The competitive advantage approach specifically focuses on the firm’s resources and distinctive capabilities as the basis for developing a business strategy. Proponents of this approach view a successful firm as a bundle of unique resources and capabilities. According to them, if a firm’s resources and capabilities are scarce, durable, defensible or hard to imitate, they can form the basis for sustainable competitive advantage and surplus profit, provided they align well with the key success factors of the industry.
Specifically, this competitive advantage approach emphasizes the need for organizations to develop their business strategy based on their competitive advantage. This approach suggests that organizations should first identify their sources of competitive advantage before developing any business strategy. According to the approach, firms can obtain their competitive advantage from their organizational resources and distinctive capabilities. Organizational resources and capabilities (resource, skill, activity or capability) that are distinctive to those of the competitors may become the basis for competitive advantage as well as for developing organizational strategies if they can be matched appropriately to the environmental opportunities.
This approach views organizational resources as both tangible and intangible that include; physical assets, technology, information, human resources, financial resources, knowledge, skills, competencies, creativity, innovativeness, processes, functions, systems and intellectual properties. According to the competitive advantage approach, organizations should develop the competitive advantage that they need for developing effective strategies by using any of these resources. Through this approach, business strategy is developed based on the fit between the external relationships of the organization and its own competitive advantage.
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