Introduction
The report discusses sustainable comparative advantage and to do so, firstly focuses on defining sustainable competitive advantage then moving on to its sources and strategies on how to develop a sustainable competitive advantage. Lastly, emphasizing the fact on how using the right strategies can assist in developing a strong sustainable competitive advantage. To fully justify and comprehend the rationale of using the right strategies comparison and contrast have been undertaken. This allows in-depth analysis to underscore the importance of strategies to gain a competitive advantage.
Sustainable Competitive Advantage
According to Porter and Siggelkow (2008), a sustainable competitive advantage can be defined as having 4 characteristics. First is the advantage should be valuable in terms of increasing the efficiency or effectiveness of the firm. This efficiency can be internal as well as external (Porter and Siggelkow, 2008). The second characteristic questions if the advantage is rare or not in terms of the number of firms that currently have this advantage and that are expected to have this advantage.
The third condition requires the advantage to be imperfectly imitable i.e. the advantage cannot be completely copied due to historical, social (organizational culture cannot be copied), legal (include legal patents), and strategic reasons. This ensures that the ability of the other firms to acquire the advantage is limited. The fourth characteristic requires that the advantage is non-substitutable i.e. the value provided by the advantage is not provided by other sources. According to Talaja (2012), the framework of looking at the sustainable competitive advantages through these characteristics is known as the VRIN framework, which is a resource-based approach towards the definition of an advantage.
Strategies and Competitive Advantage
A sustainable competitive advantage can be gained through a range of strategies, which involve hard and soft advantages. Here hard and soft are being defined by the tangibility of the advantage. Hard advantages include customer loyalty, location, distribution, unique merchandise, vendor relations, and customer service. According to Bingham and Eisenhardt (2008), soft advantages include knowledge, know-how, and how information is used, which in turn has implications regarding the profitability and cost-effectiveness of the firm. The importance of having a sustainable competitive advantage comes from the benefits that it provides to the firm. Yet at the same time, there are arguments in the literature against creating strategies to maintain sustainable competitive advantages.
Strategies to create sustainable comparative advantage
A sustainable competitive advantage helps a firm accumulate assets and increase profits. Strategies are important in achieving characteristics that can be used as a competitive sustainable advantage. Moreover, strategies themselves can be used as a sustainable competitive advantage.
Thomke and Kuemmerle (2002, p. 632) carried an empirical exercise on 9 pharmaceutical firms via field research and found the imitability of the technology and strategic acquisition of assets to be a determinant of asset accumulation such that the asset acquisition becomes a sustained competitive advantage for the big firms. Martín-de-Castro et al. (2006, p. 28) in their research keeps the definition of organizational capital as capital that possesses the characteristics of non-substitutability and imitability. This supports strategy making to focus on gaining sustainable competitive advantage in order to accumulate the required assets in order to deliver upon promised values and to minimize costs.
Apart from helping firms accumulate assets, a sustainable competitive advantage also has a positive effect on the profitability of a firm via market orientation. The market orientation itself is characterized as a sustainable competitive advantage according to (Kumar et al., 2011, p. 28). Profitability both long-term and short-term is often the raison d’être of many firms. Therefore strategies that ensure sustainable competitive advantage via market orientation ensure that the profitability of the firm.
Orsato (2006, p. 39) finds that environmental strategies can be used as a competitive advantage for firms. However, in order to capitalize on the environmental strategy as a source of competitive advantage, the firms must adapt the strategies to their particular needs. Such adaptations require constant organizational focus on gearing the strategies towards the exploitation of a potential sustainable competitive advantage.
(Kaplan and Norton, 2008, p. 15) provides a framework of converting strategy itself into a competitive advantage through having a strategy-focused organization. Strategy-focused organizations are created through a five-step process. The first step process includes mobilization of change through executive leadership, followed by the second step of translation of strategy into operational terms in order to communicate the strategy throughout the organization.
The third step involves aligning the strategy according to the organization followed by the fourth step of motivating employees to spread the responsibility of strategy making throughout the organization. The last and most important step includes making strategy a continuous process. Through following these steps Kaplan produced a framework through which the act of strategy making could be converted into a competitive advantage.
Arguments against sustainable competitive advantage
Yet at the same time, D’Aveni et al. (2010, p. 1382) argue that there is no more a need to have a sustainable competitive advantage. Instead, he proposes the creation and management of temporary competitive advantage in order for the firm to realize its goals. Therefore the strategies of the firm need to focus on managing temporary advantages rather than focusing on sustainable competitive advantages.
Bingham and Eisenhardt (2008, p. 254) Further investigate the theoretical foundations of the VRIN framework, introduced above, and comes to the conclusion that the VRIN framework can create (competitive) advantage however it cannot ensure that the created advantage will exist in the long run. That is, the VRIN framework itself only can create temporary advantages, which undermines the effort of the firm to create strategies that focus on sustainable competitive advantage.
Similarly, Campbell et al. (2012) accentuate developing human capital as a source of competitive advantage. The paper further focuses on owning patents that do not guarantee a long-term sustainable advantage and require a constant increase in the knowledge envelope in order for the firm to enjoy the competitive advantage that patents promise. Therefore a series of the literature suggests that sustainable competitive advantage has become irrelevant in the increasingly chaotic business world.
Conclusion
The strategy helps a firm achieve its competitive advantage by being a part of important business processes such as asset accumulation and profitability. Moreover, the strategy itself can be used as a competitive advantage through using it for various parts of the overall organizational strategic design such as human resource management and environmental strategy. Furthermore, the very act of strategy making can be used as a sustainable competitive advantage. However, there is increasing literature that suggests that the very existence of sustainable competitive advantage is no longer relevant in the age of temporary advantage.
Reference
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