can guide further empirical testing. It starts by discussing
two pivotal theories of Competitive Advantage: Porter’s
Market Theory and the RBV. Then, a number of proposed
sources of competitive advantage that have more recently
appeared in the literature and are highly supported, namely
Market Orientation, Knowledge Management and Quality of
Execution, are covered. Finally, some deficiencies in the
literature are highlighted, followed by the development of a
Conceptual Framework.
The concept of SCA appeared in 1984, when Day (1994)
referred to strategies that can enable companies to maintain a
competitive advantage that they achieved. Subsequently, in
1985, the specific phrase of SCA was created when the
Porter’s thinking on the types of competitive strategies came
into place (as cited in Hoffman 2000). Barney (1991) has
defined SCA as follows: “a firm is said to have sustained
competitive advantage when it is implementing a value
creating strategy not simultaneously being implemented by
any current or potential competitors and when these firms are
unable to duplicate the benefits of this strategy” (as cited in
Hoffman 2000). This definition interestingly highlights the
sustainability of competitive advantage by emphasising the
importance of the inability of the competition to duplicate
the firm’s strategy.
This idea is supported by Porter as he argues that competitive advantage cannot be sustained by merely being more
efficient at running the business. Porter believes that companies are too pre-occupied with operational effectiveness
re-structuring, re-engineering and improving efficiencies,
and that the latter improvements are necessary but not sufficient (Porter 1985).
2 Porter’s Market Approach
In his book, Competitive Advantage: Creating and sustaining superior performance (1985), he outlined three key
sources of competitive advantage: cost leadership, differentiation, and focus, explaining how each source could lead to
competitive advantage. As indicated by the name, cost
leadership refers to a situation where the firm pursues a cost
below the industry average. This cost advantage is only
valuable if the firm is able to maintain average industry
prices as opposed to operating at a discount, diluting its cost
advantage. It can be achieved via a number of strategies,
including economies of scale, advantageous access to raw
materials and patented technology. At the other end of the
spectrum, the concept of differentiation allows a firm to
price its goods and services above industry average or
maintain a high sales volume by striving to make its goods
and services unique, either via functional features such as the
product, the delivery system or superior quality, or via
emotional features such as the brand image and what it
stands for. Differentiated features are likely to entail a higher
cost. It is thus imperative that they are valuable to the customer in order to allow the firm to recover the incremental
cost in higher pricing. Finally, the focus strategy refers to a
firm’s effort to either offer a specific benefit to a unique
subset of customers, which is not available from other firms
(differentiation) or to focus on a cost advantage which may
arise from more efficient machinery or production processes.
The concept of Differentiation as a source of competitive
advantage was also addressed by the RBV of competitive
advantage, and notably by Peteraf, under the name of
Heterogeneity (Peteraf 1993). The latter in Peteraf’s article
refers to the fact that firms with superior resources will as a
result achieve a competitive advantage over their peers. Peteraf
has developed a general model of resource and firm performance, building on previous work done on the resource-based
view of the firm. A basic assumption of resource-based work is
that the resource bundles and capabilities underlying production are heterogeneous across firms (Barney 1991).
3 The Resource-Based View
The Resource-Based View (RBV) of the firm is of particular
interest in the context of this research as its principal contribution to date has been a theory of competitive advantage.
The resource-based view makes a key assumption, which is
attaining SCA is the a objective of firms, driven by its
leaders. It consequently examines in detail how this sustainable advantage can be attained, which, according to the
RBV, is via the possession of “key resources”, which have
specific characteristics that may include barriers to duplication and appropriability.
3.1 Understanding the Resource-Based View
(RBV) and Its Assumptions
The central focus of the resource-based strategies is on the
continuous search for rents or above average returns (Chaharbaghi and Lynch 1999). The firm’s ultimate objective in a
resource-based approach is generally taken to be above
normal returns (as in IO related theories) (Conner 1991).
Obtaining such returns according to RBV requires either that
the firm’s products be distinctive in the eyes of the buyers or
that the firm selling an identical product relative to competitors must have a low-cost position (Conner 1991).
Thus in RBV, the key focus for an organisation is to
either have unique products or a uniquely low cost, both are
linked in the RBV to the resources that the company uses to
manufacture the product in question. This theory also notes
300
N. El Daly
two pivotal theories of Competitive Advantage: Porter’s
Market Theory and the RBV. Then, a number of proposed
sources of competitive advantage that have more recently
appeared in the literature and are highly supported, namely
Market Orientation, Knowledge Management and Quality of
Execution, are covered. Finally, some deficiencies in the
literature are highlighted, followed by the development of a
Conceptual Framework.
The concept of SCA appeared in 1984, when Day (1994)
referred to strategies that can enable companies to maintain a
competitive advantage that they achieved. Subsequently, in
1985, the specific phrase of SCA was created when the
Porter’s thinking on the types of competitive strategies came
into place (as cited in Hoffman 2000). Barney (1991) has
defined SCA as follows: “a firm is said to have sustained
competitive advantage when it is implementing a value
creating strategy not simultaneously being implemented by
any current or potential competitors and when these firms are
unable to duplicate the benefits of this strategy” (as cited in
Hoffman 2000). This definition interestingly highlights the
sustainability of competitive advantage by emphasising the
importance of the inability of the competition to duplicate
the firm’s strategy.
This idea is supported by Porter as he argues that competitive advantage cannot be sustained by merely being more
efficient at running the business. Porter believes that companies are too pre-occupied with operational effectiveness
re-structuring, re-engineering and improving efficiencies,
and that the latter improvements are necessary but not sufficient (Porter 1985).
2 Porter’s Market Approach
In his book, Competitive Advantage: Creating and sustaining superior performance (1985), he outlined three key
sources of competitive advantage: cost leadership, differentiation, and focus, explaining how each source could lead to
competitive advantage. As indicated by the name, cost
leadership refers to a situation where the firm pursues a cost
below the industry average. This cost advantage is only
valuable if the firm is able to maintain average industry
prices as opposed to operating at a discount, diluting its cost
advantage. It can be achieved via a number of strategies,
including economies of scale, advantageous access to raw
materials and patented technology. At the other end of the
spectrum, the concept of differentiation allows a firm to
price its goods and services above industry average or
maintain a high sales volume by striving to make its goods
and services unique, either via functional features such as the
product, the delivery system or superior quality, or via
emotional features such as the brand image and what it
stands for. Differentiated features are likely to entail a higher
cost. It is thus imperative that they are valuable to the customer in order to allow the firm to recover the incremental
cost in higher pricing. Finally, the focus strategy refers to a
firm’s effort to either offer a specific benefit to a unique
subset of customers, which is not available from other firms
(differentiation) or to focus on a cost advantage which may
arise from more efficient machinery or production processes.
The concept of Differentiation as a source of competitive
advantage was also addressed by the RBV of competitive
advantage, and notably by Peteraf, under the name of
Heterogeneity (Peteraf 1993). The latter in Peteraf’s article
refers to the fact that firms with superior resources will as a
result achieve a competitive advantage over their peers. Peteraf
has developed a general model of resource and firm performance, building on previous work done on the resource-based
view of the firm. A basic assumption of resource-based work is
that the resource bundles and capabilities underlying production are heterogeneous across firms (Barney 1991).
3 The Resource-Based View
The Resource-Based View (RBV) of the firm is of particular
interest in the context of this research as its principal contribution to date has been a theory of competitive advantage.
The resource-based view makes a key assumption, which is
attaining SCA is the a objective of firms, driven by its
leaders. It consequently examines in detail how this sustainable advantage can be attained, which, according to the
RBV, is via the possession of “key resources”, which have
specific characteristics that may include barriers to duplication and appropriability.
3.1 Understanding the Resource-Based View
(RBV) and Its Assumptions
The central focus of the resource-based strategies is on the
continuous search for rents or above average returns (Chaharbaghi and Lynch 1999). The firm’s ultimate objective in a
resource-based approach is generally taken to be above
normal returns (as in IO related theories) (Conner 1991).
Obtaining such returns according to RBV requires either that
the firm’s products be distinctive in the eyes of the buyers or
that the firm selling an identical product relative to competitors must have a low-cost position (Conner 1991).
Thus in RBV, the key focus for an organisation is to
either have unique products or a uniquely low cost, both are
linked in the RBV to the resources that the company uses to
manufacture the product in question. This theory also notes
300
N. El Daly