Critique of Market versus Resources Paradox - Assignment Example

Introduction The current literature on firm level competitiveness suggests different and new dynamics of facing the competition and surviving in thisnew period of intense competition. What is critical however is the fact that the variables which were considered as essential for gaining competitive advantage have changed due to change in the competitive dynamics Organizations now exploit different and unconventional sources of competitive advantage as new business models allowed modern firms to tap dormant resources. However, researchers, over the period of time, have focused on the assumption that products and resources are basically the two sides of the same coin to judge the competitiveness of the firms. A closer look at the historical facts would suggest that the firm level competitiveness have largely been influenced by a dualistic approach of internal as well as external perspectives. The focus was essentially on either the external environment of the firm or its internal capabilities of the firm define its overall competitiveness within an industry or a particular market. One perspective suggests that the markets have preferences over the resources as firms following such a perspective tend to tailor their strategies according to changes taking place in their external environment. However, on the other hand, the other perspective which emphasizes resources over the market and tend to focus on the internal capabilities of the firm. Though both the approaches may seem parallel to each other however, there is a deep paradox behind whole argument as to which approach can lead to the true nature of the firm competitiveness. Market Based View The basic argument behind the market based view of the firm level competitiveness is based on the outside in perspective. The outside in perspective basically advocates that the firms are largely driven by their external environment and all their strategies and actions are the result of external influences. What is however, important is to note that firms following such an approach are quick to adapt to the changes in their external environment and take lesser time responding to external shocks Outside In perspective also allow firms to take up the opportunities much faster than other firms and develop necessary flexibility to respond to such opportunities in the most appropriate way. It is also critical to be important to understand that a market based view also allow firms to develop abilities to anticipate the emerging changes in their target markets and allow themselves to develop strategies which potentially help them to either withstand the emerging external threats or take up opportunities. Such firms therefore tend to focus more on their customers as the key variables to decide about the potential changes to take place in the market place. (Brooks) and perform well into an environment which is more dynamic and fluid in nature. Firms following such a perspective also need to develop its ability to continuously reposition itself and if a firm has presence in many markets at the same time; it may be required to re-position it according to the market conditions prevailing in each market. Such firms, however, tend to lose sight of their distinctive competencies and rely upon less on their own individual capabilities i.e. strengths to gain the competitive advantage. As discussed above that the firms develop competencies to anticipate external environment therefore they put in place the processes for collecting market intelligence regarding their potential as well as existing competitors and customers. Such capability further allows them to integrate such information into their strategic decision making process to better position themselves into the market. (Hult and Ketchen Jr) Such inflexibility does not therefore, yield a long term competitive advantage for the firms, and they tend to be complacent by focusing on just one aspect of the competitiveness. What is also critical that the market based view can only benefit the firms if the variables underlying such approach collectively produce the desired impact For example, a firm's innovativeness as well as its organizational learning capabilities cannot produce the desired impact until they are not supported by other corroborating elements contributing towards the success of firm's strategy. (Hult and Ketchen Jr). One glaring example of the failure of this approach has been the Customer Relationship Management aka CRM. Numerous research studies suggested that the firms, in a bid to align their strategies with the market, attempted to invest heavily into CRM so that customer can insight could be captured to better understand the external environment however, except few, most of the firms failed to achieve the desired results on their investments made on implementing CRM. (Rosenbleeth). Resource Base View The resource base view or the inside out perspective are a radically different from the market based view of the firm level competitiveness. The resource based view of the firm therefore radically outlines the view that in order to gain competitive advantage, firms must focus on its internal resources rather than being driven by the external changes. (Wernerfelt). Thus by using this approach, firms focus on their internal responsibilities as well as resources to drive strength by using the internal potential of the firm. The firms following such an approach tend to be successful at times when firms following market based view fail to gather up internal resources and capabilities to respond to such changes. This argument is based on the fact that on failure of market based firms, organizations following resource based approaches tend to exploit the emerging opportunities in much better way. Further, since firms tend to develop their internal capabilities over the longer period therefore their internal strengths are developed to such a point where they can be utilized at will to face any given challenge provided it is within the considerable limits. One of the most important aspects of this approach is related with the complete and deliberate ignorance of the constraints imposed by the firm's natural environment. (Hart). Further, if the firm likes to take advantage of its internal resources than its resources must be valuable i.e. must have the capability to produce rent for the firm otherwise internal resources may not provide sustainable competitive advantage to the firm. (Hart). Further, such as internal resources must also not be replicable in nature i.e. the natural barriers such as trademarks, patents etc shall be in place to carefully safeguard the critical internal resources so that they may not be easily copied by competitors to launch Me Too types of pseudo products. Such firms also tend to be inflexible and complacent once they develop certain competencies over the period of time. If market dynamics change, it may become difficult for them to respond timely to such changes and may go out of the business either permantely or for the time being. IBM is the prime example of such a failure as it failed to take into account the changes taking place in the personal computer market despite the fact that IBM was a market leader in computer industry. IBM, over the period of time, avoided the latest trends taking place in the personal computer market and continues to focus on its traditional large scale computing machines. However, due to its resultant ignorance of the market trends, firms like Dell, Compaq and HP emerged to capture the personal computer market and left IBM lagging behind potentially new and nascent firms in the business. It is also important to understand that for firms to develop their distinctive competencies, they need to take into account the external dynamics at any point in time. Thus resource based firms shall have to take into account the outside in perspective before starting to build their internal competencies. This fact therefore, suggests that there is a paradox. If firms with predominantly resources based perspective need to take into account external dynamics at some point in time then what difference it will make if a firm adapts either of the strategic perspectives If firms following market based view need to develop internal capabilities to respond to the external challenges and organizations following resources based view are also required to follow market dynamics than potentially it does not matter which approach is better for the long term success of the firm. This fact further outlines that both the approaches are fundamentally intertwined with each other due to complexity of both the approaches. Conclusion The debate of market versus resources may be theoretically different from each other however to their core; both the approaches and views are fundamentally linked with each other. Their successes and failures are dependent on each other as one cannot be achieved without the help of the other. This paradox may seem complex because it attempt to outline two contrasting views about how the firms may gain competitive advantage however what is critical to understand is the fact that both the approaches can not ensure long term sustainability of competitive advantage and firms has to change and dissolve their traditional boundaries to remain competitive. What set them apart is the perception of their relative external environment as under stable market conditions both the approaches tend to corroborate and support each other rather than overlapping each other. (Makhija). Works Cited 1. Brooks, Geoffrey R. "Defining Market Boundaries." Strategic Management Journal 16.7 (1995): 535-549. 2. Hart, Stuart L. "A Natural-Resource-Based View of the Firm." The Academy of Management Review 20.4 (1995): 986-1014. 3. Hult, G. Tomas M. and David J Ketchen Jr. "Does Market Orientation Matter: A Test of the Relationship between Positional Advantage and Performanc." Strategic Management Journal 22.9 (2001): 899-906. 4. Makhija, Mona. "Comparing the resource-based and market-based views of the firm: empirical evidence from Czech privatization." Strategic Management Journal 24.5 (2003): 433 - 451. 5. Rosenbleeth, M. (n.d.). Capturing Value through Customer Strategy. Retrieved December 17, 2008, from Boozallen: http://www.boozallen.com/media/file/101260.pdf 6. Wernerfelt, Birger. "The Resource-Based View of the Firm: Ten Years After." Strategic Management Journal 16.3 (1995): 171-174. Read More