Business Paper on Competitive Advantage and Sustainability

Competitive Advantage

Organizations operate within a constantly changing external environment, and to sustain their competitive advantage, they have to maintain their positioning in the industrial markets in which they operate. Competitive advantage in any market emerges when either the external environment or the internal operations of an organization change. For external changes to result in a competitive advantage, the company must possess a certain set of capabilities and resources which enable the organization to take advantage of opportunities presented through the external environment (Porter, 2008). Industry turbulence can result in greater opportunities for change, and in such an environment, the organizational performance depends on the differences between the resources and capabilities of the companies.

The ability to recognize changes in an industry and respond to them effectively requires effective entrepreneurial management capability. An entrepreneur addresses industry gaps and provides a value proposition to targeted population groups. To gain competitive advantage, organizations should understand how their key resources and capabilities fit within the general market conditions. An entrepreneurial management capability pushes organizations into new industry opportunities and also expands their capacity to address consumer needs (Othman et al., 2015). Furthermore, the management capability is also crucial in the day-to-day decision-making practices. Every company needs to make spontaneous decisions at times. In most cases, responding to abrupt changes only creates a competitive advantage for organizations that are flexible enough to respond proactively rather than reactively.

Rapid response to market changes can only be achieved if an organization possesses sufficient information about the market changes. This makes information one of the most important resources for a sustainable competitive advantage. The business environment has changed significantly over the years, and the pace of change continues to accelerate day by day. As such, organizations are drifting away from the conventional analysis of market research and economic data to more robust approaches that are aimed towards effective proactive response to market changes (Moingeon and Edmondson, 1996). Information is required to anticipate external changes. In this practice, organizations have direct relationships with their competitors, customers, and suppliers, through which they gain the required information. Through these business relationships, organizations can get ‘early warning signs’, which enable them to make informed yet fast decisions. Through the collected information, companies can overcome the threats of competition through dynamic actions.

The use of information as a resource goes hand in hand with information technology capabilities. According to Ong (2008), information technology has made significant impacts on SMEs and the general business environment. Information technology capability is comprised of three components namely operations, knowledge, and objects within the organization. An effective agent, aimed at improving the competitive advantage of an organization, requires competence in the information technology use. In the contemporary business environment, firms are shifting to IT-based operations such as payment methods, marketing approaches, and even customer management practices. For instance, banks in Kuwait have to be conversant with the industry changes in technology and thus be ready to change with the times. Only those with manage to embrace information technology attain competitive advantage over the rest that stick to traditional methods in marketing, customer management, and communication. With information technology, the companies also enhance communication capabilities, which foster growth and competitive spaces as organizations expand their engagements with stakeholders in the industry.

In addition to information, firm have to possess sufficient flexibility to be capable of changing with the time. Rigid organizational structures limit the potential to adapt to changing markets. For one, rigidity increases bureaucracy in the decision-making process. Bureaucracy, in effect, results in time waste, which also impacts negatively the ability of a firm to deliver products, market goods and services, and satisfy the needs of the consumers (Othman et al. 2015). With flexibility, information and IT resources, organizations enhance their innovation capability. Dynamic industries require constant innovation to improve existing products and develop new ones. Through such innovation, companies get additional markets for their products and also grow their existing customers hence improving their competitive advantage.

Companies also need human capital resources to foster competitive advantage. All work in an organizational setting is conducted by employees and/ or supervised by employees in case machines are used. The employees should be resourceful for the development of products and services that are different, characterized by the organizational value proposition and marketable by the firm. Human capital resources that can foster this include intelligence, experience, judgment, relationships, training, and insight of the individual workers and managers in a firm. Each of these contributes significantly to the decision-making process within a company and hence fosters competitive advantage (Othman et al. 2015). The human capital resources are supported by organizational capital resources which include coordinating and controlling systems, formal and informal planning, and the firm’s reporting structures. Clear communication both horizontally and vertically contributes to the efficiency in organizational operations and the growth of competitive advantage.

While the different resources and capabilities may be suitable for attaining competitive advantage, sustainable competitive advantage requires much more than the resources and capabilities. Barney (1991) posited that for sustainable competitive advantage to be achieved, organizations have to invest in products that are valuable, rare, inimitable, and non-substitutable. These four qualities define the difference between sustainability of a competitive advantage and lack of that sustainability.

Sustainable Competitive Advantage

Achieving a sustainable competitive advantage in any industry requires an evaluation of the company position in its industry. The value, rarity, inimitability, and non-substitutability (VRIN) model described by Barney (1991) is one of the strategies through which competitive advantage can be evaluated. In the Kuwaiti banking sector, competition has increased significantly over the recent years. This is mostly attributed to technological advancement in the banking sector, which has resulted in greater competitive advantage among bigger banking institutions. According to Limam (n.d), Kuwaiti banks can only accomplish sustainable competitive advantage by having skilled personnel, continuous capacity building for the bank, staff, separation of the bank management from the bank ownership, and expanding the equity share to increase the base of ownership. However, Limam does not explain how each of these factors can contribute to the growth of a competitive advantage in the banking sector. These can, however, be linked to the concepts of organizational capital resources and human capital resources in the company. In this regard, building human capital resources is seen as an approach towards inevitable sustainable competitive advantage.

The VRIN is also described as the resource-based approach to competitive advantage, which is characterized by the evaluation of a firm’s resources relative to the competitors (Ioannou 2013). The approach enables an organization to consistently assess its resources and capabilities, understand differences between the firm’s value propositions and those of the competitors, and subsequently direct the available resources towards targeted organizational growth. Knott (2015) also posited that through better resource specification, the limitations of the VRIN model in competitive advantage improvement could be alleviated.  The model goes hand in hand with different business strategies that used to gain a competitive advantage in businesses. For instance, Porter (2008) discussed some competitive strategies which organizations can use to create sustainable competitive advantage. Approaches such as cost leadership, differentiation, focus, and combined strategies have been used in different sectors in the past to ensure competitive advantage in different industries. The VRIN model fits perfectly in the differentiation approach to sustainable competitive advantage since it addresses subjects such as distinction of product characteristics (Margretta 2012). Each of these methods can be used independently with strong positive results in competitive advantage. Similarly, a combination of different strategic approaches can help to foster competitive sustainability.

Competitive advantage is an important determinant of success. The objective of all organizations is to make economic profits. For instance, a business like the Radisson Blue Hotel in Kuwait aims at attracting as many customers as possible and to make profits through it. To achieve this, the hotel invests in the development of its staffs and they provide excellent services as evidenced by customer reviews on the hotel’s website. Such activities that give companies the ability to increase their income would be recognized as their competitive advantage. Businesses can implement strategies such as differentiation, cost leadership, and/ or a combination of different approaches to accomplish competitive advantage. The VRIN approach to sustainable competitive advantage offers distinctive practices that organizations can use to evaluate and utilize their resources to build competitive advantage.

 

Reference List

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