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Looking inside for competitive advantage

Looking inside for competitive advantage

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Published by xaxif8265
Strategic managers and researchers have long been interested in understanding
sources of competitive advantage for firms. Traditionally, this effort has focused
on the relationship between a firm's environmental opportunities and threats on
the one hand, and its internal strengths and weaknesses on the other.
Summarized in what has come to be known as SWOT (Strengths, Weaknesses,
Opportunities, and Threats) analysis, this traditional logic suggests that firms
that use their internal strengths in exploiting environmental opportunities and
neutralizing environmental threats, while avoiding internal weaknesses, are
more likely to gain competitive advantages than other kinds of firms.,
This simple SWOT framework points to the importance of both external and
internal phenomena in understanding the sources of competitive advantage. To
date, the development of tools for analyzing environmental opportunities and
threats has proceeded much more rapidly than the development of tools for
analyzing a firm's internal strengths and weaknesses. To address this deficiency,
this article offers a simple, easy-to-apply approach to analyzing the competitive
implications of a firm's internal strengths and weaknesses.
Strategic managers and researchers have long been interested in understanding
sources of competitive advantage for firms. Traditionally, this effort has focused
on the relationship between a firm's environmental opportunities and threats on
the one hand, and its internal strengths and weaknesses on the other.
Summarized in what has come to be known as SWOT (Strengths, Weaknesses,
Opportunities, and Threats) analysis, this traditional logic suggests that firms
that use their internal strengths in exploiting environmental opportunities and
neutralizing environmental threats, while avoiding internal weaknesses, are
more likely to gain competitive advantages than other kinds of firms.,
This simple SWOT framework points to the importance of both external and
internal phenomena in understanding the sources of competitive advantage. To
date, the development of tools for analyzing environmental opportunities and
threats has proceeded much more rapidly than the development of tools for
analyzing a firm's internal strengths and weaknesses. To address this deficiency,
this article offers a simple, easy-to-apply approach to analyzing the competitive
implications of a firm's internal strengths and weaknesses.

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Published by: xaxif8265 on Sep 30, 2011
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Looking inside for Competitive AdvantageAuthor(s): Jay B. BarneySource:
The Academy of Management Executive (1993-2005),
Vol. 9, No. 4 (Nov., 1995), pp. 49-61Published by:
Stable URL:
Accessed: 09/08/2011 02:44
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(?AcademyofManagementExecutive,1995Vol. 9No. 4
Looking
inside
for
competitive
advantage
JayB.BarneyExecutive Overview
Strategic managersand researchers havelongbeeninterested inunderstandingsources of competitive advantagefor firms.Traditionally,thiseffort has focusedon therelationshipbetweena firm'senvironmentalopportunities and threats onthe one hand, anditsinternal strengths and weaknesses on theother.Summarizedinwhat hascometo be known as SWOT(Strengths, Weaknesses,Opportunities, andThreats) analysis,thistraditionallogic suggeststhat firmsthat use their internal strengthsinexploitingenvironmental opportunities andneutralizing environmentalthreats,whileavoidinginternalweaknesses,aremore likely to gaincompetitive advantagesthanother kinds of firms.,Thissimple SWOTframework pointsto theimportance of both external andinternal phenomenainunderstandingthesourcesofcompetitive advantage. Todate,thedevelopmentof tools foranalyzingenvironmentalopportunitiesandthreats hasproceededmuch morerapidlythan the development of tools foranalyzinga firm's internalstrengthsandweaknesses. To address thisdeficiency,this article offers a simple, easy-to-apply approachto analyzing the competitiveimplications of a firm's internalstrengths andweaknesses.
*.environmentalanalysis. . . is onlyhalfthe story.
The historyofstrategic management research can beunderstood as anattemptto "fill in the blanks" createdbythe SWOTframework;i.e.,tomovebeyondsuggestingthatstrengths, weaknesses, opportunities, and threatsare importantforunderstandingcompetitive advantagetosuggest models andframeworksthat can be used toanalyzeand evaluatethesephenomena. MichaelPorter andhis associateshave developedanumberofthesemodels and frameworksforanalyzing environmentalopportunitiesandthreats.2Porter's workon the"fiveforces model,"therelationshipbetweenindustry structure andstrategicopportunities, and strategic groupscan allbe understoodas an effort tounpacktheconceptsof environmentalopportunitiesand threatsinatheoreticallyrigorous, yet highly applicable way.However, the SWOTframeworktells us thatenvironmentalanalysis-nomatterhow rigorous-isonlyhalf thestory.Acompleteunderstandingofsources ofcompetitive advantage requirestheanalysisof afirm's internalstrengthsandweaknesses aswell.3 Theimportanceofintegratinginternal withenvironmentalanalysescan be seenwhenevaluatingthesources ofcompetitiveadvantageofmany firms. Consider,forexample,-WalMart, afirmthathas,for thelasttwenty years,consistently earned areturn onsales twicetheaverageofitsindustry;SouthwestAirlines,afirmwhoseprofitscontinuedtoincrease, despitelossesat other U.S.airlinesthat totaledalmost$10billion from 1990 to1993;and
49
 
Academy of Management Executive
-Nucor Steel,afirmwhose stockpricecontinuedto soar through the 1980sand '90s, despite thefactthatthemarket value of most steel companies hasremained flat or fallen duringthesame time period.4These firms, and many others,have allgained competitive advantages-despitetheunattractive, high threat,lowopportunity environments withinwhich they operate. Even the most careful and complete analysis of these firms'competitiveenvironmentscannot, by itself, explaintheirsuccess. Suchexplanations mustalso include these firms' internalattributes-their strengthsandweaknesses-as sourcesofcompetitive advantage. Followingmore recentpractice, internal attributes will be referred to as resources and capabilitiesthroughout the following discussion.5A firm's resources and capabilities include allofthe financial, physical, human,and organizationalassets usedbya firmtodevelop, manufacture, and deliverproductsorservicesto itscustomers. Financial resources include debt, equity,retained earnings,and so forth.Physicalresourcesinclude the machines,manufacturing facilities,andbuildingsfirms use in theiroperations. Humanresources includeall theexperience, knowledge, judgment,risktakingpropensity, and wisdomofindividuals associated with a firm. Organizationalresourcesinclude thehistory,relationships, trust,andorganizational culturethatareattributesofgroupsofindividuals associated with afirm, alongwith afirm's formalreporting structure, explicit managementcontrolsystems,andcompensation policies.In theprocessoffillinginthe "internal blanks" createdbySWOTanalysis,managersmust addressfourimportant questionsabout theirresourcesandcapabilities: (1)thequestionofvalue, (2)thequestionofrareness, (3)thequestionofimitability,and(4)thequestionoforganization.TheQuestionof ValueTobegin evaluatingthecompetitive implicationsof afirm'sresources andcapabilities, managersmust firstanswer thequestionofvalue: Do afirm'sresources andcapabilitiesadd valueby enablingittoexploit opportunitiesand/orneutralize threats?Theanswer tothisquestion,for somefirms,has beenyes. Sony,forexample,hasagreatdealofexperienceindesigning, manufacturing,andsellingminiaturized electronictechnology. Sonyhas usedthese resources toexploitnumerousmarketopportunities, including portable tape players, portablediscplayers, portable televisions,andeasy-to-hold8mmvideo cameras. 3M hasuseditsskills andexperienceinsubstrates, coatings,andadhesives, alongwith anorganizationalculturethat rewards risktakingandcreativity,toexploitnumerousmarketopportunitiesin officeproducts, includinginvisibletapeand
Post-It?T
Notes.Sony'sand 3M'sresources-includingtheirspecifictechnologicalskills andtheir creativeorganizationalcultures-made itpossiblefor thesefirms torespond to,and evencreate,newenvironmentalopportunities.Unfortunately,for otherfirms,theanswer to thequestionofvalue hasbeenno.Forexample,USX'slong experienceintraditionalsteel-making technologyandthe traditional steelmarket madeitalmostimpossibleforUSX torecognizeandrespondtofundamentalchangesin thestructure of thesteelindustry.Becausetheycould notrecognizenewopportunitiesandthreats,USXdelayeditsinvestmentin, amongotheropportunities,thin slabcontinuouscastingsteel
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