QUESTION: Please describe, in detail, how the resource-based overview or attitude for a firm helps explain competitive advantage for that firm.
Competitive advantage based on resources is based on the following principle: "An Opportunity by itself has no real value unless a company has the capacity (i.e. resources) to take advantage of that opportunity." (Wheelen & Hunger, pg. 139).
In order for an organization to be successful, it must have valuable resources (employees, land, equipment, buildings, tools, etc), core competencies, and skilled employees/managers, who take ownership in their duties and responsibilities. However, just because a firm has all of these important assets, management must also be experts in how to use them efficiently/effectively.
There are two types of strategies to help a company gain a competitive advantage. These are Cost Leadership and Differentiation.
Cost leadership is a competitive strategy that a company can assume that they strive to have the lowest cost of product.
The leadership must continuously look for ways to cut costs, such as:
1. saving time on assembly lines,
2. relocating distribution centers closer to the firm, suppliers, and customers,
3. grouping specialists, employees, and materials together for new ideas, identifying defects, and making the production line more efficient.
Differentiation is the perception that the product is unique to the company. This allows a company to charge more than its competition. To do this a firm must realize what they are exceptional at, what they must do to keep their product/service competitive, while building their reputation and aggressively marketing their product.. The firm must understand:
1. Their company's primary competitive differentiators today;
2. its best chance for equal or greater differentiation tomorrow; and
3. the most important business initiatives under way to create that future competitive differentiation...the most important processes to support are those that are both core and mission-critical." (Moore, 2006)
A company must look at where its resources are best positioned to compete and then adopt a either a Cost leadership Strategy or a Differentiation Strategy. A cost benefit analysis should be performed to see where strength lie. If the company is capable of producing massive quantities of the proposed product cheaply, then the company will adopt a cost leadership. If the company cannot produce the numbers of product to turn a profit, then they would look toward differentiation.