Competitive advantage and internal organizational assessment
W. Jack Duncan, Peter M. Gintei, and Linda E. Swayne Executive Overview
It is generally agreed in the strategic management literature that internal organizational assessment is less developed theoretically and practically than other areas of situation analysis. This paperpresents a four stage approach to analyzing a firm's internal strengths and weaknesses and illustrates how the technique can facilitate strategy formulation through the integration of value chain concepts and the incorporation of the most recent findings on internal resources and capabilities. A case example is used to illustrate how the approach can be applied by strategic decision makers as a toolfor exploring the potential of their companies for sustained competitive advantage.
Jay Barney observed that "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."' Indeed, discussions of strategic management comfortably refer to strategic issuediagnosis, scenarios, Porter's industry attractiveness analysis, and a multitude of other techniques designed to examine potentially important strategic factors outside the organization.^ Discussions of internal organizational assessment, by contrast, are more often functional assessments of financial, human resource, information systems, and marketing strengths and weaknesses, rather than attempts toidentify the present and potential competitive advantages of the firm. Effective strategic management requires an understanding of organizational resources and competencies as well as how each contributes to the formation of organizational strengths and ultimately to the development of a competitive advantage. Focusing on the uncontrollable external environment highlights the importance ofadapting to change, fitting organizations to the larger environment, and understanding that the rules of success are written outside individual business firms. The relatively more sophisticated status of external environmental analysis may reflect little more than
threat bias, or the tendency to iocus on the things that can do harm to organizations. Adaptability, fit, understanding externally imposedrules of success, and competitive forces, however, are only part of the formula for achieving competitive advantage. Strategic decision makers need a systematic technique for scanning their internal organization. By paring down long lists of strengths and weaknesses and determining which ones are competitively relevant, they can understand precisely how each competitively relevant strength andweakness has the potential for adding or subtracting value. On the basis of this information, they can develop an array of generic strategies that will most likely lead to sustained competitive advantage. Even though the process can be easily adapted to the corporate level, our objective is to provide a business level technique for systematically assessing the relationship between internal strengthsand weaknesses and sustained competitive advantage. This technique takes existing ideas and assembles and integrates them into a four-stage decision process that can be easily and efficiently used by strategic decision makers. The recommended approach uses the primary and support activities in value-chain analysis as the domain for searching out strengths and weaknesses, examines each strengthand weakness in terms of
Duncan, Ginter, and Swayne
its ability to create or reduce competitive advantage, and suggests specific ways firms may achieve a more competitive position in their market places. A Closer Look at Competitive Advantage Understanding competitive advantage is an ongoing challenge for decision makers. Historically, competitive advantage was thought of as a...