CRITICAL REVIEW OF THE THEORIES OF COMPETITIVE ADVANTAGE AND

EVALUATE THEIR RELEVANCE TO MANAGEMENT

When a company develops or acquires a set of characteristics that allows it to

outperform its competitors, it gains a “competitive advantage.” Competitive advantage is

what distinguishes a corporation's goods or services from all other options available to a

customer. While the phrase is often associated with corporations, the techniques can be

applied to any organization, government, or individual operating in a competitive

climate.

A merchant with the lowest prices, for example, has a competitive edge over other

merchants with higher prices. The low prices may make the products of that merchant

more appealing than those of other, expensive competitors. For the better part of a half-

century, the management community has been focused on the creation of theories that

can clarify competitive advantage. We will be taking a look at these theories and their

relevance to management.

What is a Competitive Advantage?

To gain a competitive edge, a company must offer a concrete benefit to its target market

that is superior to that of the competition. There has to be a consideration of the true

advantage of this product or service? It must be something that customers want and

that provides genuine value. Business owners must also keep up with emerging trends

that affect their product, such as new technology.

Nokia, for example, were sluggish to respond to the availability of the new Android

operating system which was making waves at that point. They chose to concentrate on
working to create the best Java and Symbian phones and this is where they lost their

competitive edge. They failed to keep up with the latest operating system trends and all

of the appealing benefits.

A company's target market must also be continuously monitored in order to generate

demand, which is the engine that drives all economic growth. They must understand

exactly who their consumers are and how they may improve their lives. Nokia's target

market shrank to skeptic and older individuals who were hesitant to switch to the new

Android operating system.

Finally, competitors must be identified to keep competitive advantage rolling.

Competitors aren't merely firms or items that are similar to yours. They also cover

anything else your customer could do to satisfy the requirement you can address. Nokia

mistakenly believed their competition was other Java and Symbian phone companies

until they discovered Android. All of their efforts to penetrate this market failed to yield

results till this day and this is saying something.

Competitive advantage and strategic management

Strategic management is the process of defining an organization's goals, creating

strategies and plans to achieve those goals, and distributing resources to put those

policies and plans into action. To put it another way, strategic management is the

process of developing, implementing, and evaluating strategies David (2005).

Kevan S. and Richard W. (2008) argued that understanding an organization's strategic

position, making future strategic decisions, and managing strategy in action are all part

of strategic management. They also pointed out that the exploration and execution of an
organization's business strategy is part of strategic management. It also entails defining

and analyzing the system's entire business strategy, which includes the organization's

strategic position, strategic decisions, and strategy in action within and beyond the

organization.

Every organization has objectives and goals however, keeping tabs on these goals

alone is not enough to keep the company afloat. According to Greenwald et al. (2005),

every business must have a complete awareness of its product line and regional scope.

In the past, there have been several instances in the sector where companies tried to

grow into industries that were beyond their capabilities and were overwhelmed by the

competition. Companies that attempt to enter sectors where they have no prior

expertise or knowledge will fail. Entering a new marketplace simply because it is

lucrative is not always the best strategy.

Management, according to Stoner (1982), is the process of planning, organizing,

leading, and managing the work of members of an organization while utilizing

organizational resources to achieve specified organizational goals. Managers are in

charge of initiating organizational operations, using company resources, projects,

allocating financial resources, and evaluating managerial performance. As a result,

managers supervise at diverse levels of operational activity.

Greenwald & Kahn (2005) argued that the most crucial question management needs to

answer before adopting a market is whether or not competitive advantages exist in that

industry. If so, the next thing a company should ask itself is what kind of benefits these

provide. Greenwald et al. (2005) reaffirms some of the previously discussed

characteristics of competitive advantage, stating that there are three types of actual
competitive advantages in a market, which are either geographically local or in product

space. The sections that follow will give you an overview of the major principles that

underlie the study of strategic management and competitive advantage.

Author Concept of competitive advantage

Urbancová (2013) Organizational innovation has a substantial impact on

competitiveness, which is built on unique talents and abilities.

Increasing competitiveness through innovation entails generating

products that are less expensive and of greater quality than those

produced by competitors.

Powell (2001) Competitive advantage has spawned a significant body of

theoretical and empirical research; organizations do, by all

indications, strive to identify, establish, and utilize competitive

advantages; and competitive advantage is universally regarded

as an essential term in strategic management courses and

textbooks.

Porter (1980) Competitive advantage is the key to a company's success in a

competitive market. Low prices, differential advantage, or a

successful focus approach are all examples of competitive

advantage. Competitive advantage stems from a company's

ability to provide value for its customers that is greater than the

expense of doing so.

Saloner, Shepard, Most sorts of competitive advantage imply that a company can
 provide a commodity or a service that its consumers value more

than those provided by competitors, or that it can do so at a

Kay (1993) Competitive advantage is a relatively basic concept that

evaluates a company's strengths and market position in relation

to its competitors. Competitive advantages are fleeting and only

worth what the value the market puts on them.

Wang (2014) When a company develops or acquires a set of characteristics (or

takes actions) that enables it to outshine its competitors, it gains

a competitive advantage. For more than half a century, the

management community has been focused on the creation of

theories that assist explain competitive advantage.

Hunt (2000) Modern business strategy believes that a firm's strategic aim

should be sustained using superior financial performance, and

that this goal can be attained through a strong competitive edge

in the marketplace.

Ghemewat (1986) The larger the quantity of cost or distinction advantages, the more

sustained the competitive advantage.

Barney (1997) If the resources are nonimitable (i.e., cannot be easily reproduced

by competition), nonsubstitutable (i.e., other supplies cannot

perform the same role), and nontransferable (i.e., cannot be

purchased in the marketplace), the competitive advantage is

Table 1: the concepts of competitive advantage

Market Based View (MBV)

Competitive strategy is focused on creating and preserving a strategic market position.

This necessitates a thorough understanding of the firm's economic drivers, its

fundamental cost position, its methodology to distinguish itself in the market against

competitors, and its preferred market position in terms of potential to leverage inherent

economies of scale and scope.

According to the market-based viewpoint, an organization's performance is driven by its

external environment rather than its internal features. As a result, the organization is

considered as a "black box," and the potential for long-term competitive advantage are

found within the industrial structure. An industry is a group of businesses that produce a

related item or service. The market-based view's basic assumptions are that resources

are similar and perfectly transportable Peteraf & Bergen (2003).

Mason and Bain developed the market-based view theory (1950). They argue that core

variables for an organization's performance are entry barriers, the number of market

competitors, and demand elasticity.

In 1980, Michael Porter expanded on this concept in his book 'the competitive

advantage, which is still considered one of the foundational works in management

science today. In his work, Porter proposes a structure of so-called five forces that

influence industry rivalry, as well as three "generic methods" that organizations might

use to succeed. Porter maintains in his 'five forces' concept that four major drivers in
market structures impact the desirability of, as well as competitive rivalry within, an

industry.

Porter's five forces apply to any industry, domestic or global. The forces affect a firm's

prices, costs, and required investments, as well as its return on investment. Buyer

negotiating power determines the price a company can charge for a good or service.

Dealer bargaining power influences the costs of raw materials and other inputs, which in

turn dictates production costs Grant (1991).

The hazard of new entrants is determined by the amount of money necessary to enter

the market; for example, the aircraft sector has highly high entry roadblocks due to its

capital intensity, whereas launching a restaurant has comparatively low entry barriers.

Substitutes pose a danger based on how easily items in an industry may be substituted

and the likelihood of industry products becoming obsolete owing to technological

advancement.

These forces determine the intensity of rivalry within an industry, and thus the

attractiveness of the industry. It is far more difficult for organizations to operate in an

industry where these pressures are strong and competitiveness is intense. The potency

of these factors varies by industry and with time.

According to Schendel (1994) these dynamics determine the level of competitiveness

within an industry, and thus the desirability of the industry. It is far more difficult for

organizations to operate in a sector where these pressures are strong and

competitiveness is intense. The intensity of these factors varies by industry and with

time.
According to the market-based viewpoint, the appeal of an industry (intensity of rivalry)

and how an organization structures itself within the industry are the two important

variables for achieving a lasting competitive advantage Hamel and Prahalad (1990).

Because of this competitive stance, some businesses are more successful than others.

Companies can strengthen or lose their position by implementing different strategies. As

a result, in order to maintain a competitive edge, the market must be thoroughly

examined in order to create the ideal market fit. Porter highlights this point by stating

that competitiveness is at the heart of a firm's success or failure.

However, this is a one-sided approach that only incorporates industry structure but

overlooks firm operations Furrer et al. (2008). Furthermore, resource availability might

vary within an industry, and not all resources are homogeneous. According to s

(Prahalad & Hamel, 1990; Rumelt 1991) the market-based view is not of great

importance to managers especially with the change in the structure of industry at this

point. This means that this theory which focuses on homogenous resources rather than

the heterogenous and overall internal structure cannot help management gain a

competitive advantage in the economic environment of today. It however, opens the

eyes to possibilities that are out there with other companies in the same sector.

The Resource-Based View (RBV)

According to Conner (1991), the difference in performance between organizations is

determined by their distinct inputs and capacities and this is where resource-based view

(RBV) comes in. No product is successful unless it generates positive economic value,

which implies that additional value must be created from its inputs.
While adding value is important, it is not enough to generate a profit. Profit necessitates

that the value outweighs that of its competitors, because under the assumption of

constant competition, prices will be pushed down until only regular profits are

generated.

According to Dicksen (1996), the RBV gives a firm-specific viewpoint on why firms thrive

or fail in the market. The resource-based perspective investigates the relationship

between a firm's resources and sustained competitive advantage (SCA). The RBV is

based on Porter's value chain logic, which was expanded upon by Barney (1991).

The value chain analysis is a method that allows firms to identify and isolate resources

and competencies in their value chain that distinguish them from competition. Barney

investigated the characteristics that these isolated resources and competencies must

have in order to explain a persistent competitive advantage.

It is vital to note that the resource-based perspective focuses on how to build a

sustained competitive advantage through internal capabilities rather than the outer

environment. As a result, it seeks to explain disparities in performance among

organizations in the same industry that are based on different internal resource

inheritances.

To comprehend the resource-based viewpoint, one must first explain the term

resources. Company resources comprise all resources, competencies, organizational

procedures, firm traits, information, expertise, and so on that enable the firm to devise

and implement strategies to improve its efficiency and effectiveness (Barney, 1991). As

a result, resources can be equally material and conceptual. That is, they can be
physical (the facility), social (a worker), or administrative in character, as well as part of

what is known as a company's capabilities.

Isolating mechanisms become significant in terms of maintaining a competitive

advantage. Isolating Mechanisms are the economic mechanisms that limit how much a

competitive advantage can be reproduced or offset by other enterprises' resource

development efforts.

Within the resource-based view, the importance of managers is measured by their

capacity to more precisely forecast the future value of a resource than competitors, thus

providing the firm with a source of persistent competitive advantage. Isolating

mechanisms, likewise, constitute a source of long-term competitive advantage.

According to Rumelt (1987) Isolating mechanisms illustrate why other firms can't cope

with the firm that owns the valuable resource because they can't duplicate it effectively

enough. This covers things like uncertain ambiguity. When the resource in question is

knowledge-based or socially complicated, this is more likely to happen.

According to Grant (1991), the resource-based approach overcomes one of the market-

based view's major flaws by eliminating the premise that enterprises' plans and

resources are similar. The market-based perspective, on the other hand, implies that

resource variability, if it exists, will be transient because resources are movable. While

such assumptions were valuable in assessing the external world, it should now be

evident that the resource-based view addressed an entirely different and arguably more

practical approach with the premises of resource immobility and variability.

The Knowledge-Based View

use of knowledge and information as the most important resource for any business to

run Murray (2000). According to Hamel and Prahalad (1994), we live in an information

driven age and the availability and use of this information is what breeds company

performance.

According to Evans (2003) information is one of the most important assets any business

can use to survive in any market. According to Tiwana (2002), other components of

functionality of an organization such as technology, can be copied but knowledge is one

of the components of management in any business that is difficult to copy. The

knowledge-based view is divided into two which is basic knowledge which keeps the

company rolling in the short-term and advanced knowledge which allows for long-term

and sustainable growth.

According to Zack (1999), another entirely different level of knowledge is open to many

companies but only a few get it which is the innovative knowledge. This is what puts any

company at the top of the food chain.

The Capability-Based View

Aside from the market-based view, the resource-based view and knowledge-based

view, we also have a view based on capabilities. According to Grant (1991), he said that

while resources are what makes a company capable, these capabilities are what gives

a company the competitive advantage required to succeed. This verdict was supported

by Haas and Hasen (2005) that capabilities are one of the lasting tools for competitive

advantage.
A firm’s capacity to deploy the resources using the organizational structure to produce

the desired results set for a certain period is known as their capability. According to Amit

and Shoemaker (1993), these capabilities are fine-tuned, reconfigured and

systematically designed to work for a specific organization and this is what brings the

competitive advantage that can drive any organization forward. Any management that

can strategically deploy and manage resources improving their capabilities is set for

success on a global scale.

The Combinational Effect of the Theories of Competitive Advantage on

Management

Almost every market in today’s economy is saturated and this makes competition

difficult for some companies while some others thrive under the harsh climate and this is

because of the level of dynamism these companies have been able to muster.

According to McGrath (2013), managers can perform a lot better if they let go of the

traditional assumption that an organization needs to function in a specific way. They

need to understand that there should not be strategies that guide operations in these

companies and nothing else. There is need to strategize and re-strategize as the need

demands and this is where the need to keep in mind every of the theories of competitive

advantage and use them as the need demands.

The life cycle of the strategy of any organization needs to be constantly revised to have

a great impact on the overall performance of any organization. This means that

managers have a job to constantly evaluate the state of things and provide strategies
based on the present situation. In the end, these managers can be tagged as dynamic

rather than one-sided and this helps organizations grow to a great limit.

Conclusion

From all we have mentioned here, it is clear that management is an essential part of

any company. It is also clear that for any business to thrive, there is a need for

competitive advantage which is something we derive from the theories highlighted here.

With a dynamic standpoint, managers and management team can easily coin out

strategies based on certain situations that will benefit organizations. It might seem like a

tough decision to make compared to the static way of management but it is beneficial to

any business to do so.

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