Sustainable Competitive Advantage Through Core Competencies in a Resource Based Approach
Question:
The ability of some firms to sustain longer term competitive advantage relates to their capabilities according to the resource based theory of the firm. Summarise this approach to explain why some firms perform better than others in an industry.
Sustainable Competitive Advantage
Within all economies there have always been firms that are destined for success and firms that are doomed to failure... or have there? Is this an inevitable outcome predestined by exterior market forces or are there generalizations we can make about the fundamental nature of business performance that will help allow managers and entrepreneurs to shape their firms to make economic profits even into the long run? It is obvious that some firms sustain longer term competitive advantage than others and economists have different theories that purport their opinions on this subject.
As is suggested by the well known Harvard economist Michael Porter, the objective of a firm is to search for, exploit, and protect opportunities to add value. Its ability to do this is dependent on its ability to keep its costs as low as possible and its ability to limit actual and potential competition. Porter believes that the fundamental factors of success are what he calls the industry attractiveness and the firm’s ability to manage its cost drivers and discusses these ideas in his successful texts, Competitive strategy(1980) and Competitive advantage(1985). These ideas however began to come under fire in the 1990’s in a Harvard business review article with the idea of competitive advantage being held with the use of core competencies “an area of specialised expertise that is the result of harmonizing complex streams of technology and work activity” (Prahalad and Hamel, 1990) and with the emergence of what became known as the Capabilities approach to firm performance or Resource Based Theory. Porter’s explanation of firm performance was questioned and economists have tried to delve deeper
The ability of some firms to sustain longer term competitive advantage relates to their capabilities according to the resource based theory of the firm. Summarise this approach to explain why some firms perform better than others in an industry.
Sustainable Competitive Advantage
Within all economies there have always been firms that are destined for success and firms that are doomed to failure... or have there? Is this an inevitable outcome predestined by exterior market forces or are there generalizations we can make about the fundamental nature of business performance that will help allow managers and entrepreneurs to shape their firms to make economic profits even into the long run? It is obvious that some firms sustain longer term competitive advantage than others and economists have different theories that purport their opinions on this subject.
As is suggested by the well known Harvard economist Michael Porter, the objective of a firm is to search for, exploit, and protect opportunities to add value. Its ability to do this is dependent on its ability to keep its costs as low as possible and its ability to limit actual and potential competition. Porter believes that the fundamental factors of success are what he calls the industry attractiveness and the firm’s ability to manage its cost drivers and discusses these ideas in his successful texts, Competitive strategy(1980) and Competitive advantage(1985). These ideas however began to come under fire in the 1990’s in a Harvard business review article with the idea of competitive advantage being held with the use of core competencies “an area of specialised expertise that is the result of harmonizing complex streams of technology and work activity” (Prahalad and Hamel, 1990) and with the emergence of what became known as the Capabilities approach to firm performance or Resource Based Theory. Porter’s explanation of firm performance was questioned and economists have tried to delve deeper
Bibliography: - Mctaggart, Findlay and Parkin(2007) Microeconomics 5th edition, Pearson Education, NSW - R Perman and J Scouller (1999) Business Economics, Oxford university press, New York - http://en.wikipedia.org/wiki/Core_competency