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Sustainable Competitive Advantage

Updated: Feb 24




Although lacking a formal definition, Coyne (1986) contributed to the construct by proposing that in order to possess an SCA, consumers must perceive some difference between a firm’s product offering and the competitors’ offering. This difference must be due to some resource capability that the firm possesses and competitors do not possess. Also, this difference must be some product/delivery attribute that is a positive key buying criterion for the market (Coyne 1986). The key is being able to predict the actions of others in the industry over time; by matching the firm’s resources to the gaps and voids that exist in the industry, a CA can be created. This advantage is sustained if competitors either can not or will not take action to close the gap (Coyne 1986).

In order to offer a formal conceptual definition of the term, it may be helpful to consider the meaning and implications of all three terms. Webster’s Dictionary defines the term "advantage" as the superiority of position or condition, or a benefit resulting from some course of action. "Competitive" is defined in Webster’s as relating to, characterized by, or based on competition (rivalry). Finally, Webster’s shows the term "sustain" to mean to keep up or prolong.

The next step in crafting a formal conceptual definition of SCA is to consider these dictionary definitions in a business-specific context. Based on the definition of "competitive" presented above, SCA should be viewed by a firm from an external perspective. Competition is based on rivalry between two or more parties; thus, the focus of SCA should be how long a firm can keep competitors at bay. A firm who approaches the achievement of SCA from an internal perspective is missing the point. A particular strategy based on firm resources irrespective of what competitors are doing certainly could be sustained. However, it is the external focus – the focus on competitors – that allows a firm to recognize and/or create unique resources. This uniqueness is what gives a firm the advantage. The advantage (or superiority) is sustained (or prolonged) as long as the unique strategy provides added value to customers, and as long as competitors cannot find a way to duplicate it.

framework for assessing a firm’s competitive situation as the first step in achieving an SCA. Unlike past attempts of performance outcome measures (such as profitability and market share), Day and Wensley (1988) suggest using perspectives of both the customer and the competitor to assess the firm’s performance. Measures of customer input such as satisfaction and loyalty balance the competitor focus and help to complete the assessment of SCA of a firm.

Bharadwaj, Varadarajan, and Fahy (1993) also stress the importance of customers in determining the sources of CA; they state that a firm’s skills and resources can be considered sources only if they offer benefits desired by customers.This outward focus on customers links the SCA construct to concepts such as branding, market orientation, organizational learning, innovation, customer value, relationship marketing, and business networks. These linkages are discussed below in greater detail.

THE RELATIONSHIP OF SCA TO OTHER STRATEGIC CONCEPTS

Many ideas in strategy research have been linked to helping in the process of creating and maintaining an SCA. Table 2 provides an overview of many of these topics, along with contributing authors and their relationship to SCA. Four of these topics will be more fully discussed here: market orientation, customer value, relationship marketing, and business networks.

This outward focus on customers links the SCA construct to concepts such as branding, market orientation, organizational learning, innovation, customer value, relationship marketing, and business networks. These linkages are discussed below in greater detail.

THE RELATIONSHIP OF SCA TO OTHER STRATEGIC CONCEPTS

Many ideas in strategy research have been linked to helping in the process of creating and maintaining an SCA. Table 2 provides an overview of many of these topics, along with contributing authors and their relationship to SCA. Four of these topics will be more fully discussed here: market orientation, customer value, relationship marketing, and business networks.


(p. 2). Barney (1991) has probably come the closest to a formal definition by offering 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)" (p. 102



A competitive advantage (hereafter CA) can result either from implementing a value-creating strategy not simultaneously being employed by current or prospective competitors or through superior execution of the same strategy as competitors (Bharadwaj, Varadarajan, and Fahy 1993). The CA is sustained when other firms are unable to duplicate the benefits of this strategy (Barney 1991). Because of its importance to the long-term success of firms, a body of literature has emerged which addresses the content of SCA as well as its sources and different types of strategies that may be used to achieve it.

"potential resources can be most usefully categorized as financial, physical, legal, human, organizational, informational, and relational" (p. 6-7). Prahalad and Hamel (1990) suggest that firms combine their resources and skills into core competencies, loosely defined as that which a firm does distinctively well in relation to competitors. Therefore, firms may succeed in establishing an SCA by combining skills and resources in unique and enduring ways. By combining resources in this manner, firms can focus on collectively learning how to coordinate all employees’ efforts in order to facilitate growth of specific core competencies.

value-added processes comprised of dyadic and network interfirm activities which foster each firm’s SCA.


Directions for Future Research on the SCA Construct Building on the proposed definition of SCA, this article proposes a general theoretical model of how dyadic relationships within a network environment affect SCA. Four propositions are presented in conjunction with this model.

1. P1: Network identity is an antecedent of trust.

2. P2: Communication is an antecedent of both trust and organizational learning.

3. P3: Commitment is the result of both trust and organizational learning.

  1. P4: Both trust and commitment result in SCA.

However, we still lack research that maps how strategy can influence performance by providing firms with an SCA (Varadarajan and Jayachandran 1999). By developing a multi-item measure of the construct, we could empirically examine theoretical models of SCA in a network environment. If researchers are able to examine networks in this manner, our knowledge of how CA is achieved and sustained can only be enhanced.

Keywords: sustainable competitive advantage, strategy, business networks



Early Contributions to the SCA Concept Early literature on competition serves as a precursor to the development of SCA. In 1937, Alderson hinted at a basic tenet of SCA, that a fundamental aspect of competitive adaptation is the specialization of suppliers to meet variations in buyer demand. Alderson (1965) was one of the first to recognize that firms should strive for unique characteristics in order to distinguish themselves from competitors in the eyes of the consumer. Later, Hamel and Prahalad (1989) and Dickson (1992) discussed the need for firms to learn how to create new advantages that will keep them one step ahead of competitors. Alderson was considered "ahead of his time" with respect to the suggestion that firms search for ways to differentiate themselves from competitors. Over a decade later, Hall (1980) and Henderson (1983) solidified the need for firms to possess unique advantages in relation to competitors if they are to survive. These arguments form the basis for achieving SCA.

SCA Defined The idea of a sustainable CA surfaced in 1984, when Day suggested types of strategies that may help to "sustain the competitive advantage" (p. 32). The actual term "SCA" emerged in 1985, when Porter discussed the basic types of competitive strategies firms can possess (low-cost or differentiation) to achieve SCA. Interestingly, no formal conceptual definition was presented by Porter in his discussion. Barney (1991) has come the closest to a formal definition by offering 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)" (p. 102). Based on both Barney’s work and the definitions of each term provided in the dictionary, the following formal conceptual definition is offered: An SCA is 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.

Sources of SCA Day and Wensley (1988) focused on two categorical sources involved in creating a CA: superior skills and superior resources. Other authors have elaborated on the specific skills and resources that can contribute to an SCA. For example, Barney (1991) states that not all firm resources hold the potential of SCAs; instead, they must possess four attributes: rareness, value, inability to be imitated, and inability to be substituted. Similarly, Hunt and Morgan (1995) propose that "potential resources can be most usefully categorized as financial, physical, legal, human, organizational, informational, and relational" (p. 6-7). Prahalad and Hamel (1990) suggest that firms combine their resources and skills into core competencies, loosely defined as that which a firm does distinctively well in relation to competitors. Therefore, firms may succeed in establishing an SCA by combining skills and resources in unique and enduring ways. By combining resources in this manner, firms can focus on collectively learning how to coordinate all employees’ efforts in order to facilitate growth of specific core competencies.



CONTRIBUTIONS TO THE SCA LITERATURE

Many researchers have contributed (either directly or indirectly) to the literature pertaining to SCA. Table 1 presents an overview of these authors along with their main contributions to the concept of SCA. Specific contributions, including a focus on distinctiveness or differentiation, potential SCA sources, and customer perspectives of SCA are discussed below.

Early Contributions to the SCA Concept Early literature on the subject of competition serves as a precursor to the development of the SCA construct. For example, Alderson (1937) hinted at a basic tenet of SCA, that a fundamental aspect of competitive adaptation is the specialization of suppliers to meet variations in buyer demand. Later, Alderson (1965) was one of the first to recognize that firms should strive for unique characteristics in order to distinguish themselves from competitors in the eyes of the consumer. He stated that differential advantage might be achieved through lowering prices, selective advertising appeals, and/or product improvements and innovations. While these concepts lay the core foundation for firms in moving toward an SCA, we now know that given the intense nature of competition today, firms must be more innovative and entrepreneurial in their strategy planning than just lowering prices or improving existing products. In following decades, authors such as Hamel and Prahalad (1989) and Dickson (1992) discussed the need for firms to be willing to learn how to create new advantages that will keep them one step ahead of competitors.



Alderson was considered to be "ahead of his time" with respect to the suggestion that firms search for ways to differentiate themselves from competitors. Over a decade later, authors such as Hall (1980) and Henderson (1983) solidified the need for firms to possess a unique advantage in relation to competitors if it is to survive and continue to exist. These arguments form the basis for achieving an SCA.



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