Sustainable competitive advantage
| Sustainable competitive advantage |
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| See also |
Sustainable competitive advantage is one of the basic goal of strategic management. Achieving long term advantage over competitors on the market is crucial for growth and development of the company. Guarantees stable profits and provides resources needed for R&D work and entering new markets. Main results of sustainable competitive advantage are:
- higher profit margin
- higher market share
- higher barriers to entry on the market
- lower production costs due to effects of scale
Sustainable competitive advantage and entrepreneurship theory
Studies have been conducted to determine a process for creating sustainable competitive advantage. Freiling argues that the entrepreneurship theory is necessary to the establishment of a sustainable competitive advantage. The entrepreneurship theory defines key activities: “(1) to go (mentally) beyond the conventional ways on how do to business and create new ones, (2) to constantly look out for ways to improve one’s own business, (3) to anticipate and recognize up-and-coming developments in the business environment, (4) to identify the consequences of these developments as early and precisely as possible, (5) to take emerging business opportunities comprehensively and earlier than relevant competitors, and (6) shape the business and the business environment according to the company’s vision instead of adapting to the ‘given’ circumstances[1]. There are four key activities that accomplish these objectives: innovation, coordination, arbitrage, and risk management.
- Innovation or system renewal, which comprise product, process, organization, and market-related innovations, to ensure that a company is capable of sensing and sizing new opportunities
- Coordination or management of transactions is a type of internal system exploitation that ensures a company's processes are managed to create a fit between key internal functions (operational effectiveness)
- Arbitrage is a function that promotes an external system exploitation to allow a company to identify new business opportunities
- Risk management is a system protection function that promotes the protection of company's assets and resources from negative consequences of risk taking activities[2].
Dynamic capabilities and sustainable competitive advantage
Sustainable competitive advantage requires a company to develop unique and difficult to duplicate dynamic capabilities. Teece identifies three dynamic capabilities or managerial competencies that allow a company to achieve competitive advantage and then continuously evolve to maintain it. These three competencies are: (1) sensing opportunities and threats, (2) seizing opportunities, and (3) managing threats and reconfiguration[3].
- Sensing opportunities and threats capability relies on differential access to information or creation of new information and knowledge. This capability dependents on management's abilities to recognize disequilibrium in markets and to take advantage of them, or on management's ability to upset the equilibrium by introducing innovation. This capability tests management's skill to interpret new events and developments, assess competitors reactions, and decide which ones to pursue[4].
- Sizing opportunities requires management to establish new products, processes, and services. This capability deals with a company's ability to maintain adequate technologies and assets to ensure its readiness to invest heavily when the right opportunity comes along. This capability requires a company to establish a business model that defines new development strategies and investment priorities[5].
- Managing threats and reconfiguration is a dynamic capability that allows management to successfully reconfigure and reorganize as the company grows and as markets and technologies change. This capability requires management to be able to recognize that existing processes may be creating obstacles to innovation and therefore need to be changed, or that certain businesses may need to be abandoned to give way to new and better opportunities[6].
References
- Hall, R. (1993). A framework linking intangible resources and capabiliites to sustainable competitive advantage, Strategic management journal, nr 14(8), s.607-618.
- Oliver, C. (1997). Sustainable competitive advantage: Combining institutional and resource-based views, Strategic management journal, s.697-713.
- Freiling, J. (2008). Management: (What) Can We Learn From Entrepreneurship Theory?, International Journal of Entrepreneurship Education 6. Introduction, Entrepreneurship Theory and SME Management, A Multi-functional Entrepreneurship Approach of SME Management, s. 2, 7, 13-14.
- Teece, D. J. (2007). Explicating Dynamic Capabilities: The Nature and Microfoundations of (Sustainable) Enterprise Performance, Strategic Management Journal, 28: 1319-1350. Introduction, Sensing (and Shaping) Opportunities and Threats, Seizing Opportunities, Managing Threats and Reconfiguration, s.1319, 1322, 1326, 1334-1335.
Footnotes
Author: Urszula Szydłowska
