THE IMPORTANCE OF COMPETITIVE ADVANTAGE

ASSESSMENT IN SELECTING THE ORGANIZATION’S

STRATEGY

Oriana Helena NEGULESCU

Abstract: The main purpose of designing and implementing the organization's

strategy is to obtain the competitive advantage in the competitive environment in
which the organization operates. The paper aims to present the main sources of the
competitive advantage and to analyze comparatively the main models of
competitive advantage analysis in correlation with the possible strategies the
organization can adopt in managerial practice. Finally, a conceptual model of the
competitive advantage is proposed. The paper is based on theoretical research and
1.observations.
direct Introduction
Keywords: management, strategy, competitive advantage, strategy model,
The high level of competition which characterizes the majority of
performance
JEL Classification: M10, L19, O21

1. Introduction
As an invisible component of the organization's strategy, the competitive
advantage derives from the ability with which business management combines
basic and secondary resources and capabilities in the form of well-synchronized
activity systems.
The organizations that consider the competitive advantage are directed,
on the one hand, to controlling their main resources and capabilities and, on the


Spiru Haret University, Faculty of Juridical, Economic and Administrative
Sciences, Brasov, bellatrix360@yahoo.fr

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other hand, to protect the stakeholders interests (customers, employees,
suppliers, distributors, shareholders, etc.) focusing on the multifaceted skills of
the organization and encouraging innovative ideas.
In the above context, the paper aims to highlight the importance of the
competitive advantage for the purpose of selecting the organization's strategy. It
presents the main sources of the competitive advantage and analyzes some
analysis models of the competitive advantage of the organization in correlation
with the alternative strategy to choose.

2. Sources of the competitive advantage

By competitive advantage is designated the making by a firm some
superior products or services from a significant point of view for consumers,
compared to similar offers of most competitors. “The competitive advantage is
the ability of the firm to have a superior performance to its competitors in terms
of the basic purpose of the organization's existence: the profitability” (Grant,
1997, p. 174).
The competitive struggle has been and is defined as a struggle for
competitive advantage, therefore, the action that does not lead to competitive
advantage for the management of the organization is not of strategic interest.
An unfavourable business environment amplifies the action and the
consequences of all types of difficulties the company is exposed to, from the
perspective of the diversity of forms under which they appear and due to the
magnitude of the effects they generate (Dragomir, 2016).
In an organization, the competitive advantage can be obtained from
internal sources of the organization, from external sources to the organization
or, obviously, from both sources simultaneously.
Among the external sources for obtaining the competitive advantage we
mention:
 changes in customer or beneficiary demand;
 price changes;
 changes in the technical and technological level;
 capability of scanning the environment and obtaining information;
 flexibility to respond to change, involving the structure, culture and
equipment of software, etc.
The role of external factors in creating competitive advantage does not
consist in passively conferring advantage but results from the firm's ability to

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respond to change. Any change in the external environment gives the company
new opportunities to create profit, so the response to change and opportunities
is an attribute of strategic management, of top managers.
Responding to change generally includes anticipating changes over time
as well, so companies need to change strategy and consider their capabilities as
success factors for the future.
The main internal sources for obtaining the competitive advantage are:
 the creativity of the company's members;
 the innovation capacity;
 economy of scale;
 advanced technology owned by the firm;
 learning ability of company members;
 experience gained in a particular sector;
 the firm ability to imitate;
 the full range of competencies of the company's members;
 the full range of capabilities of the company.
The internal sources of competitive advantage generally refer to new
ways of approaching the business that exist or can be created within the
organization, to technical aspects regarding new ideas, and generally to all
aspects within the organization that can create an advantage compared to
competition.
Michael Schumpeter (in Mc Craw, 2007), the reputed theoretician of
micro-economics, defines innovation as one of the following:
 the appearance of a new product (service);
 introducing a new production method;
 the emergence of a new outlet market;
 conquering a new source of supply;
 creating a new form of organization for the industry.
Innovation is about reconfiguring the company, rearranging the "value
chain", changing the rules of the game, so the company needs to capitalize on
distinct skills and create barriers to protect the created advantage (Marc de Jong
& Menno van Dijk, 2015).
The competitive advantage created must be sustained in order not to
erode in competition. The speed with which competitive advantage is
undetermined as time span depends on the ability of competitors to challenge
through innovation or imitation. In essence, the imitation of the strategy used

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by competitors brings advantages, that is why companies that have already
created a competitive advantage have to put barriers against imitation.
For a company to successfully imitate another competing firm, it must
meet four conditions (Doval, 2009, p.47):
 - to be able to identify the fact that rivals have a competitive
advantage;
 - to be sure that investing in imitation can get a higher profit;
 - to be able to make a diagnostic analysis of his rivals' strategy;
 - to be able to purchase by transfer or by replicating the resources and
capabilities necessary to imitate the strategy of the advantageous firm.
According to the famous specialist Michael Porter (1985), the
competitive advantage of a company is essentially reduced to a low cost or a
product or service that is differentiated by its qualities from the similar products
offered by others or by most competitors. The vast majority of specialists
reluctantly reject the possibility of introducing in the sources of competitive
advantage, the competitive advantage through the lowest price without having
the advantage of low cost.
The conventional sources of competitive advantage are concretized by
the low cost advantage, ie the leading position in terms of cost in an industry,
activity sector, and the differentiation, that is, what the firm offers as "unique",
except for the lower price than competition.
The analysis of the competitive advantage type can be achieved with
Porter's generic strategy model (1985). Usually a strategy based on cost
reduction involves a standardized product offer, and the differentiation involves
high costs.
Strategic management concerns are focused on bringing low-cost
differentiation back into the top, despite the growing gap that low price practice
tends to take without respecting a certain quality. For this reason, the principles
of Total Quality Management (TQM) have been implemented, which implies
high quality at low cost.
Sources of competitive advantage based on reduced costs are (Grant,
1998, p.200-209): economy of scale; the economy through learning; process
technology; product design; process design; capacity utilization; entry costs;
efficiency of residues.
Achieving a competitive advantage by practicing lower prices, but
without a low cost base, but only by the desire to promote unfair methods of

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competition, is a method of nonconventional competitive advantage, as such is
not accepted in the literature as a form of competitive advantage.
In a competitive market and an IT development environment, companies
are looking to cut costs by balancing strategies between vertical integration and
outsourcing (Doval, 2016).
The second conventional source of competitive advantage is the
differentiation. Differentiation in the competitive environment refers to the
promotion of what is "unique" (Grant, 1998, p.217-232), except for practicing a
lower price.
The differentiation as a strategy does not mean to promote "uniqueness"
for the sake of being "unique" but to create value by:
 understanding of products and services;
 understanding customers and consumers;
 identifying unique opportunities and their creative exploitation.
The differentiation is created in two ways:
(1) the market supply path (to customers and consumers) by examining
resources and capabilities through which uniqueness can be created;
(2) the market demand path, by examining consumer needs and
preferences.
The success consists in correlating the demand for differentiation with
the firm's capacity to provide differentiation (Doval, 2009, p.51).
The domestic demand plays an essential role in understanding
competitive advantages despite the increasing internationalization of national
economies. An in-depth analysis of this determinant will include three things:
the composition of demand, the size and pace of demand growth, and the
mechanism by which domestic consumption preferences are transmitted to
foreign markets.
After analyzing the factors that can support the creation of uniqueness,
Porter (1995, pp. 124-125) identifies the following factors:
 the intensity of marketing activities;
 the characteristics and performance of products and services;
 the complementary services (repairs and assistance, delivery methods,
credit, etc.);
 the technological level embedded in design and production;
 the quality of inputs – supplies;
 the procedures that influence the leading of each activity;

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  employees skills and experience;
 the location of the organization's workplace or headquarters in relation
to its market;
 the degree of vertical integration, etc.
The Swedish School of Management specifically promotes the
identification of "niche opportunities" (Ridderstrale & Nordstrom, 2007) as a
source of competitive advantage. In theory, there is no limit for a company to
offer its customers and consumers a wide range of opportunities, which,
moreover, are associated with the characteristics of products and services.
The competitive advantage has its existential source in the very functions
of competition. In their attempt to differentiate from the competing firms, the
organizations seek a niche, seek to constantly speculate and, to a large extent,
justify their own skills and innovation in the field. Practically, the offer of
competitive advantage based on differentiation is infinite in size, and as tight as
the competitive environment in which the organization operates will be, as
great the diversity of supply that generates a competitive advantage will be.
According to Michael Porter (1985), the competitive advantage of a firm
is essentially reduced to a low cost or a product or service that is distinguished
by its qualities from similar products offered by others or by most competitors.
An organization that is capable of outperforming its competitors over a
long period of time has sustainable competitive advantage (Jurevicius, 2013).
In order to create a competitive advantage, the organization must take
into account the following three determinants (Kimberly, 2019):
(1) The benefit. Do clients / beneficiaries need the products / services
offered? Do they bring value?
(2) The target market. Who are the clients? What needs do they have?
How is the demand created?
(3) The competition. Who are the competitors of the organization?
The author concludes: “To be successful, you need to be able to articulate
the benefit you provide to your target market that's better than the competition.
That's your competitive advantage!”.

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3. The organization strategy in correlation with the competitive
advantage analysis
The eternal competitive struggle in any activity sector or industrial
branch is a confrontation (or competition) for advantages. The goal of the
company's strategy is that by creating and maintaining the strategic advantage
achieved, the objectives of the business management can be reached. For this,
the company's strategy must be directed towards creating new advantages,
which will lead to increased customer satisfaction and asymmetry towards
competitors. By doing so, the advantage may be extended, while reducing or
eliminating the competitors advantage.
The literature offers a series of models dedicated to analyzing the
competitive advantage, of which: the Ansoff model (Organization strategy in
conjunction with competitive advantage analysis; în Segal-Horn, 1998); the
Grant model of success factors (1998) and the Resource-based analysis model
(Habbershon & Williams, 1999).
Analyzing these competitive advantage analysis models, they highlight
their main characteristics and the correlation with the organization's strategy
(Table 1).

Table 1
Competitive advantage and organization strategy
The model Purpose Dimensions / Organization strategy
Criteria
The Ansoff proposes a useful - perfecting current - The strategy of market
model framework for products; penetration;
(matrix) detecting new - identifying new - The strategy of developing
opportunities for offer opportunities. new markets;
intensive growth Oriented towards: - The strategy of developing
- existing markets; new products;
- identifying and - The strategy of
developing new diversification.
markets.
The SPACE highlights different - industry force; - Defensive strategies
analysis types of strategies - the competitive - Conservative strategies
(Strategic advantage of the - Aggressive strategies
Position and business; - Competitive strategies
ACtion - the financial
Evaluation) strength of the firm;

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 The model Purpose Dimensions / Organization strategy
Criteria
(matrix) - environmental
stability.
The Generic generates strategic - the competitive - Leading through cost
Strategies alternatives that advantage strategy
Model underpin the way - the competitive - Focusing on costs strategy
(Porter) to approach the purpose - Differentiation strategy
(matrix) competitive - Focusing on differentiation
environment and strategy
the effective
positioning of the
organization on the
market
Prahalad and the company's - resources - Allocation of resources
Hamel awareness of the - capabilities replaced by leveraging
Model environment in resources with the
which it operates organization capabilities;
and its own - The competence portfolio.
portfolio of
capabilities and
resources that can
be used to gain
competitive
advantage
Peteraf analyzing the - resources - Identifying the resources
Model contribution of - capabilities available to the company,
resources and the resources needed, and
capabilities of the their typology, in order to
company in the give them a high degree of
process of use;
obtaining the - Optimally combining
competitive resource-capability mix to
advantage maximize results.
Grant Model knowledge of the - the company's - Identifying the company's
of Success competitive ability to success factors;
Factors environment permanently provide - Comparative analysis of
products / services the company's capabilities
that customers want in the competitive
to purchase; environment.
- the company's
ability to adapt to
environmental
conditions, being
able to survive and
thrive in
competition

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 The model Purpose Dimensions / Organization strategy
Criteria
Resource- Assessing the - Strategic Investment in completing,
Based Strategic resources and updating and increasing the
Analysis Advantages of capabilities company's resources and
(Habbershon Family Firms controlled over the capabilities
& Williams) long term
- The company
performance

The Ansoff model (1965) proposes a useful framework for detecting new
opportunities for intensive business growth. After analyzing the existing
competitive advantage and context of the competitive environment, the
business management prepares the matrix consisting of the strategic options
based on market-product variables. In this context, an opportunity for a larger
market share on existing markets is being analyzed, a variant in which market
penetration strategies should be adopted. If new markets can be discovered or
developed for the existing products, the firm must adopt market development
strategies. If new products of potential interest in emerging markets can be
developed, product development strategies should be adopted. And when
management's focus is on developing new products for new markets, the
company should adopt development strategies.
The SPACE analysis model (Rowe et al., 1982) introduces additional
elements in the the competitive advantage analysis, namely the strength of the
industry, the financial strength of the firm and the stability of the environment.
Depending on the extent to which the four elements of the analysis model are
found in the company system, the four main strategies mentioned in Table 1
can be approached.
Porter's generic strategy model (1995) analyzes the competitive
advantage of the organization in conjunction with its competitive purpose. Very
useful in managerial practice, the model combines the two dimensions,
generating strategic alternatives that underpin the approach of the competitive
environment and the effective positioning of the organization on the market.
The Prahalad and Hamel model (1990) proposes as an essential element
the organization's awareness of the environment in which it operates and its
own portfolio of capabilities and resources that can be used to achieve
competitive advantage. In this context, the authors argue that the basis of the

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competitive advantage is the ability of the company to leverage resources and
capabilities.
The Peteraf model (1993) makes a clear distinction between the resources
of the organization and its capabilities, and develops criteria for their
assessment. From the point of view of the Peteraf model of analysis, a firm
determinant for a competitive advantage, is the ability of business management
to identify the resources at its disposal, resources needs and typology, to give
them a high degree of utilization, as wll as knowing the skills of the firm so
that, through a judicious allocation of resources available, it will optimally
combine the resources-capabilities mix to obtain the maximum results that can
be achieved by the business.
The Grant model of success factors (1997) directs the analysis to the
demand for existing products or services on the market segment served and to
the necessary conditions for the organization survival in the competitive
environment. The model proposes to identify the success factors for the
company to thrive in the industry in which it operates. The essence of the
model lies in the ability of business management to know the competitive
environment in which it operates, as well as the demand for products or
services that are or may be required by customers.
The resource-based model is a framework for analyzing the strategic
advantage of the family businesses (2009). The model analyzes the complex,
dynamic and intangible resources of family businesses that create competitive
advantage and performance. The model is a synthesis of other applied models
but that fit to small family businesses.
The analysis of the models presented shows that the main coordinates of
obtaining and maintaining the competitive advantage are the resources and the
capabilities of the organization. Depending on their value, uniqueness and
inimitableness, the organization can select the right strategy for its strategic
goal.
In essence, the results of the analysis led to the identification of a
conceptual model of the competitive advantage of the organization (Figure 1).

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 Figure 1. Conceptual model of the competitive advantage

The proposed model is a simple one, but its implementation involves a

multitude of complex activities. Thus, the four stages of the process are:
 The competitive advantage analysis: which are the sources? What do
they consist of? What actions should be taken to increase resources
and capabilities? What are the opportunities to develop the
competitive advantage?
 The strategy selection to get the competitive advantage: cost or
differentiation or the combination of cost and differentiation?
 Choosing the organization's strategy according to the competitive
advantage: competitive, defensive, aggressive or conservative?

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  Obtaining and monitoring performance: is the profit sustained? Are
the stakeholders satisfied?
The complexity of activities results from:
 the permanent scanning of the competitive environment and the
development of management skills to respond quickly to changes;
 the competitors assessment;
 identifying the stakeholders needs and expectations;
 identifying the risks of the strategy selection;
 securing the strategic resources (by investing in technology and
human resources) and
 developing capabilities (through innovation, expertise, productivity).

Conclusions
The goal of the business strategy is to create and maintain the strategic
advantage gained. For this, the company's strategy must be directed towards
creating new advantages, which will lead to increased customer satisfaction and
asymmetry towards competitors. By doing so, it is possible to extend the
advantage, while reducing or eliminating the advantages of competitors.
Looking for the competitive advantage itself does not necessarily lead to
success in the competition. The explanation is given by the lack of a stimulating
internal environment for firms. They can have a good activity depending on
how they appear, they are organized and run, and the intensity of rivalry in the
market as well.
The organization competitive advantage analysis is defining in
developing the company’s strategy. Companies have a range of competitive
advantage analysis models, but they can also create other models if the ones
used in the literature do not reflect the competitive environment conditions in
which they correlate the business characteristics and the firm strategy.
Depending on the competitive advantage owned or targeted by the firm,
its strategy will be oriented in such a way that it can effectively use the
competitive advantage to meet the interests of the stakeholders and the needs of
the company's clients, to obtain additional sustained profit to competitors and
ultimately of to achieve the organization's performance.
The proposed model contributes to the evolution of strategic
management in any field and can be developed by adding the particularities of
different organizations.

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