Strategic Management Models
Written by Gregory Steffens for Gaebler Ventures
How do companies create and maintain a sustainable competitive advantage? Through a combination of unique resources and stakeholder relations, organizations strive to outperform their competitors.
According to the resource-based perspective of a firm, an organization can be viewed as a collection of its financial, physical, human, intellectual, and general resources.
The Resource-Based View
Financial resources include the firm's monetary sources and abilities to fund its operations.
Physical resources involve the company's property, plants, and equipment, as well as its ability to obtain raw materials. Human resources consist of the experience, backgrounds, and capabilities of the firm's personnel. Intellectual resources are comprised of the firm's knowledge and learning abilities that allow it to stay innovative and competitive. Finally, the general resources of the firm vary between business and industries, but some examples include the company's culture, internal processes, management techniques, relations with suppliers, and organizational structure.
The resource-based view attempts to help companies identify the resources it controls that can lead to the creation of a sustainable competitive advantage. However, these resources must contain some intrinsic value. A resource is considered valuable if it is unique, difficult to imitate, and difficult to substitute. If a single firm, or only a limited number of firms, possess a resource that is impossible or costly to imitate, competitors find themselves at a disadvantage. Firms need to focus on this resource and fully exploit it. If done correctly, the resource should lead to a sustainable competitive advantage that offers the firm above-average performance for an extended period of time.
The Stakeholder View
The stakeholder view of a firm takes into account all internal and external groups that have an interest in a firm's operations. These stakeholders are directly impacted by the decisions and actions of the company. Common stakeholders include the organization's shareholders, management, employees, suppliers, customers, special interest groups, local communities and local governments.
With this perspective, organizations need to participate in two activities, stakeholder analysis and stakeholder management.
Stakeholder analysis involves identifying the particular company's stakeholders, evaluating their wants, needs, and ideas, and assimilating their contributions into the firm's strategic management processes. The stakeholder view intends for firms to evaluate the impacts of their actions on stakeholders and recognize the potential consequences from their strategic decisions.
However, an important aspect of this analysis requires the firm to prioritize certain stakeholders over others. For instance, management needs to pay more attention to the needs of the firm's shareholders than a special interest group trying to further their ideals. This can often be a difficult task given the large numbers of stakeholders many companies have; however, organizations need to recognize the stakeholders who are most important to the firm's success, and prioritize them accordingly.
The stakeholder view also requires firms to engage in stakeholder management. This process involves managing the firm's relations with stakeholders through communication, negotiation, and contracting. Moreover, motivating different groups of stakeholders to act in ways that benefit the firm, as well as its other stakeholders, is an important aspect of stakeholder management. Maintaining good working relations with internal and external stakeholders has resulted in increased performance and decreased risk for many organizations. Therefore, participating in this process increases the likelihood of a firm creating a sustainable competitive advantage.
The resource-based and stakeholder views are not competing perspectives, rather they are simply processes for organizations to identify or create competitive advantages. Companies depend on their stakeholders to obtain and develop their resources. Being in good standing with these stakeholders increases the probability for the company to receive more beneficial terms from arrangements. For instance, a supplier might offer a better price for the goods and services it provides, or a retailer may push a firm's product over a competitor's.
Gregory Steffens is a talented writer with a strong interest in business strategy and strategic management. He is currently completing his MBA degree, with an emphasis in finance, at the University of Missouri.
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