towards its market performance. Ketchen et al (2007) remarks that the firm will gain competitive advantage which improves performance only if that firm exploits its strategic resources. Walmart undoubtedly have been fully capitalising on its resources as it has outperformed its competitors. This can be clearly seen in Walmart US' operating income of $19.522 billion (Walmart Corporate, 2010) for the year ended 31 January 2010 as compared to Kmart's operating income of $190 million for the same fiscal period (Sears Holdings Corporation, 2011). Even Sears Holdings, the parent company of Kmart, generated $713 million only (Sears Holdings Corporation, 2011). There is a huge margin of difference in operating income between those companies considering Kmart used to be a market leader in the retail industry before Walmart entered. As stated by Pottabathi (2009), Walmart's capability is its outstanding logistics. This corporation has spent a lot on its logistical structure, a strategic investment, in which it can concentrate meeting consumers' demands (Stanford, n.d.). As such, Walmart does have dynamic capabilities as Newbert (2007) notes that firm can only gain such capabilities is the firm not only own but also fully utilise such resources. With RBV, Walmart kept developing its competencies while Kmart consistently outsourced when it was economical (Stanford, n.d.). Walmart runs on a low price strategy. Walmart purchases products at very low prices that this enable them to sell products at lower prices which increase their profit as there is higher sales because it serves 100 million shoppers weekly (Pottabathi, 2009).

Attaining competitive advantage is essential if the firm wants to outperform its competitors. Thompson (2010) notes that a firm can generate supernormal profits when it has a uniquely creative strategy which enables it to stand out from competitors and the firm produces a competitive advantage. Barney (1991) explains that competitive advantage is to carry out a strategy which makes value and is not currently carried out by the firm's possible rivals. However, possessing SCA is more beneficial to the firm. This is because SCA extends competitive advantage further as it is described as the firm's competitors being incapable to copy the advantages of its strategy (Barney, 1991). Then, Thompson (2010) also explains that a corporation will have SCA when there is a large customer base which selects the corporation goods or services instead of its rivals' goods or services and it has a lasting preference. With core competencies, activities which give competitive advantage (Johnson et al., 2008) and manage a range of skills while integrating several streams of technologies (Prahalad and Hamel, 1990), can provide value to customers and the firm.

The resource-based view analysis can be used for a company to achieve competitive advantage. In fact, Pertusa-Ortega et al. (2010) says that this analysis can explain the basis of SCA better as compared to an industry environment analysis. Collis and Montgomery (1995) state that competitive advantage can be traced back to the possession of valuable resources in which the firm can carry out its operations more effectively and efficiently than its rivals. Firms like Marks & Spencer has many different resources in which the firm has utilised it well leading to competitive advantages such as brand loyalty by buyers recognising the brand with little marketing efforts (Collis and Montgomery, 1995). Marks & Spencer also developed expertise strength on capabilities managing its supplier chain which resulted in reduced cost while maintaining high quality products which leads to differentiation. Subsequently, Zubac et al. (2009) explain that in order for the organisation to obtain differentiation competitive advantage, it must have a process which is very challenging to be copied as to create SCA. According to DeSarbo et al. (2007), management capabilities are important in achieving SCA and long-term success in which Andersen (2011) also noted the importance of companies having managerial ability in order to utilise the strategic resources for SCA. It is important to incorporate human resource management capabilities with strategic management to create SCA (Andersen, 2010). Thus, it is necessary for a corporation to differentiate its product offerings in a manner that the buyer values (Bowman and Ambrosini, 2009).

However, an organisation may attain competitive advantage but it may not always lead to a much greater performance (Andersen, 2011). Thus, a firm using RBV to achieve competitive advantage may end up with competitive disadvantage instead. Collis and Montgomery (1995) explain that specialised resources are important to achieve competitive advantage; however, these resources become less valuable once it is transferred to a different area. The brand name of Shell would not do well beyond the autos and energy industry even though it is valuable in both industries (Collis and Montgomery, 1995). Some firms may perceive that by having valuable resources, they can easily achieve SCA. Nevertheless, it is difficult to possess and utilise valuable resources to gain SCA as value creation then depends on the buyer's needs (Toms, 2010). With RBV, Fahy (2000) then claims that the firm will certainly not be able to recognise its 'best' resource and the main cause of SCA.

4.0 Conclusion

All firms aspire to outdo their competitors to achieve superior performance strategically and financially. As such, attaining a sustainable competitive advantage is very much desired by every firm. Numerous researchers have maintained that the firm's key distinctive capabilities are the basis to a winning strategy in which the firm can then attain SCA (Pertusa-Ortega et al., 2010). The findings show that choices made regarding the organisation's structure and competitive strategy are crucial to obtain competitive advantage and enhance performance. Therefore, I believe the best concept that a firm should adopt is by integration of an analysis which investigates both internal and external environment. A firm can utilise the RBV while also giving as much attention onto the external environment. With this method, the firm can cover all essential areas related to resources, activities and business processes whilst still taking into account the industrial environment. This is important as firms that disregard the industry environment will run the risk of capitalizing resources which generates low income (Collis and Montgomery, 1995). In fact, Collis and Montgomery (1995) argue that RBV brings together the analysis of the firm's internal environment with the external environment. Yet, some researchers say otherwise. As such, I once again stress that RBV should be employed while equally emphasizing on the external environment.