Early prescriptions for strategy emphasized that success lay in ‘fitting’ the organization to its environment better (e.g. satisfying shareholders and customers and staying on the right side of the authorities. Modern resource-based views emphasize that long-term success lies in organizations, ‘playing to their strengths’ or ‘competences’. For competences to be capable of leading to superior competitive performance they must fit the present environment, stretch the firm to innovate and able to admit leverage to gain extra value in new lines of business.
Positioning view of strategic advantage
A firm or industry faced with the imminent obsolescence of one of its core products, must decide whether to orientate strategy around external customer needs or rather orientate strategy around its internal resources and competences. Choosing the first is an example of a positioning approach. Choosing the second applies the resource-based approach.
Characteristics of the positioning approach are:
A focus on customer needs and adapting products, and the process of making them, to any changes in these needs
The gaining of a superior position against rivals through analysis of the industry and marking and adopting strategies to gain relative market share or reduce relative costs
The assessment of relations with stakeholders such as government, shareholders, suppliers and distributors to use better relationships as a source of advantage
Seeking to gain preferential access to resources such as materials, low cost labour and scarce skills.
The significant feature is the belief that successful strategy involves the business adapting to its environment.
The positioning view will be seen in this text in the work of Michael Porter (notably his five forces model of industries and his three generic competitive strategies) and in the sections dealing with marketing.
No writer will seriously question the need for successful products and good relations in assisting in making a firm successful from one year to the next. However, the positioning approach has been criticized as inadequate as an approach to sustainable success over decades with particular regard to the following.
Product life-cycle means particular products will become obsolete so today’s successful market position will become a liability in the future. For example, Levi Strauss jeans and apparel have declined in popularity since they were immensely successful in the 1960’s and 1970’s.
Stakeholder groups, such as political parties, will decline in influence so relations with them will not sustain the firm.
Long-term technological changes will eliminate cost advantages or technical superiority of a given product.
Perpetual change of the organization’s skills base and products will be disruptive and eventually leads the firm into fields in which it has little expertise.
Resource-based view of strategy
Technological changes can destroy industries:
Downloads may damage the businesses engaged in the manufacture, distribution and retailing of CDs and DVDs
Mobile phones threaten the fixed telephone line industry
Genetic modification of organisms can compromise the pesticide and pharmaceutical industries.
The resource-based view is an inside-out view of strategy. Firms do not look for strategies external to them. They develop or acquire resources and competences, create new markets, not just reacting to those already there, and exploit them.
Johnson, Scholes and Whittington say successful strategies require strategic capability.
Resources and competences are needed for the successful execution of defined strategies.
Fit: Resources must be available to fit with the current product-market demands and current needs.
Stretch: This means being at the leading/shaping edge of new strategic developments in the industry. This suggests that the organization’s ambitions cannot be met with current resources and competences. Ambition should outpace resources.
Leverage: Existing resources are used in many different ways, so that extra value is extracted from them.
Creation of new markets
A fundamental point made by Prahalad and Hamel (Competing for the Future) is that markets are not ‘given’. They can be created by corporate action. Companies do not merely ‘satisfy’ customer needs: they ‘create’ them.
For example, mobile phone ringtones drew on the mobile phone as fashion accessory, not just a communication device. Prior to the launch of ringtones there was no ringtone market in existence.
According to the resource-based view of strategy the role of resources is more than simply to execute strategies determined by desired positions in product markets. Rather, the focus of the strategist should be on resources and competences. These are assets for the long term. Such a combination of
resources and competences takes years to develop and can be hard to copy.
Some of the implications are explained in the table below.
|Factor||Environment/ industry-based view||Resource-based view|
|Profitability||Industry profitability determined by the five competitive forces. Position of a company in the industry determines its|
|Corporate profitability based on sustainable competitive advantage achieved from the exploitation of unique resources.|
|Approach||Outside-in, i.e. consider outside environment and markets then the company’s ability to trade in these conditions.||Inside-out: consider key resources first, then how to exploit competitive advantage in available markets.|
|Diversity||Maintain diversified portfolio of products (see BCG matrix) to spread risk and generate cash in changing market conditions.||Focus only on products where company has a sustainable competitive advantage. ‘Stick to the knitting’.|
|Key focus||Industry orientation and positioning in the market.||Focus on core competences which competitors do not possess and will find difficult to copy.|