Basis for Competitive Advantage in the Different Application Domains

Basis for Competitive Advantage in the Different Application Domains

Göran Roos (Economic Development Board of South Australia, Australia)
DOI: 10.4018/978-1-5225-5577-3.ch003

Abstract

A competitive advantage can be defined as a condition or circumstance that puts a company in a favorable or superior business position as compared to its competitors. Competitive advantages can be treated within the firm or grounded in an advantage existing in the firm's operating environment. In looking at South Australia's competitive advantage as it relates to the macroalgae value chain, we can see that it has a reputation of unpolluted costal land and waters that is ideal for the cultivation of marine macroalgae. This chapter explores that competitive advantage.
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Defining And Characterizing Competitive Advantage

A competitive advantage is a condition or circumstance that puts a company in a favourable or superior business position as compared to its competitors. A competitive advantage can be created within the firm or be grounded in a comparative advantage existing in the firm’s operating environment.

The concept of Competitive Advantage was first thoroughly discussed in Penrose (1959). The term competitive advantage refers to the ability gained through attributes and resources to perform at a higher level than others in the same industry or market (Penrose, 1959; Rumelt, 1984; Wernerfelt, 1984; Wernerfelt, 1989; Porter 1985; Porter, 1990a). An entity is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential entity (Barney, 1991).

Until the 1980s mainstream management theory focused on companies' environment as the basis for understanding competitive advantage. In line with neo-classical economics, resources were assumed to be homogeneously distributed within industries, and in addition easily accessible by competing firms. Thus, the role of management was to figure out smart ways to combine products and markets given the bargaining power of suppliers and customers, entry barriers, and potential substitute technologies and/or products. The strong message of the economist-driven “industrial organisation” line of thinking (Porter, 1980) was to focus on the environment outside the firm rather than to focus on what was inside the firm. (Roos & Roos, 1997).

In the 1980s, what was later called the “resource-based” perspective of the firm challenged this view. Elaborating on some elements that had already been brought forth by Edith Penrose in the 1950s (Penrose, 1959), followers of this school of thought suggested that competitive advantage did not arise only via various product-market combinations in a given industry but was instead mostly due to differences in organisational resources of different kinds (Wernerfelt, 1984; Dierickx & Cool, 1989). Because resources cannot always be transferred or imitated, we must look inside the firm to find the real sources for sustainable differences of resources and the way they are deployed.

Developing these ideas further Barney (1986b) developed four criteria for assessing what kinds of resources would provide sustainable competitive advantages: (1) value creation for the customer, (2) rarity compared to the competition (3) imitability and (4) substitutability. The only resources that seemed to fulfil these requirements were intangibles including knowledge (tacit, explicit or embodied) and these, more or less, well-defined aspects of knowledge were developed into theoretical concepts and labelled.

The strategic imperative of management then becomes the development of knowledge-based assets, and their subsequent exploitation. Here though, the intangibility of knowledge-based assets became a major obstacle: developing something one cannot see is never easy, and the fact that knowledge was something managers were not accustomed to explicitly deal with did not make things any easier. Drawing on previous work by Polanyi (1958; 1966; 1969) and by Winter (1987), Nonaka and colleagues (Nonaka, 1990, 1994; Nonaka & Takeuchi, 1995) suggested that the creation of knowledge happens through a spiral movement between tacit and explicit dimensions. As people inside an organisation try to make their tacit knowledge explicit (usually through metaphors) other people take this explicit knowledge and internalise it themselves. Then they add something of their own and then externalise it. This second moment of externalisation happens at a higher level of knowledge than the previous one: Thus, the movement is a spiral, not a circle. Nonaka’s prescription to companies is thus to let the knowledge of employees’ flow, to encourage the use of metaphors as the most appropriate way to “explicitise” tacit knowledge, and to multiply occasions of discussions1.

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