Understanding an organization’s competitiveness

business trends Irobiko Chimezie
man drawing schedule of business growth

The first topic in this lecture is the theory of competitive advantage (also found in lecture 2). Two theories are found about the creation of competitive advantages: market-based “outside-in” models (Porter’s five forces, found in the book) and resource-based “inside-out” models. The second one is more unique, where resources are VRIN; valuable, rare, in-imitable and non-substitutable. In this order, the more characteristics a resource has, the more it leads to a sustained competitive advantage. Also, all firms in a market have the same stock of resources and everyone has the same access and knowledge to it.

Once a competitive advantage is created, how can it be sustained? Two types of isolating mechanisms, which are economic factors that limit the possibility of duplication: impediments to imitation, and the early mover advantage. Impediments are categorized in legal restrictions, superior access to inputs and customers, market size and economies of scale, and intangible barriers to imitation. Early mover advantages are found in the learning curves, reputation and buyer uncertainty, buyer switching costs and network effects.

The second topic is innovation management

In the resource-based view resources are publicly available. A sustainable, competitive advantage must have resources that are scarce and imperfectly mobile, and an innovation allows a firm to create scarcity: an unique innovation provides an resource only to the creators of the innovation, which means scarcity for competitors. Innovation has several dimensions by which it can be characterized: product vs. process, radical vs. incremental, competence enhancing vs. competence destroying and architectural vs. component.

The third topic is Strategic Human Resource Management.

The resource-based view explains why human resources can lead to a sustainable competitive advantage: they are fully VRIN. TCE also explains the value of human resources, as an internal or external decision making influence, but that only applies to unskilled workers, because addition on them is a matter of transaction cost analysis.

Human Resource Management (HRM) a mean to form policies and practices, that together improve the relationship between firm and employees. Human capital can be a source of competitive advantage and human resource practices directly influence the organization’s human capital. HRM knows several challenges: assignment issues, expatriate issues localization issues and global skills issues. The expatriate issue points at the difficulties that come with expansion abroad and the employees involved oversees. Together, companies and expatriates must determine on strategic vision, select and prepare for this, and agree on compensation, tenure, support and career follow-up. Expatriates will find challenges in the new job, family and local insertion and will react to that by flight (the isolated expat), fight (the militant expat), fit (the cosmopolitan expat) or follow (the assimilated expat). The global skill issue address the need for skills (combination of organizational role of the manager and some individual characteristics) fitted with the requirements of the manager. Bartlett and Ghoshal (1992) divided managers into business, country and functional managers, so an role in the organization. Individual skills can be found in the fields of professional, cultural, negotiating, relational, leaderships, intellectual, courage & determination, and flexibility.

The fourth topic is Cross-Cultural Management.

Cross-cultural management is applied when differences in meanings, concepts, behaviors and attitudes exist, when language differs, etc. Culture is very hard to define, and in management, different levels of culture can be found: corporate, industry, professional and national or ethnic culture. Many research on national culture has been conducted, grouped into four categories: ethnological research (Hall, 1960, on non-verbal means), managerial values and assumptions (Hofstede, 1980, measurements of distance), country clusters (Huntington, 1997, 8 civilizations) and economic clusters (Weber, 19th century, clusters based on cultural and economic differences).