benefit for supplier and customer can be achieved in attaining sustainable CAs and relational rents.
TABLE 1b: Contributions to the concept of competitive advantage, part 2
Author (date) Article / Book title Summary of main contribution Henderson
(1983)
The Anatomy of Competition
Continues the discussion of unique advantages of a firm over competitors; the firms that can adapt best / fastest gain an advantage over competitors.
Porter (1985) Competitive Advantage:
Creating and Sustaining Superior Performance
Introduction of the value chain idea as the basic tool for the analysis of the sources of competitive advantage.
Coyne (1986) Sustainable Competitive Advantage: What It Is, What It Isn`t
Explanation of the conditions needed for sustainable CA to exist; capability gaps idea.
Ghemawat (1986)
Sustainable Advantage Discussion of advantages that tend to be sustainable: size in the targeted market, superior access to resources / customers, restriction on options from competitors.
Day and Wensley (1988)
Assessing Advantage: A Framework for
Diagnosing Competitive Superiority
Potential sources of advantage are superior resources; in assessing ways to achieve sustainable CA, competitor and customer perspectives should be considered.
Stalk jr.(1988) Time- The Next Source of Competitive Advantage
He discusses the relevance of time (speed) as an intangible asset for achieving sustainable competitive advantage on the basis of practical examples.
Dierickx and Cool (1989)
Asset Stock Accumulation and Sustainability of Competitive Advantage
The sustainability of an asset position of a firm is based on how easily assets can be substituted or imitated by competitors.
Hamel and Prahalad (1989)
Strategic Intent A firm should not search for a sustainable CA, instead it should learn how to create new advantages to create global leadership.
Source: adapted from Hoffman (2000: 3-5); extended
TABLE 1c: Contributions to the concept of competitive advantage, part 3
Author Article / Book title Summary of main contribution Prahalad and
Hamel (1990)
Core Competencies of the Corporation
Sustainable CA result from core competencies;
firms should consolidate their resources and skills into competencies that allow them to adapt quickly to changing opportunities.
Barney (1991) Firm Resources and Sustained Competitive Advantages
Discussion of four potential indicators of the potential of firm resources to generate sustainable CA: value, rareness, inability to be imitated, imperfect substitution.
Conner (1991) A Historical Comparison of Resource-Based- Theory and Five Schools of Thought within Industrial Organization Economics: Do We Have a New Theory of the Firm?
With a RBV to achieve above-average returns, a firm product must be distinctive in the eyes of customers, or the firm selling an identical product in comparison to competitors must have a low- cost position.
Peteraf (1993) The Cornerstones of Competitive Advantage:
A Resource-Based View
Discussion about four conditions which must be met to achieve sustainable CA: superior resources (heterogeneity within an industry), ex-post limits to competition, imperfect resource mobility, ex- ante limits to competition.
Bharadwaj, Varadarajan, and Fahy (1993)
Sustainable Competitive Advantage in Service Industries: A Conceptual Model and Research Propositions
Sustainable CA evaluated in a service marketing context; an sustainable CA exists only if it is recognized by customers.
Source: adapted from Hoffman (2000: 3-5); extended
TABLE 1d: Contributions to the concept of competitive advantage, part 4
Author Article / Book title Summary of main contribution Hall (1993) A Framework Linking
Intangible Resources and Capabilities to
Sustainable Competitive Advantage
Identification of various intangible resources (including assets and competencies) that allow firms to possess relevant capability differences which result in sustainable CA.
Day and Nedungadi (1994)
Managerial Representations of Competitive Advantage
A firm´s use of strategy and reaction to the environment depends on its orientation (customer- oriented vs. competitor-oriented); CA is based on this orientation.
Hunt and Morgan (1995)
The Comparative Advantage Theory of Competition
Compares neoclassical and comparative advantage theory of the firm; comparative advantage of the firm can translate into a CA in the marketplace;
offers categorization of resources. Source of CA:
financial, physical, legal, human, organizational, informational, and relational.
Oliver (1997) Sustainable Competitive Advantage: Combining Institutional and Resource-Based Views
Proposes a model of firm heterogeneity which suggests that both resource capital and institutional capital are indispensable to sustainable CA.
Srivastava, Shervani, and Fahey (1998)
Market-based Assets and Shareholder Value: A Framework for Analysis
Delineates market-based assets into two primary types: relational and intellectual. Largely
intangible, these assets may be leveraged to achieve sustainable CA if they can add unique value from customers.
Source: adapted from Hoffman (2000: 3-5); extended
TABLE 1e: Contributions to the concept of competitive advantage, part 5
Author Article / Book title Summary of main contribution Ma (1999) Creation and Preemtion
for Competitive Advantage
CA arises from differences along any dimension of attributes and characteristics of a firm that allows it to create better customer value than others do. Sources of CA include ownership of assets or position, access to distribution and supply, and proficiency (knowledge, competence, capability) in business operations. In addition a firm needs creativity and proactivity to exploit the generic sources.
Mazzarol and Soutar (1999)
Sustainable Competitive Advantage for
Educational Institutions:
A Suggested Model
Studies the structure, strategy and CA and outlines a model of factors that are critical to the establishment and maintenance of CA. Variables are conceptualized as industry and market structure: quality image, market profile, coalition formation, forward integration, expertise, culture, and information technology.
Ma (2000) Competitive Advantage and Firm Performance
Makes three observations regarding CA: CA does not equate to superior performance, CA is a relational term, CA is context-specific and explores various patterns of relationships between CA and firms’ performance: CA is leading to superior performance, CA without superior performance, superior performance without CA.
Gupta and McDaniel (2002)
Creating Competitive Advantage by Effectively Managing Knowledge: A Framework for
Knowledge Management
Study about knowledge management and CA which investigates the link between the
management of knowledge and the development of sustainable CA in contemporary organizations.
Variables are: organizational effectiveness, efficiency, core competency, costs, knowledge harvesting, filtering, configuration, dissemination, and application.
Source: adapted from Hoffman (2000: 3-5); extended
TABLE 1f: Contributions to the concept of competitive advantage, part 6
Author Article / Book title Summary of main contribution Lin (2003) Technology Transfer as
Technological Learning:
A Source of Competitive Advantage for Firms With Limited R&D Resources
Discusses technology transfer as a possibly significant source of CA for firms with limited resources in R&D, and conceptualizes in eight terms: technological learning performance, organizational intelligence, causal ambiguity, firm specificity, complexity, maturity, employee qualification, innovation orientation.
Goh (2004) Enhancing Organizational Performance through Knowledge Innovation:
A Proposed Strategic Management Framework
Discussion about knowledge management as the next source of competitive advantage.
Ma (2004) Toward Global
Competitive Advantage:
Creation, Competition, Cooperation and Co- option
Advanced an integrative framework on the determinants of CA in global competition about:
creation, innovation, competition, cooperation, co- option.
Cousins (2005)
The Alignment of Appropriate Firm and Supply Strategies for Competitive Advantage
Study focused on strategy and CA which discovers that firms defining their CA as being cost-focused will generally tend to a cost reduction supplier role (e.g. passive, supportive). Firms viewing their CA as differentiated see supply as strategic (e.g.
distinctive capability). Measured variables are business development related, market share, relationship development, cost, focus, differentiation, collaboration.
Liao and Hu (2007)
Knowledge Transfer and Competitive Advantage on Environmental Uncertainty: An Empirical Study of the Taiwan Semiconductor Industry
Investigation about the inter-relationships among environmental uncertainty, knowledge transfer, and CA, conceptualized as: ambiguity, complexity, partner protectiveness, organizational knowledge transfer, group and procedural movements, reduce dependency, knowledge transfer effect, technology development, and technology transfer.
Source: adapted from Hoffman (2000: 3-5); extended
As Sloan (1963: 49) states, achieving returns is a strategic business objective that is essential in order to secure the long term existence and the survival of a company. It is the basis of entrepreneurial thinking to achieve CAs that allow the firm to generate above-average returns compared with its competitors in the same industry. Generating these advantages, and securing them as the basis for above- average market success, has a key position in strategic management (Day and Wensley, 1988; Wolfrum and Rasche, 1994; Faix and Goergen, 1994; Simon, 1988).
According to Gordon (1959), CAs develop if a firm has lower opportunity cost11 in creating achievements than its competitors. Grant (2000: 174) defines as follows:
“When two or more firms compete within the same market, one firm possesses a CA over its rivals when it earns a persistently higher rate of profit (or has a potential to earn a persistently higher rate of profit)”. Bourgeois et al. (1999: 56) defines CAs as “the set of factors or capabilities that allows firms to consistently outperform their rivals”. Simon (1988: 464) describes CAs in terms of their effectiveness toward customers as the completion of superior performance that must fulfill three main criteria:
a) it must relate to an important achievement feature for the customer, b) be consciously perceived by the client and
c) the advantage must be permanent and not compensated by the competition in the short term.
Porter (1986: 21-22), however, considered a CA from an economic perspective within a specific industry sector and in terms of their effect on the competition. From Porter´s perspective firms can gain a CA if they differentiate from the competition from the customers’ perspective by offering an achievement advantage, and thus are able to charge a higher price, or can offer an equivalent achievement more cost-effectively or on a more competitive level. Meffert (1994:
137) states that contrary to Porter’s perspective, according to Simon a CA occurs if
11 Usually the term is defined as the value of a resource at its next best use.
Peteraf (1993: 184) uses the term in her discussion concerning the generation of rents in a different way (cf. Subchapter 4.3.2): “(…) the value of the resource to its second-highest valuing potential-user. (…) This difference between the value of a resource to a firm and its opportunity cost is also a form of rent.”
it leads e.g. to a price advantage for the customer and results in a pricing demarcation from the competition. However, this means that with the same achievement of several competitors, a cost advantage according to Simon is passed on as price advantage to the customer. The customer accepts the price advantage as such and must therefore distinguish the offering firm from the competition. If an achievement is at least equal compared to the competition (or almost equal or homogeneous), a cost advantage must, according to Porter (1986:
33-34; Walley and Thwaites, 1996: 164), not necessarily be passed on to customers in the form of a lower price and can also remain in the firm in order to realize a larger profit margin compared with the competition. This would also have an impact within the firm as a cost advantage. While an achievement advantage in the market acts directly when perceived by the customer, a cost advantage acts only indirectly and if the additional profit is used for the generation of achievement advantages. Contrary to Porter and Simon, Day and Wensley (1988:
19-20) consider the distinction of CAs according to cost or achievement leadership as insufficient. Figure 2 presents their model, which considers the content and the impact of CAs. According to that model, sources of advantage are superior to proprietary firm-owned resources and capabilities that generate a positional advantage, a situational advantage, and in consequence a performance outcome that can lead to positive results in the market. In turn these are used for re- investments (investments of profits) in superior resources and capabilities that can help to maintain a CA.
Day and Wensley (1988) argue that the value of an achievement actually perceived by the customer and the associated costs for the preparation of this performance are the crucial dimensions for determining the form of CAs. Both are described as follows: on the one hand the value of the performance from a customer perspective compared to the competition as a direct resource / capability input that creates a value directly perceived by the customer, and on the other hand as costs that are associated with it compared to the competition (costs for input of resources and capabilities). Porter (1992: 4-16) argues further that operational effectiveness alone cannot achieve a sustainable CA. Operational effectiveness means to perform similar activities better than rivals (Dess et al., 2005). Dess et al. (2005) follow Porter´s argument by arguing that operational effectiveness measures, like just-in-time, business process engineering, etc. do not
lead to sustainable CA, for the simple reason that everyone is doing them (other firms could imitate this) and it would be necessary to be different from others.
FIGURE 2: Model of competitive advantage
Source: adapted from Day and Wensley (1988: 3) That means that attaining a sustainable CA is only possible through performing different activities from the rivals or performing similar activities in different ways (Dess et al., 2005). Porter (1980) sees CAs as the center of a company´s performance in competitive markets. Porter (1980) argues further that a CA in an industry occurs when companies are able to create advantages by using generic strategies, if the advantage exceeds the costs incurred for its creation. In his approach, achieving CA means achieving low costs, advantage by differentiation or using a focused strategy.12
Peteraf (1993: 179-191) instead argues that a CA is sustained “above normal returns”. Such superior returns are rents13 which occur under specific conditions.
12 Increasing diversification vs. a focused strategy leads to less concentration on core competences, less efficiency, and in consequence to lower averaged rents Montgomery and Wernerfeldt, 1988: 623-632).
13 About the term rent and its generation cf. Subchapter 2.2.
Sources of Advantage
Superior skills Superior resources
Positional Advantage Superior customer value Lower relative costs
Performance Outcomes Satisfaction, Loyalty, Market share, Profitability
Investment of Profits to Sustain Advantage
Peteraf (1993: 179-191) discusses four conditions that must be met to achieve a sustainable CA, which are superior resources (heterogeneity within an industry), ex-post limits to competition, imperfect resource mobility, and ex-ante limits to competition, and defines imperfectly mobile resources as those which are specialized to the firm. Peteraf (1993: 179-191) states that such resources “can be a source of competitive advantage”, and that “any Ricardian or monopoly rents generated by the asset will not be offset entirely by accounting for the asset´s opportunity cost”. Barney (2002: 9) argues that “(…) a firm experiences competitive advantages when its actions in an industry or market create economic value and when few competing firms are engaging in similar actions.” The firms must differentiate and be in competition with each other. Barney (2002: 9) continues that CA is connected with performance and argues that “(…) a firm obtains above-normal performance when it generates greater-than-expected value from the resources it employs” and that “This positive difference between expected value and actual value is known as an economic profit or an economic rent.” Barney (1990: 382-393) also states that not all firm resources lead to CAs because they have to meet four conditions: they must be of rareness, value and of inability to be imitated or substituted. Ghemawat and Rivkin (1999: 49) argue that a firm “that earns superior financial returns within its industry (or within its strategic group) over the long run is said to enjoy a competitive advantage over its rivals.” Barney (1991: 102) defines an sustainable CA by the following: “A firm is said to have a sustained competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy (italics in original)”. Hoffman (2000: 1) defines sustainable CAs as “(…) the prolonged benefit of implementing some unique value-creating strategy not simultaneously being implemented by any current or potential competitors along with the inability to duplicate the benefits of this strategy”.
Besanko, Dranove, and Shanley (2000: 389) state that “When a firm earns a higher rate of economic profit than the average rate of economic profit of other firms competing within the same market, the firm has a competitive advantage in that market” and define economic profit as the “difference between the profits obtained by investing resources in a particular activity, and the profits that could have been obtained by investing the same resources in the most lucrative
alternative activity” (Besanko, Dranove, and Shanley, 1999: 627). According to Kay (1993: 14; 194) CAs can be created if distinctive capabilities are applied in an industry or brought to the market. Kay measures the value of CAs as added value, with the costs of physical assets measured as cost of capital applied to replacement costs. Dierickx and Cool (1989: 1059) argue close to Barney (1986b:
1234-1235) that CA is not obtainable from free tradable assets and extend that by stating “if a privileged product market position is achieved or protected by the deployment of scarce assets, it is necessary to account for the opportunity cost of those assets” and “In those cases, market prices are indeed useful to evaluate the opportunity cost of deploying those assets in product markets. However, the deployment of such assets does not entail a sustainable competitive advantage, precisely because they are freely tradable.” Brandenburger and Stuart (1996: 5-24) continue the discussion with the conditions applicable to multi-agent games, where the agents include buyers, suppliers, and producers and the gains to trade are at maximum available from the assignments among the agents.
Brandenburger and Stuart (1996: 5-24) conclude that the maximum value is limited by the agents’ value added to the game and “To have a positive added value it must be different from competitors” and “enjoy a favorable asymmetry”.
The different perspectives demonstrate that the term and generation of CAs is connected with uncertainties regarding: a) “value is to conceptualize or measure (gains to trade, value to owners, increases in value to owners)” (Rumelt, 2003: 2), b) “about the meaning of rents” (Rumelt, 2003: 2), c) “about the appropriate use of the opportunity cost concept” (Rumelt, 2003: 2), and d) “about whether competitive advantage means winning the game or having enough distinctive resources to maintain a position in the game” (Rumelt, 2003: 3).
Prahalad und Hamel (1990: 79-91) argue that firms can combine their skills and resources to core competencies in a manner that it can generate an advantage compared to their competitors. The focus on core competencies has a positive impact on the generation of rents and related CAs (Montgomery and Wernerfeldt, 1988: 625). Morgan and Hunt (1996; 1999: 282-283) emphasize the uniqueness of the achieved competencies or skills that are perceived and evaluated as such in the market. Thus, the literature has focused on the interpretation of expressions that can lead to CAs in connection with certain conditions or circumstances and under specific frame conditions.
The different approaches to the generation, perception, determination and interpretation of competitive advantages are significantly affected by certain fundamental views. In the literature, the formative considerations are mainly those that deal with the approaches MBV14 and RBV15. The presentation of the research contributions in Subchapter 2.1 as well as the contributions in the following table (Table 2) demonstrate that the development related to the generation of CAs involves additional resources beyond the consideration of core competencies or dynamic capabilities16. The RBV has therefore been expanded to include a relational perspective (RV)17 that has inter-organizational relations as a resource base.18 This is due to the fact that traditional resources of firms may be very similar within an industry. To differ from other similarly cost-wise positioned competitors, firms are forced to take relational resources into consideration and by that to establish advantages that can generate cost advantages or rents again. By utilizing this expanded resource consideration that is "most usefully categorized as financial, physical, legal, human, organizational, informational, and relational" (Hunt and Morgan, 1995: 6-7) employees combine their skills and resources in the most efficient, unique and enduring way. Day and Wensley (1988: 2) understand these skills as “distinctive capabilities of personnel that set them apart from the personnel of competing firms”. The resulting RV, which can be understood as an extension of the RBV, is concerned with the generation of CAs and securing them on a long term base on a relational level.
Furthermore, it relates to the creation and exchange of knowledge among the actors, and includes relations among firms to combine achievements and key
14 Cf. chapter 3.
15 Cf. chapter 4.
16 Cf. Zimmer and Ortmann (2001: 27-55) for more detailed information about the market relations between MBV and RBV, core competencies and dynamic capabilities.
17 Cf. chapter 5.
18 Cf. Lavie (2006), Dyer and Singh (1998), Sydow, Windeler, and Wirth (2003).