Kazakh National Agrarian University
Strategic Management Models:
3 Modern Views for Sources of Competitive Advantage
by Dr. Almaz Tolymbek
In a “one-world” nowadays economy, there are numerous
approaches vying to offer strategic models for companies in their quest
for sustainable competitive advantage. Moreover, the competitive landscape
has changed dramatically over the last two decades, which prompted search
for new strategic thinking that would account for globalization and
IT revolution-triggered implications for businesses operating in various
industries and across national borders.
Indeed, globalization of markets and industries as reflected in the unprecedented
flow of goods and services, financial capital, and knowledge across
countries is conducive to hyper-competition, i.e., extremely intense
rivalry among competing firms, characterized by escalating and increasingly
aggressive competitive moves. This was conditioned by reduced restraints
on business transactions across national boundaries (such as tariffs);
difficulty in determining boundaries of an industry; and also broadened
range of opportunities for acquiring resources and selling products
and services.
On the other hand, technological breakthroughs as evidenced by increasing rate of innovations
and rising speed at which technologies become production and communication
tools for businesses also lead to redefining the role of technology
and its applications in achieving competitive advantage.
Thus, among new sources of competitive advantage, we can point out to expedient access to and
use of competitive intelligence, diffusion of new and transformed business
relationships throughout the economy, integration of new business processes
into organizational structure and operations, and strategic flexibility.
This new reality is reflected not only in shorter product life cycles and rapid technology
replacements, but also through new business strategic options and approaches
stemming from e-business and e-commerce models.
In this regard, the paper seeks to compare three modern strategic management models offering different perspectives
on achieving and sustaining competitive advantage for businesses in
today’s global economy. These models are based on the following frameworks
for strategic thinking:
Industrial/Organization (I/O) View
Resource-Based View (RBV)
1. The Industrial/Organization (I/O) view, as exemplified by Michael Porter’s Five-Forces Model, focuses
on the dominant influence of the external environment on a company’s
choice of strategy. In other words, it posits that the external forces
constrain the range of viable strategies resulting in above-average
returns. It argues that companies competing within a particular industry
possess similar resources and pursue generic strategies such as cost
leadership and differentiation.
Underpinning assumptions are that resources for implementing strategies
are highly mobile across firms, and that due to this mobility any resource
differences between firms will be short lived. This popular model
reinforces the importance of economic theory and offers an analytical
approach that was previously lacking in the field of strategy. In particular,
it
describes the forces that determine the level of competition and profit
potential in a given industry and thus suggests how a company can use
the analysis to establish a competitive advantage. By way of noting
I/O’s limitation, it should be noted that to gain competitive advantage,
only the two above generic strategies are offered and, thus, a company’s
unique internal resources and strengths or weaknesses are not accounted
for.
2. The Resource-Based View of Company (RBV) is a distinct
approach to identifying what constitutes the source of competitive advantage.
In contrast to I/O view, RBV finds it within a company itself by looking
into its portfolio of different tangible and intangible assets defined
as
resources (equipment, employee skills, patents, talented managers,
finances, etc.) and capabilities (capacity for a set of resources to
perform a task or activity in an integrative manner). Their combination
would feature
a company’s core competencies as sources of competitive advantage over its rivals.
To ensure a wide moat for any business, RBV places emphasis on sustainable
competitive advantage that is durable and hard to imitate by competitors.
Major tenet of RBV is to regard a company's unique resources and capabilities
(valuable, rare, and non-substitutable assets)
as a cornerstone for building a strategy that would take advantage of opportunities
in the external environment to ensure a sustainable competitive advantage
Among evident limitations of RBV is lack of guidelines as to what processes
should be activated to deploy a company’s core competences. Another
drawback is its narrow inner focus on individual company’s resources
with few clues on ways of linking its competences to specific customer
demands. Thus, this model was criticized for the absence of analytic
and strategy devising tools, which would constrain its capacity for
generalization and application.
By way of addressing limitations of the I/O and RBV models, other
promising conceptual approaches have been sought of which Delta Model
is a promising one.
3. Delta Model (DM)
is a customer-centric perspective as compared to a product-centric
approach characteristic of traditional strategic thinking. This model
was developed by Dean Wilde and Arnoldo Hax (MIT Sloan School of Management,
2003) as an outcome of analysis of over hundred US and international
corporations. [1] In a difference from the two above schools of strategic
thinking, DM defines Customer Bonding as a primary source of competitive advantage.
In other words, it contends that in the long run companies don't win
by beating the competitors, but do so by achieving durable relationship
with customers based on transparency, fairness, and long-term benefits
for all parties involved. In this regard, strategy is not war with competitors
or unique, stand-alone core competences of a company, but an extended
network including a company, its customers, suppliers, and complementors
(firms that provide products or services enhancing the main company’s
products), which would foster cooperation in developing unique customer
propositions.
In this
model, complementors and other members of the network are seen as critical
partners within this expanded enterprise, which takes advantage of the Internet-age
networked economy. The customer bonding can be attained by investing
“in and around the product by customers and complementors” so the
result would be “collateral assets,… such as learning how to use
the product, incorporating customer-specific data, integrating purchased
add-ons, and customizing interfaces to the product.” [2] DM envisions
three major strategic options to create customer bonding, which are
as follows:
- Best Product, similar to Porter’s options of low cost and differentiation
- Total Customer Solution, focusing on customized value propositions
- System Lock-In, aiming at building exclusive distribution channels
to lock out competitors or creating a wide network of complementors
working around a company’s product/service to lock in customers.
What makes this
approach attractive is its ability to link an offered strategy with
its implementation by incorporating the concepts of adaptive
processes, aggregate and granular metrics, and experimentation and feedback.
In this respect, “Delta model identifies the core processes of the
business and provides a guide for how they need to function differently
to achieve different strategic positions.” [2]
Thus,
a distinguishing strength of Delta model is its new vision of sources
of competitive advantage, a different set of strategic options, and
integration of strategy formulation with its execution.
There have been multiple case studies illustrating
successful application of Delta model in the real business context including
companies in different industries such as health care, consumer products,
automobile manufacturing, retail, e-commerce, software design, and computer
and IT industries.
Those companies having employed this approach used
the following strategies within the three options outlined in the table
below:
Table 1
Best Product
|
Total Customer
Solutions |
System Lock-in |
Low Cost |
Customer Integration |
Restricted Access |
Effective Arm-Length Treatment of Customers |
Redefining Customer Experience |
Dominant Exchange |
Differentiation |
Horizontal Breadth |
Proprietary Standards |
Source: Website: Dean and Company (www.dean.com),
section: Delta Model: The Triangle
How can researchers go about choosing between I/O, RBV, and DM for their effective
use in strategy analysis and selection by businesses operating in countries
such as Kazakhstan? By way of mapping a tentative way to an answer,
it can be noted that depending on the technological level and structure
of a particular industry, different models may be more appropriate in
figuring out the most potent sources of competitive advantage for businesses
with respective implications for the choice of viable strategies. For
instance, without in-depth preliminary national industry analysis, it
can be suggested that agriculture and food manufacturing may be sectors
as appropriate subjects for I/O-based strategy development. Major national
companies operating in oil/gas, mineral resource, and transportation
industries would possibly appear as relevant cases for RBV-based analysis
for strategic positioning. Finally, due to its more advanced stage in
reliance on latest IT cutting-edge progress, financial (banking, insurance,
and investment) sector seems to lend itself as a suitable candidate
for DM-inspired search for strategic options to secure sustainable competitive
advantage.
However, this is a preliminary suggestion that should be tested by
further industry and market-specific research, which would take into
account a more comprehensive picture of essential factors revealed through
both external and internal audit for a company in question. In this
regard, prospective business strategy studies of different industries
and companies in Kazakhstan might lay ground for further testing for
appropriateness and practical value as well as refining of the three
frameworks reviewed in this paper.
References:
- Website: Dean and Company (www.dean.com), section: Delta Model:
Research, retrieved 01/11/2011
- Website: Dean and Company (www.dean.com), section: Delta Model: Strategic
Positioning, retrieved 01/11/2011.
Paper for KazNAU Round Table, December 2011, presented by Dr. Almaz
Tolymbek