Foundations for Competitive Advantage
Competitive advantage is the conditions that allow an organization or even a country to produce goods and services at a lower price. As Bacanu (2016) stated, competitive advantage is a concept mentioned and highlighted in current books related to strategic management. The idea was introduced by Michael E. Porter in 1979, in his literature "How Competitive Force Strategies,” published in Harvard Business Review. In 1985, Porter's exploded the competitive advantage concept as part of his strategic management theory in his book "Competitive Advantage" (Bacanu, 2016).
Porter (1985) stated that competitive advantage is at the heart of the firm's performance in competitive markets. It grows fundamentally out of the firm's value can create for its buyers that exceed its cost of building it. For an organization to cope with competition, they have to establish a strategy. In business, strategy is the plan, choices, and decisions used to guide a company to greater profitability and success (Kourdi, 2015). The plan, choices, and decisions should be in accordance with the organization's vision and goals, understating competitive forces or forces that determine the profitability of an industry (Porter’s 1979). Five points shape the competition, and each of them has a subdivision. These forces and subcategories are the following:
1. Threats of entry are characterized by new entrants to an industry that brings new capacity and a desire to gain market share that puts pressure on prices but also the threat of entry puts a cap on the profit potential. When the threat is high, incumbents must lower their costs or boost investment to deter new competitors (Porter, 2008). There are seven barriers to entry, which are: (a) supply-side economics of scale, (b) demand-side economies of scale, (c) customer switching costs, (d) capital requirements, (e) incumbency advantage independent of seizing, (f) unequal access to distribution channels and (g) restrictive government policy (Porter, 2008).
2. The power of suppliers is characterized by capturing more value for themselves by charging higher prices, limiting quality or services, or shifting costs to industry participants (Porter, 2008).
3. The power of buyers is the flip side of the power of supplies capturing more value by forcing down prices, demanding better quality or more service, and generally playing industry participants off against one another, all at the expense of industry profitability (Porter, 2008).
4. The threat of substitutes is identified by performing the same or similar function as an industry’s product by different means (Porter, 2008).
5. Rivalry among existing competitors impacts the industry profits depending on two factors: (a) the intensity for which the companies compete and (b) the basis on which they compete (Porter, 2008).
Knowing and understanding the five forces that shape the industry will provide the baseline for identifying straightness and weakness. Identifying these concepts will provide leaders of the organization with valuable data and information to create strategies that will landscape the path toward the goals and objectives of the organization.
Technology as part of the strategies contributes to the efficiency of providing services and products to the customers. Ricken and Malcotsis (2011) stated that technology innovation changed how people experience private and public life. For example, physical innovation, such as mobile communication, allows to connect with people around the world, the internet facilitates the search and finding of information, credit cards and online payments facilities the buyer and payment power for goods and services and medical innovations provide better treatments of diseases or even their prevention (Ricken and Malcotsis, 2011). In logistics, technology innovation had contributed to the reduction of delivery time and flow of products and information. Also, soft technology had contributed to improving how goods are provided, marketed, and sold. Also, concepts as just-in-time production had provoked a reduction in capital stock for goods, such as mobile, computers, and automobile, reducing the prices and providing a more accessible and affordable product for customers (Ricken and Malcotsi, 2011).
Innovation technology could be associated and create a risk to the organization that is implementing the technology. The perception of risk varies depending on the leadership, stakeholder, and corporate behavior toward risks. The more complex technologies are, the more significant the gap between perceived and actual risks (2016 IEEE International Professional Communication Conference – IPCC). For example, organizations may encounter information technology adoption problems due to bureaucratic structure and organizational behavior.
In a small business, the executive decision must be aligned with the vision and strategy of the organization. The theory of planned behavior (TPB) states that a business executive’s decision or behavioral intention (BI) is to pursue a course of action. For example, creating a presence on the web is a function of attitude (A), subjective norm (SN), and perceived behavioral control (PBC), which will ultimately result in action (Riemenschneider, Harrison & Mykytyn, 2003). In 1980, Ajzen and Fishbein introduced the theory of planned behavior (TPB), which modified the theory of reasoned action (TRA). The TPB posits that beliefs about attitude, control, and norms influence behavior and are mediated by intentions. Ajzen (2011) defines intention as "a person's readiness to perform a given behavior." The intention has three cognitive antecedents (Ajzen, 1991): attitude refers to the individual's evaluation (favorable or unfavorable) of the target behavior; subjective norms capture the opinions of social reference groups (such as family and friends) regarding whether the individual should engage in the conduct; and perceived behavioral control (PBC) denotes the perceived ease or difficulty of performing the behavior (Kautonen, Gelderen, & Fink, 2015). As a component of the design and implementation of strategies may be helpful to consider the target audience's behavior in different scenarios and validate the profitability and cost-effectiveness before any possible decision.
References
Ajzen, I. (1991). The theory of planned behavior. Organizational Behavior and Human Decision Processes, 50(2), 179-211.
Ajzen, I. (2011). Theory of planned behavior. Retrieved from: http://people.umass.edu
Fink, M., Gelderen, M., & Kautonen, T. (2015). Robustness of the theory of planned behavior in predicting entrepreneurial intentions and actions. Entrepreneurship: Theory and Practice, (3), 655. https://doi-org.ezp.waldenulibrary.org/10.1111/etap.12056
Harrison, D. A., Mykytyn, J. . P. P., & Riemenschneider, C. K. (2003). Understanding its adoption decisions in small business: integrating current theories. Information & Management, 40, 269–285. https://doi-org.ezp.waldenulibrary.org/10.1016/S0378-7206(02)00010-1
Kourdi, J. (2015). Business strategy: a guide to effective decision-making. New York: Public Affairs, 2015. http://ezp.waldenulibrary.org
Malcotsis, G., & Ricken, B. (2011). The Competitive Advantage of Regions and Nations : Technology Transfer Through Foreign Direct Investment. Farnham, Surrey, England: Routledge. https://ezp.waldenulibrary.org
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review, (1), 78. https://ezp.waldenulibrary.org
Risk perception of complex technology innovations: Perspectives of experts and laymen. (2016). 2016 IEEE International Professional Communication Conference (IPCC), Professional Communication Conference (IPCC), 2016 IEEE International, 1. https://doi-org.ezp.waldenulibrary.org/10.1109/IPCC.2016.7740510
