Competitive advantage concepts and strategies

Business Development

When considering whether or not a company will successfully compete, it is most common to conduct a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis about its external environment. What this leaves out, stresses Barney in the article "Looking inside for competitive advantage," is another major organizational component: the internal resources and capabilities that include all of the financial, physical, human, and organizational assets used by a firm to develop, manufacture, and deliver products or services to its customers.

To determine the strengths and challenges of an its resources and capabilities, Barney says that a company needs to ask several questions about capabilities. First: "Do a firm's resources and capabilities add value by enabling it to exploit opportunities and/or neutralize threats?" By answering this question, managers link analysis of internal resources and capabilities with that of environmental opportunities and threats. Resources are not valuable in a vacuum, but only when exploiting opportunities and/or neutralizing threats; Second:"How many competing firms already possess these valuable resources and capabilities?" Resources and capabilities must be rare, but this does not mean that common, but valuable, resources are not important. Indeed, such resources and capabilities may be essential for survival. However, if a firm's resources are valuable and rare, this may enable it to gain at least a temporary competitive advantage; "Third: Do firms without a resource or capability face a cost disadvantage in obtaining it compared to firms that already possess it?" When a firm's resources and capabilities are valuable, rare, and socially complex, those resources are likely to be sources of sustained competitive advantage and Fourth: "Is a firm organized to exploit the full competitive potential of its resources and capabilities?" Numerous components of a firm's organization are relevant including its formal reporting structure, explicit management control systems, and compensation policies -- or complementary resources, because they have limited ability to generate competitive advantage in isolation. However, in combination with other resources and capabilities, they can enable a firm to realize its full competitive advantage.

In conclusion, states Barney, sustained competitive advantage depends on the unique resources and capabilities that a firm brings to competition in its environment. Managers must look inside their firm for valuable, rare and costly-to-imitate resources, and then exploit these resources through their organization.

What this means is that a company has to make the most of its talent -- the men and women who are committed to help the organization succeed. Too often, a firm forgets that these unique individuals can make or break the future of a company. In many cases an organization has people who are more bored or tired than empowered, more distrustful than energized. Even worse, in too many organizations, very little managerial focus is on the concerns of how to build employee capability and motivation. In so many companies, essential and valuable human capital is being misused or not used at all.