1998, vol. 12, no. 3 competitive advantage and internal ... · competitive advantage and internal...

' Academy al Managemsnl Executive, 1998, Vol. 12, No. 3

Competitive advantage andinternal organizational

assessment

W. Jack Duncan, Peter M. Gintei, and Linda E. Swayne

Executive OverviewIt is generally agreed in the strategic management literature that internal

organizational assessment is less developed theoretically and practically than otherareas of situation analysis. This paper presents a four stage approach to analyzing afirm's internal strengths and weaknesses and illustrates how the technique can facilitatestrategy formulation through the integration of value chain concepts and theincorporation of the most recent findings on internal resources and capabilities. A caseexample is used to illustrate how the approach can be applied by strategic decisionmakers as a tool for exploring the potential of their companies for sustained competitiveadvantage.

Jay Barney observed that "the development of toolsfor analyzing environmental opportunities andthreats has proceeded much more rapidly than thedevelopment of tools for analyzing a firm's internalstrengths and weaknesses."' Indeed, discussionsof strategic management comfortably refer to stra-tegic issue diagnosis, scenarios, Porter's industryattractiveness analysis, and a multitude of othertechniques designed to examine potentially impor-tant strategic factors outside the organization.^

Discussions of internal organizational assess-ment, by contrast, are more often functional as-sessments of financial, human resource, informa-tion systems, and marketing strengths andweaknesses, rather than attempts to identify thepresent and potential competitive advantages ofthe firm. Effective strategic management requiresan understanding of organizational resources andcompetencies as well as how each contributes tothe formation of organizational strengths and ulti-mately to the development of a competitive advan-tage.

Focusing on the uncontrollable external environ-ment highlights the importance of adapting tochange, fitting organizations to the larger environ-ment, and understanding that the rules of successare written outside individual business firms. Therelatively more sophisticated status of external en-vironmental analysis may reflect little more than

threat bias, or the tendency to iocus on the thingsthat can do harm to organizations. Adaptability, fit,understanding externally imposed rules of suc-cess, and competitive forces, however, are onlypart of the formula for achieving competitive ad-vantage.

Strategic decision makers need a systematictechnique for scanning their internal organization.By paring down long lists of strengths and weak-nesses and determining which ones are competi-tively relevant, they can understand precisely howeach competitively relevant strength and weak-ness has the potential for adding or subtractingvalue. On the basis of this information, they candevelop an array of generic strategies that willmost likely lead to sustained competitive advan-tage. Even though the process can be easilyadapted to the corporate level, our objective is toprovide a business level technique for systemati-cally assessing the relationship between internalstrengths and weaknesses and sustained compet-itive advantage. This technique takes existingideas and assembles and integrates them into afour-stage decision process that can be easily andefficiently used by strategic decision makers. Therecommended approach uses the primary and sup-port activities in value-chain analysis as the do-main for searching out strengths and weaknesses,examines each strength and weakness in terms of

1998 Duncan, Ginter, and Swayne

its ability to create or reduce competitive advan-tage, and suggests specific ways firms mayachieve a more competitive position in their mar-ket places.

A Closer Look at Competitive Advantage

Understanding competitive advantage is an on-going challenge for decision makers. Histori-cally, competitive advantage was thought of as amatter of position, where firms occupied a com-petitive space and built and defended marketshare. Competitive advantage depended onwhere the business was located and where itchose to provide services. Stable environmentsallowed this strategy to be successful, particu-larly for large and dominant organizations inmature industries.

The ability to develop a sustained competitiveadvantage today is increasingly rare. A compet-itive advantage laboriously achieved can bequickly lost. Organizations sustain a competitiveadvantage only so long as the services they de-liver and the manner in which they deliver themhave attributes that correspond to the key buyingcriteria of a substantial number of customers.Sustained competitive advantage is the result ofan enduring value differential between the prod-ucts or services of one organization and those ofits competitors in the minds of customers. There-fore, organizations must consider more than thefit between the external environment and theirpresent internal characteristics. They must an-ticipate what the rapidly changing environmentwill be like, and change their structures, cul-tures, and other relevant factors so as to reap thebenefits of changing times. Sustained competi-tive advantage has become more of a matter ofmovement and ability to change than of locationor position.^

Organizations sustain a competitiveadvantage only so iong as the servicesthey deliver and the manner in whichthey deliver them have attributes thatcorrespond to the key buying criteria of asubstantial number of customers.

The question of an enduring value differentialraises the issue of why a firm is able to achieve acompetitive advantage. To answer this, it is neces-sary to examine why and how organizations differin a strategic sense. Identifying strengths andweaknesses requires introspection and self-exam-

ination. It also requires much more systematicanalysis than it has received in the past."

Assessing the Potential for CompetitiveAdvantage

External environmental analysis is accomplishedby scanning, monitoring, forecasting, and assess-ing. These successively more detailed environ-mental sweeps help ensure that genuinely impor-tant opportunities and threats in the externalenvironment are not overlooked. Internal organiza-tional analysis should take place in much thesame way, through the successively detailedstages of surveying, categorizing, investigating,and evaluating. Although the terms are arbitrary,they are meant to convey the idea of successivelymore detailed sweeps of the internal organization.Each stage in the process achieves a criticallyimportant task that is highlighted in the discus-sion.

Figure 1 provides an overview of these fourstages. The entire process will be illustrated by acase study of Ingram Micro, a leading worldwidewholesale distributor of microcomputer productsas a case study.^ A brief description of IngramMicro is provided in Figure 2.

Stage One: Surveying Potential Strengths andWeaknesses

Identifying an organization's strengths and weak-nesses is difficult because characteristics that ap-pear as one or the other may, on closer exami-nation, possess little or no significance forcompetitive advantage or disadvantage. The list ofstrengths and weaknesses generated by conven-tional techniques is usually little more than aninitial impression of what a firm does well andwhere it needs improvement. The list is usuallylong, not very concrete, and agreed on by only arelatively few people.

However, even a superficial list of possiblestrengths and weaknesses is important to initiatestrategic thinking and to focus thinking on areaswhere the firm can actually add or lose value.^This approach requires a survey of infrastructure,human resources, technology development, pro-curement, inbound and outbound logistics, opera-tions, marketing and sales, and service activities.Accomplishing the initial survey is a matter oflooking at financial statements, staffing stan-dards, information resources, organization charts,and customer and employee surveys and inter-views. The findings are then compared with indus-try standards and historical trends, and judgments

Academy o! Management Executive August

Stage 1;Surveying

Stage 2:Categorizing

Stage 3:Investigating

Stage 4:Evaluating

Generate long-list of strengthsand weaknessesfrom primary andsupport activities

ol the firm'svalue chain

^See Figure 3}

Reconceptualizelong-list in

terms ofresources and

capabilities andcomplete deeper

inspection with theapplication ofkey questionsfSee Figure 4)

Determine where,along the firm's

value chain,potential

competitiveadvantage lies.

Look at eachcompetitively

relevant resourceand

capability relativeto its potential as a

cost oruniqueness driver

fSee Table 1)

Choose theappropriate

generic strategyfor the firm —

cost leadershipor

differentiation

FIGURE 1Internal Environmental Analysis Process

Ingram Micro is a leading worldwide wholesaledistributor of microcomputer products. Located inSanta Ana, California, Ingram markets microcom-puter hardware, networking equipment, and soft-ware products to more than 100,000 reseller cus-tomers in more than 120 countries. Ingram's morethan 1,100 suppliers include Apple Computer,Cisco Systems, Compaq, Hewlett-Packard, IBM,Intel, Toshiba, and U.S. Robotics. Some of its majorcustomers include CompUSA, Micro Warehouse,Sam's Club, and GE Capital Technologies. It of-fers one-stop shopping through an inventory ofover 36,000 products.

The company began as part of Ingram Indus-tries and has relied throughout its history on

other entities in the Ingram family of businessesfor financing, cash management, tax and pay-roll administration, insurance, and administra-tive services. In 1996, Ingram Micro engaged in apublic offering to raise the capital necessary toaccomplish a split-off, but planned to continueto rely on the larger company for selected ser-vices.

Ingram Micro has grown rapidly since 1991and increased net sales and net income from$2.0 billion and $30.2 million to more than $9,0billion and $85.0 million respectively. Over 30percent of its net sales are generated interna-tionally. In 1994, it formed the Ingram AllianceReseller Company, a master reseller business.

FIGURE 2A Profile of Ingram Micro

are made as to whether the organization's perfor-mance represents strengths or weaknesses rela-tive to others in the strategic group/

In the case of Ingram Micro, as illustrated inFigure 3, potential strengths included the experi-ence of the management team, administrative andfinancial support from Ingram Industries, andleading-edge information and inventory controlmodels. Potential weaknesses included extremelyhigh debt and financial leveraging, dependencyon a relatively few and powerful suppliers, andpotentially excessive family control.^

Stage Two: Categorizing OrganizationalDifferences

The second stage of internal organizational anal-ysis involves more detailed categorization of thestrengths and weaknesses highlighted by the ini-tial survey. The critical task in this stage is tounderstand precisely what types of strengths andweaknesses a firm possesses in an absolute senseand relative to competitors.^ Do the organization'sstrengths and weaknesses lie in tangible or intan-gible resources or both? Are they represented pri-

1998 Duncan, Gintei. and Swayne

U)

iCCGO

ati

Q

0

Ul

a£"5tna0

B"Si>

aoD

Inio

r

o

aco

Q

O

ity

Abi

l

1c•]}

nta

s5

<

e0

Cus

' s«w

0)JIO

0

>>

Abi

l

i n

1C0)

U)

50

a"aooH

Pron

D)5

1g

2uU

and

tn0)uC

g<GainD

tur

C

>

"S

Joi:

Lfl_,

ja%a0)

ces

§

<

UlV

3

C01

Join

t V

i n

JS

Ba0)

0&01

hou

roug

.5

aG

•a,•£

U)IM0)

"3.a3

wit

hS

0

B.—•

Glo

a;

irsi

fiD

ive

•a

hie

adB)0

Sif)

I t

ta

afl

0

1-4

ippl

rful

0

<c001u

Rel

ian

to

%

i

CO

PC!D

c

•c0

a.r*(fl<II

vit

iA

cti

0

"D

"C0

a

0

Pri

mal

%

(fld)

ess

.30

a

V

a• PH

0

ied

Val

0

10 Academy oi Management Executive August

marily by the presence or absence of the skills andexperiences of employees relative to doing the ac-tual work of the organization? Do they lie in man-agers' and employees' ability or inability to inte-grate and coordinate resources and skills? Thisreframing requires that one understand real andpotential differences relative to competitors.

In stage two, potential strengths and weak-nesses are categorized as strategic resources orcapabilities, and more specific measures are de-veloped for each. This is important because it isthese resources and capabilities, along with afirm's purpose and aspirations, that ultimatelymake it different and suggest the path or paths tosustained competitive advantage.

The resource-based view argues that the key tosustained competitive advantage are those factorsavailable for use in producing goods and servicesthat are valuable and costly to copy.'o Resources,as we use the term, may be tangible or intangiblehuman assets. Human resources are often skillbased and involve expertise in designing, produc-ing, distributing, and/or servicing the products orservices of the firm. They relate to skillfulness inaccomplishing tasks required by one or more of theprimary value activities. Tangible resources in-clude things such as land or location, while intan-gible resources include such things as goodwill.The basic assumption is that resources are un-evenly distributed and developed across firms,and explain, to some extent, the ability of an orga-nization to effectively compete. Organizations withmarginal resources break even, those with inferiorresources disappear, and those with superior re-sources make profits.ii One writer noted: "Basingstrategy on the [resource] differences betweenfirms should be automatic rather than notewor-thy."'2

Organizations with marginal resourcesbreak even, those with inferior resourcesdisappear, and those with superiorresources make profits.

Yet another potential source of sustained com-petitive advantage is the "purposeful coordinationof resources."'^ An organization's ability to deployand integrate to produce desired results is definedas a capability.'" Unfortunately, "there are almostas many definitions of organizational capabilitiesas there are authors on the subject."'^ We will usethe term to describe the ability to integrate or linkskills and resources. Whereas human resourcesrelate to expertise in actually doing the work of the

organization, capabilities relate to putting thingstogether in unique and innovative ways. Capabil-ities involve the integration of primary value ac-tivities, support activities, and/or primary and sup-port value activities.

Capabilities, therefore, may be thought of asarchitectural abilities or bonding mechanismswhereby resources are combined in new and inno-vative ways. As a result, they accomplish learning,change, and ongoing renewal for individuals andorganizations.^^ Capabilities, or the linking activi-ties in the value chain, represent the collectivelearning in organizations, coordinating diverse op-erational skills and integrating multiple streamsof technologies.^^ Sustained competitive advan-tage is based on the acquisition of resources thatpossess a unique relationship to the external en-vironment and are integrated in innovative ways.An important element in judging sustained com-petitive advantage is understanding preciselywhat are our tangible and intangible resources,what skills and experiences do our employees pos-sess, and how good are we at coordinating re-sources and skills. An important question is howcompetitively relevant are our resources, compe-tencies, and skills?

Deeper Inspection

ASSIST Analysis (an acronym for assessment ofinternal factors for strategic advantage) is usefulfor systematically determining the competitive rel-evancy of our resources and capabilities. Thistechnique is an attempt to more effectively inte-grate into the strategy formulation equation inter-nal factors leading to competitive advantage.

As illustrated in Figure 4, the first step in ASSISTanalysis begins after the reframing of each poten-tial strength and weakness as a resource or capa-bility. In the second stage, each strength andweakness is then subjected to a series of questionsto better understand whether or not it represents areal or potential competitive advantage or disad-vantage. The questions

1. Question of Value. Does the resource or capabil-ity represent something of worth to customers?Do competitors have something oi worth to cus-tomers that the organization does not possess?

2. Question of Raieness. How many competitorspossess the resource or capability? If it is rareand others do not possess it, it is a strength. If itis rare, and competitors possess it, but the orga-nization does not, it is a weakness.

3. Question of Imitability. If competitors do notpossess the means of obtaining the resource or

1998 Duncan, Gintei, and Swayne 11

a Io ^

El)

a.BoO

••5 a s ^ asoO

a. QS G -o0 0 °O U ^

0)

aoua

* j "3 1* ."rt '"S• t^ O ^ d *rf -l-l- 0 -i-

• a s

Q>

0 .s

.2 '

•o

a ouo cO D

, ^ .rt .rt rj^ ^ ^ ^ ^ ^ Mas0U

a aa Go o

O O

0)cffi9•c

u.S

Dis

u.9

Dls

0

Pot

D SasoU

s "a

Q Q

aBooaD

0)Q.QoO

G Go o

• ^ • - - - y

12 Academy of Management Executive August

capability, it is a strength. If the organizationdoes not possess the resource or capability, andhas no means of obtaining it, it is a weakness.

4. Question of SustainabiUty. How able will theorganization be to maintain the value, rareness,and lack of imitability of the resource or capa-bility? Can the competitors sustain their advan-tage?

Assessing the Extent of Competitive Advantage

The third step is to assess the extent of the com-petitive advantage or disadvantage possessed byeach of the identified strategic resources and ca-pabilities. Alternative values are assigned accord-ing to the following definitions:

• Inadequate. The resource or capability is belowthe minimum required to be in the business.

• Adequate. The resource or capability is the min-imum required to be in this business or to min-imally compete.

• Attractive. The resource oi capability is betterthan the minimum required to compete but doesnot represent a particular advantage (or disad-vantage in the case of a weakness). It willmerely get the attention of appropriate individ-uals.

• Potential. The resource or capability is sufficientto attract attention and represents an importantstrategic consideration.

• Competitive. The resource or capability repre-sents a clear competitive advantage/disadvan-tage relative to members of the strategic group.

• Distinctive. The resource or capability cannot beduplicated by competitors.

Figure 4 illustrates how the potential strengthsand weaknesses of Ingram Micro were "catego-rized." This more detailed categorization and thecorresponding appraisal of each resource and ca-pability reduced the number of competitively rele-vant strengths and weaknesses to six resources(financial resources development, information re-sources, trademarks and service marks, highlytrained associates, proprietary information sys-tems, and experience of top management team)and three capabilities (a seamless distributionsystem, joint ventures with suppliers, and jointventures with global partners). In addition, therewere three strategically relevant disadvantages(narrow financial margins, questionable ability toretain management team, and geographically di-verse markets). The competitive relevancy of eachstrength and weakness was determined by its rat-ings on the four questions in Figure 4. In order to becompetitively relevant strength, a substantial

number of distinctive or competitive ratings mustbe obtained. To be a competitively relevant weak-nesses, a substantial number of inadequate andnoncompetitive ratings must be obtained.

Stage Three: Investigating the Source ofCompetitive Advantage

Competitive advantage is ultimately built andmaintained by adding value to customers.'^ Valueis added by cost leadership, i.e., offering equalquality products or services at a lower cost thancompetitors, or by differentiation, i.e., offeringproducts or services that are perceived to beunique relative to some important characteristic.Understanding how each competitively relevantresource and capability affects costs and unique-ness is an important aspect of understanding how,or if, each adds value to the services provided.

Competitive advantage is ultimatelybuilt and maintained by adding value tocustomersJ^

Once strategic strengths and weaknesses havebeen translated into terms of resources and capa-bilities and the potential for creating competitiveadvantage is accomplished through systematiccategorization, it is important to investigatedeeper relationships and determine how andwhere these factors actually add value. This is thecritical task of stage three—pinpointing the pri-mary or support value activity that possesses thepotential for building or losing competitive advan-tage. Porter's modified value-chain (Figure 3) isuseful again for breaking the organization "into itsstrategically relevant activities in order to under-stand the behavior of costs and the existing andpotential sources of differentiation." f Understand-ing the value-chain enables decision makers tobetter understand and control the primary costdrivers and differentiate their services by capital-izing on their uniqueness drivers.

In the case of Ingram Micro, each competitivelyrelevant resource and capability that emergedfrom the ASSIST process is evaluated below interms of its ability to contribute to competitive ad-vantage either as a cost or uniqueness driver. Notethat only those strengths and weaknesses thatwere identified as competitively relevant are sub-jected to more probing investigation. This deeperinvestigation is conducted to determine wherealong the modified value chain the strength orweakness adds or subtracts value and if the stra-

1998 Duncan, Gintei, and Swayne 13

tegic implication lies in its ability to enable costleadership or develop perceived uniqueness. Thesummary investigation is shown in Table 1.

Stage Four: Evaluating Competitive Advantage

Evaluating competitively relevant resources andcapabilities in terms of possible generic strategiesis the critical task of stage four. The evaluationsuggests that Ingram Micro possesses potentialcompetitive advantages because of uniquenessdrivers located throughout the modified valuechain—inbound and outbound logistics, opera-tions, marketing and sales, as well as organiza-tional infrastructure and technology development.This evaluation indicates that differentiation strat-egies are the firm's most promising means to com-petitive advantage. The competitive nature of thisindustry and the narrow margins of all competitorsunderscore the need for cost controls. However,cost control is essentially a requirement to com-pete in the industry and provides no genuine com-petitive advantage. The strategic implications ofthe internal organizational analysis is provided inTable 2.

The summary in Table 2 leads us to the conclu-sion that Ingram Micro possesses resource drivenopportunities for differentiation with regard to or-ganizational infrastructure, name identity, accessto capital markets (although its debt load is be-coming extremely large}. These resources, in turn,allow Ingram to leverage its marketing and salesexpertise. Ingram also has substantial ability todifferentiate itself in the areas of technology de-velopment, managerial expertise, customer ser-vice, and the promise of a seamless sales andservice system. Its worldwide marketing, sales,and technology support network provides it withclear integrative capabilities that represent oppor-tunities for sustained competitive advantage.

Although Ingram possesses numerous unique-ness drivers, it also possesses competitive disad-vantages relative to costs and uniqueness. In 1996,for example, Ingram Micro entered the equity mar-ket to acquire the resources necessary to split offfrom Ingram Industries. While this split-off wouldreduce some of the risk factors associated withbeing a subsidiary of another firm, it would alsoentail the loss of funding through intracompanytransfers, infrastructure economies, and relatedfactors. As a result, the increasing cost of capitalrepresents the potential strategic weakness ofeven smaller gross margins. Moreover, the coordi-nation issues inherent in global operations presentdangers to cost control and service quality.

Strategic Challenge

The technique outlined in this paper is an efficientand effective aid for assessing an internal organi-zation and relating strengths and weaknesses toachieving competitive advantage. Admittedly, itsfocus on the modified value chain does not over-come the possibility of long and superficial lists oforganizational characteristics. It does, however,encourage thinking about strengths and weak-nesses in terms of their strategic relevance, ratherthan merely auditing functional subsystems of thefirm.

The strategic challenge for any organizationdoes not end with the evaluation of strategicallyrelevant strengths and weaknesses. In fact, strate-gically relevant strengths and weaknesses providedecision makers with only one of several importantparts of the strategy puzzle. The challenge is tointegrate the understanding of strengths andweaknesses with the opportunities and threats fac-ing the organization and with the strategic prefer-ences provided by a clear, understood, and sharedsense of mission and vision.

Ingram Micro is a leader in a growing and de-veloping industry. Microcomputers will, no doubt,continue to be the hardware of choice for individ-uals and businesses in the foreseeable future.There are, of course, significant threats. Opportu-nities attract competitors and evolving technolo-gies possess the potential of redefining how bothhardware and software are marketed, dissemi-nated, and delivered. Splitting off from the parentcompany means stepping out into a dangerouscompetitive environment without the financial andmanagerial support of a concerned and sympa-thetic parent. However, independence creates theopportunity to innovate, invent, and experiment inways that are rarely possible for subsidiary oper-ations,

The greatest strategic potential for Ingram Microlies in a differentiation strategy. There is a system-atic way of arriving at this conclusion. Costs arenot unimportant but primarily represent a con-straint. The competitive nature of the industry de-mands cost efficiency. Strategic success for IngramMicro, however, lies along the path of differentia-tion through the provision of distinctive servicesand support. For another company with differentstrengths and weaknesses in another industry, thisanalysis could have suggested another strategy.

This paper is not intended as an analysis ofIngram Micro. It is meant instead as an illustrationof a technique for internal organizational assess-ment that can be used along with other techniquesfor external environmental assessment. It ad-


Table 1Strengths and Weaknesses As Potential Sources of Competitive Advantage and Disadvantage

Strength/Weakness Description

Potential Sourceol CompetitiveAdvantage/Disadvantage

Location on ModiiiedValue Chain

Si Resource Capacity to rapidly develop financial resources withgrowth rates ol more than 40 percent and almost 30percent in net sales and net income respectively.

Sj Resource Industry leader relative to investments in iniorraationresources, warehousing systems, and administrativeinfrastructure. In the past five years, Ingram hasreduced its general and administrative expenses bymore than a percent through the use ol leading-edgeiniormation technologies.

S3 Resource Ability to otfer special promotions and incentives.

S4 Resource Company possesses a number of trademarks andservice marks that are visible and respectedthroughout the world.

S Resource Highly trained associates that receive training throughthe company's extensive in-house training system.

Sg Resource Only wholesale distributor of microcomputers with acentralized global iniormation expertise illustrated byits Impulse system. On a typical business day thecompany's systems handle 12 million on-linetransactions, 26.000 orders, and 37,000 shipments.

S, Resource Expertise in final assembly.

Sg Resource Top management team with experience in number olindustries relevant to company's operations. Membersof the team have substantial international experiencein software development, telecommunications,transportation, and shipping.

Sg Capability Ability to offer reseller customers a "seamless" supplysystem oi one-stop shopping.

S,o Capability Joint ventures with suppliers that allow many ol theeffects of vertical integration while avoiding the mostsignificant risks.

Sii Capability Joint ventures and strategic alliances with firms outsidethe United States leverage company's internationalmanagement expertise. In addition to the UnitedStates, Ingram has almost twenty locations in Europe,three in Canada, seven in Mexico, and three in Asia.More than 100.000 reseller customers are serviced inmore than 120 countries worldwide. Over 30 percentol net sales are derived from operations outside theUnited States.

Wj Resource Narrow margins accentuated by downward trend. Grossmargin has declined from a little over eight percentto about 6.8 percent over the past three years.

Wj Resource Dependent on company's ability to retain and motivatecurrent executive team.

W3 Resource Dependence on information system and risk ofdowntime.

W Capability Over reliance on a few suppliers.

Capability Geographical diversity of operations and marketsmakes effective coordination a challenge even inlight of state-of-the art information system.

Uniqueness Driver

Cost Driver

Not CompetitivelyRelevant (SeeFigure 4)

Uniqueness Driver

Uniqueness Driver

Uniqueness Driver


Uniqueness Driver

Uniqueness Driver

Cost Driver

Uniqueness Driver

Cost Driver

Uniqueness Driver



Uniqueness Driver

OrganizationalInfrastructure




Human Resources

TechnologyDevelopment

Operations

Human Resources

Marketing and Sates

Inbound Logistics

Inbound andOutboundLogistics

OrganizationalInirastructure


TechnologicalDevelopment

Inbound Logistics

Inbound andOutboundLogistics

1998 Duncan, Ginter. and Swayne 15

Table 2Strategic Implications and Competitive Advantage

Strategic Strength/Weakness Strategic Implication

Strengths:51 Resource-Uniqueness Driver-

Organizational Infrastructure52 Resource-Cost

Driver-OrganizationalInfrastucture

53 Resource-Uniqueness Driver-Technology Development

54 Resource-Uniqueness Driver-Organizational Infrastructure

Si Resource-Uniqueness Driver-Human Resources

Se Resource-Uniqueness Driver-Technology Development

Se Resource-Uniqueness Driver-Operations

Sg Capability-Uniqueness Driver-Marketing and Sales

S,o Capability-CostDriver-Inbound Logistics

S|, Capability-UniquenessDriver-Inbound and OutboundLogistics

Weaknesses:

W, Resource-CostDriver-OrganizationalInfrastructure

W2 Resource-Uniqueness Driver-Organizational Infrastructure

W3 Capability-UniquenessDriver-Inbound and OutboundLogistics

Ingram Micro's ability to generate financial resources in an industry characterized by lowmargins in association with the name recognition it possesses because of itstrademarks and service marks provide significant opportunties for furtherdifferentiation its services and deeper market penetrations

Ingram Micro's resources in the areas of state-of-the-art information systems, highlytrained sales associates, and experienced management team offers the opportunity iordifferentiation through the continual introduction ol market relevant serviceinnovations, technical assistance, after service sales, and a seamless distributionsystem.

Ingram Micro's financial resources, managerial expertise, and sales resources incombination with its worldwide network of suppliers and strategic alliances along withthe information system that can link them provides a unparalleled opportunity forservice differentiation in a highly competitive industry where cost advantage is difficultto achieve.

Ingram Micro's narrow margins and downward trend in margin underscores the difficultyof obtaining a competitive advantage in the industry though cost leadership. Costcontrol is essential to survival but cost leadership is not a viable path to competitiveadvantage for the company.

Ingram Micro's need to maintain the management team and focus on coordination ofinternationally diverse operations are potential issues that could erode the opportunityfor competitive advantage through service differentiation.

dresses Jay Barney's lament about tools ior analyz-ing strengths and weaknesses. However, it is im-portant to emphasize that just as externalenvironmental threats should be used as warningsigns and never as excuses to ignore opportuni-ties, so it is with internal weaknesses.

Although organizations possess cost advantagesand may successfully differentiate their productsand services, resources and capabilities shouldnot be looked on as absolute determinants of com-petitive abilities. Even the most oppressive re-source and capability limitations can be overcomeby innovative leaders and heroic employees. Infact, it has been argued that the essential charac-ter of new directions in strategic thinking is theacceptance of "an aspiration that creates, by de-sign, a chasm between ambitions and resources."It is further argued that creating this stretch orchasm "is the single most important task seniormanagement faces."^^ Understanding competi-tively relevant resources and capabilities is impor-

tant, even critical, for systematic strategic decisionmaking. This understanding, however, should notblind us to opportunities or make us timid in think-ing of new and innovative ways of overcominglimitations.22

Endnotes' Barney. lay B. 1995. Looking inside for competitive advan-

tage. Academy of Management Executive. 9: 49-61.^Schwartz, Peter. 1991. The ait of the long view. New York:

Currency Doubleday. Porter. Michael E. 1980. Corporafe strat-egy: Techniques for anaiyzing industries and competitors. NewYork: The Free Press; and Fahey, Liam & Narayanan, V. K. 1986.Macroenvironmen(ai anaiysis hi stiategic managemenf. St.Paul, MN: West Publishing Company.

^ Stalk, George, Evans, Philip. & Shulman, Lawrence. 1992.Competing on capabilities: The new rules of corporate strategy.Haivaid Business Review. 70 (2): 57-69.

•'Denison, Daniel R. 1990. Corporate culture and organiza-tional effectiveness. New York: Wiley and Denison, Daniel R, &Mishra, Aneil K. 1995. Toward a theory of organizational effec-tiveness. Organizaliona] Science, 6: 204-223. See also Hall,


Richard. 1993. A framework for Unking intangible resources andcapabilities to sustainable competitive advantage. SfrategicManagement Journal. 14: 607-618.

^ Information on Ingram Micro obtained from Prospectus forissuance of Class A Common Stock. September 9. 1996.

^ Porter, Michael. Competitive advantage: Creating and sus-taining superior perfoimance. New York: Free Press. Chapter 2.See also Porter, Michael E. Porter. 1991. Toward a dynamictheory of strategy. Stiategic Management Journal 12: 95-117.

''Carroll, Glen R. 1993. A sociological view on why firmsdiffer. Strafegic Management Journal 14: 237-249 and Azzone,Giovanni & Bertele. Umberto. 1995. Measuring resources forsupporting resource-based competencies. Management Deci-sion 33: 57-58.

Information was collected by two independent readers whowere familiar with the historical development of the resourcebased view of competitive advantage. Both readers had beeninvolved in discussions regarding the need for more precisedefinitions of resources and capabilities and the role eachmight play in achieving sustained competitive advantage. Thereaders developed lists of strengths and weaknesses throughindependent readings of the Prospectus of Ingram Micro. Con-sensus discussions were held and agreement was obtained onproper classifications. The same evaluators developed consen-sus on the appraisals of the four questions in the ASSIST model.It is important to note that the researchers limited their use ofinformation to those sources easily obtained by any executivedecision maker in order to illustrate how systematic internalassessment of an organization can be conducted using therecommended approach without large investments in informa-tion search and research.

^ Barney, Jay B. 1991. Firm resources and sustained competi-tive advantage. Journal of Management. 17: 99-120; Barney, JayB. & Hansen. Mark H. Hansen. 1994. Trustworthiness as a sourceof competitive advantage. Strafegic Management Journal. 15:175-190; and Brumagim, Alan L. 1994. A hierarchy of corporateresources. In Paul Shrivastava. Anne S. Huff, and Jane E. Dutton{Eds.). Advances in strategic management: Resource-basedview of the firm: 81-112. Greenwich, CT: JAI Press.

'"Hart. Stuart L. 1995. A natural-resource-based view oi thefirm. Academy of Management Review. 20: 986-1014.

" Peteraf. Margaret A. 1993. The cornerstones of competitiveadvantage: A resource-based view. Strafegic Management Jour-nal 14: 179-191.

' Wemerfelt, Birger. 1995. The resource-based view of thefirm: Ten years after. Strategic Management Journal. 16: 173.Insert added.

'^Henderson, Rebecca & Cockburn, Ian. 1994. Measuringcompetence? Exploring firm effects in pharmaceutical research.Strategic Management Journal. Special Issue. 15: 63-84 andMarino, Kenneth E. 1996. Developing consensus on firm compe-tencies and capabilities. Academy of Management Executive.10: 40-51.

"Amit, Raphael & Schoemaker. Paul J. H. 1993. Strategicassets and organizational rent. Strategic Management 7ournai.14: 33-46.

'^Collis, David J. 1994. Research note: How valuable areorganizational capabilities. Strategic Management Journal 15:143-152. See, for example, Ulrich. David & Lake, Dale. 1991.

Organizational capability: Creating competitive advantage.Academy of Management Executive. 5: 77-85.

Henderson & Cockburn, Measuring competence, 66 andAmit & Schoemaker, Strategic assets and organizational rent,35.

"Black, Janice A. & Boal. Kimberly B. 1994. Strategic re-sources: Traits, configurations, and paths to sustainable com-petitive advantage. Strategic Management Journal 15: 131-148.

'^Barney. Looking inside for competitive advantage. Notethat the "question of organization" was not included because ofits similarity with our definition of capability.

' Prahalad, C. K. & Hamel. Gary. 1990. The core competencyof the corporation. Harvard Business Review 68 (3): 82 andMarkides, Constantinos C. Markides & Williamson. Peter J. 1994."Related diversification, core competencies, and corporate per-formance," Strategic Management/ournai. 15: 149-165.

° Porter, Competitive advantage: Creating and sustainingsuperior performance. Chapter 2 and Porter, Toward a dynamictheory of strategy, 95-117.

'•' Hamel, Gary & Prahalad, C. K. 1993. Strategy as stretch andleverage. Harvard Business Review. 71 (3): 75-84.

^^This discussion has been adapted from Hamel, Gary &Prahalad. C. K. 1994. Competing for the future. Boston, MA:Harvard Business School Press. Chapter 7 and Hamel, Gary &Prahalad, C. K. 1996. "Competing in the new economy: Manag-ing out of bounds," Strategic Management Journal, 17: 237-242.

About the AuthorsI

W. Jack Duncan is professor and university scholar at theSchool of Business/Graduate School of Management, Universityof Alabama at Birmingham. He is a fellow of the Academy ofManagement and a fellow of the International Academy ofManagement. Duncan is past president of the Southern Man-agement Association and the Southwest Division of the Acad-emy of Management. His articles have been published in theAcademy of Management Executive, Academy of ManagementJoumal, Academy of Management Review, Management Sci-ence, Journa} of Management, and others.

Peter M. Ginter is professor and chair oi Health Care Organi-zation and Policy, School of Public Health, University of Ala-bama at Birmingham. He is past president of the SouthwestFederation of Administrative Disciplines. Ginter is the author ofnumerous books, cases, and articles on management andhealth care issues. His articles have been published in theAcademy of Management Review, California Management Re-view, Journal of Management Studies, Management Interna-tional Review, Health Care Management Review, and others.

Linda E. Swayne is professor and chair of marketing in the BelkCollege of Business Administration, and coordinator of the Phy-sicians' Institute at the University of North Carolina at Char-lotte. She has served as the executive director of the CarolinasTask Force on Health Care and is the author of numerous books.cases, and articles on marketing and health care issues.Swayne is past president of the Southwest Federation of Ad-ministrative Disciplines and the Southern Marketing Associa-tion.

1998, vol. 12, no. 3 competitive advantage and internal ... · competitive advantage and internal...

Documents