Academic journal article IUP Journal of Business Strategy

Factors That Contribute towards Competitive Advantage: A Conceptual Analysis

Academic journal article IUP Journal of Business Strategy

Factors That Contribute towards Competitive Advantage: A Conceptual Analysis

Article excerpt

Introduction

Competitive advantage decides the fate of a business. It grows fundamentally out of the value a firm is able to create for its customers that exceeds the cost of creating the value (Porter, 1985). On the other hand, it has also been inferred that competitive advantage is the assessment of the firm's capabilities and market position with regard to the advantage it achieves in relation to competitors (Hay and Williamson, 1991). While there has been considerable research on competitive advantage, it is still not an easy task for a firm to pinpoint the factors that lead to competitive advantage. The aim of this paper is to analyze the factors that contribute towards competitive advantage.

There is a strong relationship between competitive advantage and strategy. It can be said that strategy is the means by which a firm gains competitive advantage (Aharoni, 1993). Therefore, the manner in which a firm manages its strategy does have a strong bearing on its competitive advantage. One of the fundamental aspects of creating competitive advantage is to focus on doing things in a unique manner. A firm can have competitive advantage when its value creating strategy is not being simultaneously pursued by competitors (Barney, 1991). In the same vein, the essence of strategy is to perform activities in a manner that is different from the firm's rivals (Porter, 1996).

The other significant aspect about competitive advantage is that it cannot be easily observed but only inferred from the performance of the firm (Klein, 2002). The sustained superior performance of a firm has specifiable causes and these are tied to competitive advantage (Powell, 2001).

Competitive advantage has been referred as the secret of success and has been defined as "the quality that brings about success" (Porter, 1985, p. 318). Competitive advantage arises out of access to resources, markets or organizational opportunities and the foresight or abilities of managers working in the firm (Cockburn et al., 2000). Several researchers such as Barney (1991) have argued that valuable, rare, inimitable and non-substitutable resources or capabilities can enable firms to enjoy competitive advantage. This has been referred to as the resource-based view. However, the resource-based view has tautological elements, analytic elements and empirically unfalsifiable elements (Arend, 2003). Also, even when a special resource or capability may exhibit a strong correlation with competitive advantage in a particular context, the same resource or capability may not fit the strategies of all firms in the same context (Newbert, 2008).

This paper attempts to integrate the various aspects of competitive advantage using relevant references to the academic literature and corporate practices. This research's unique contribution is the integration of the several factors that contribute towards competitive advantage.

It should be noted that a single factor does not result in competitive advantage but the combination of various factors leads to competitive advantage. This paper posits that the scope and corporate level strategies, diversification decisions, resource deployment decisions, and strategic renewal of firms need to be managed for competitive advantage. When it comes to the capabilities of the firm, factors such as customer orientation, value chain and culture, change management approaches contribute towards the competitive advantage of the firm. A firm needs to focus on all these factors and ignoring one or more of these factors may impair the firm's competitive advantage. This paper brings into focus the importance of managing the capabilities and managing the corporate strategies in order to gain competitive advantage. These factors would be analyzed using existing literature and the practices adopted by global firms.

Scope and Corporate Level Factors That Contribute Towards Competitive Advantage

Managers have been compared to craftsmen and strategy has been referred to as the clay used by craftsmen (Mintzberg, 1987). …

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