To achieve competitive advantage, a business outfit should achieve superior performance on the strategic factors relevant to stakeholders. For the Harvard professor and one of the famous thinker's business models, "a competitive strategy takes offensive or defensive action to create a defendable position in the industry ("Competitive Advantage," 2007)."
The basis for a business' beyond par performance in an industry, according to Porter, is that a business has competitive advantage. There are three approaches to attain this status. The first is by attaining cost leadership. This means that a firm aspiring for this must become the firm that has the lowest cost of production in its industry. It is actually the ability of a firm to design, produce, and market a comparable product more efficiently than its competitors (Kenney, 2003, p.44). In a case where a company's prices are similar or near that of his competitors, the company that has superior returns has cost leadership.
The second is by differentiation. The firm seeks to be unique in the industry where it belongs, among some that are widely valued by buyers. One huge factor that a makes customers value a company's product is by having special product features and service.
The third is through focus. ...
The first and more "traditional" is the outside-in approach. According to this mode of thinking, the company's strategy heavily depends on external (market) constraints such as customers, entry barriers of suppliers, threat of substitutes, etc. The most vital means to success is the "strategic fit": the jibing between the company's strategy and its environment (Paawe and Boselie 2004, Kenny 2003, p.44).
One of the most popular versions of this thought is Michael Porter's popular "outside-in" Five Forces model. Existing competitive rivalry between suppliers, threat of new market entrants, bargaining power of buyers, power of suppliers, and threat of substitute products makes up Porter's five forces (Chapman. 2005). These are all external, environmental forces.
For Paauwe and Boselie, the company's primary course of action in the company's outside-in strategy therefore is to adopt contingency measures. The company puts premium to its reaction to the environmental forces (outside) that affects its operation and performance (in).
On the other hand, the inside-out approach thinking more espoused by strategic managers than the traditional outside-in one in the late 1990's. This method is more concerned on the internal resources of a company rather than how it will strengthen itself from external problems. Core competence of Hamel and Prahalad is an example of a business model that applies the inside out thinking. Under this model, corporations should find a core of shared competencies. A core competency is "an area of specialized expertise that is the result of harmonizing complex streams of technology and work activity."
To identify a core competence,