3H Strategy & International Business 2001-2002
Session 8 – Positioning & RBAs compared
A.
INTRODUCTION TO SESSION
The past two Sessions have outlined a series of models and frameworks that provide
insights into the external environment and the strategic capabilities possessed by
organisations. Many of these models and frameworks have developed as a consequence of
a twenty-year debate over the way in which organisations seek to develop sustainable
competitive advantage.
In broad terms, two distinct approaches have emerged from the debate about this central
issue within strategy content: the positioning approach and the resource-based
approach (or more accurately, approaches). Much of the debate has concentrated upon
two key questions:
 Is competitive advantage achieved by concentrating on either low cost or
differentiation or should a strategy seek to exploit both low cost and differentiation?
 Does an organisation develop strategy to respond to or shape the environment in which
it exists – is strategy outside-in or inside-out?
As the primary purpose of the tools of strategic analysis is to help organisations to develop
and implement successful strategies, then an understanding of the underlying context in
which these models and frameworks can be applied is an important requirement. By
exploring the development of these competing approaches to competitive advantage and the
debate between them, this Session sets out to provide this contextual understanding.
Your Objectives
By the end of this session you should be able to:
•
Outline how the tools and frameworks of strategic analysis are utilised by the positioning
and resource-based approaches to create sustainable competitive advantage.
•
Understand the debate between those advocating positioning or resource-based
approaches to the search for sustainable competitive advantage.
•
Evaluate the key points made in the debate and understand their implications for the
development of strategic options for organisations.
B.
Positioning – An Outside-In Approach to
Creating and Sustaining Competitive Advantage
This approach to strategy is associated particularly with Michael Porter and largely kicked-off
the debate about the search for sustainable competitive advantage. As originally outlined in
the mid-1980s, this was essentially an outside-in approach to strategy, which stressed the
positioning of the organisation within its environment: shaping the organisation to meet
externally imposed pressures. As mentioned in Session 3, the approach is based upon the
structure-conduct-performance paradigm drawn from industrial economics.
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Structure
Conduct
Performance
The underlying
economic factors
in an
industry
Strategies of
competitors
in an industry
Profitability of
competitors across
industry as a
whole
Figure 5:1 – The Structure – Conduct – Performance Paradigm
Porter argued that a company needed to understand the structure of its industry, so that it
could change its strategy (its position within the industry) in order to achieve improved
performance by outperforming its competitors. A successful strategy depended upon the
company exploiting the underlying economic factors (such as economies of scale and
scope) inherent within the industry better than its competitors and maintaining this over time
so achieving sustainable competitive advantage. In essence, this is an outside-in
approach to strategy, with the company choosing a strategy that meets the challenges
posed by the external environment.
 Outlining the Positioning Approach
Michael Porter outlined the main features of his approach in his text Competitive Advantage
that was first printed in 1985. In this book he brought together a series of tools and models,
some of which he had outlined in his earlier work. Although not described by Porter in
precisely these terms, the analysis-choice-implementation framework (see Session 1) can
be used to highlight how the tools and models come together within the positioning
approach.
Analysis
Five Forces Framework
Identify causes of
competitive pressures within
the industry
Choice
Implementation
Strategic Group Analysis
Identify the strategic
characteristics of the
industry and groups within it
Generic Strategy
Choose between:
- Low Cost Leader
- Differentiation
- Focus
Value Chain Configuration
Structure value chain and
value system to achieve
chosen strategy
Figure 5:2 – An Outline of the Positioning Approach
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Value Chain Analysis
Assess the capabilities of
the organisation
The positioning approach commences with an analysis of the external environment: the five
forces framework being used to understand where the competitive pressures come from
within the industry and strategic group analysis being used to better understand the main
strategic characteristics within the industry and identify particular competitor groups. A
value chain analysis can also help the organisation to understand its existing capabilities.
In choosing a strategy the organisation needs to consider how it can position itself against
the forces of competition within the industry:
 by using its capabilities to provide the best defence against these force(s);
 by influencing the balance of forces so that they favour the organisation’s strategy; or
 by anticipating shifts in forces and reacting to exploit them quicker than the
competition.
Porter argues that positioning determines whether a firm's profitability is above or below the
industry average. A firm that establishes a favourable position can earn high rates of return
even if general conditions within the industry are unfavourable and the average profitability
of the industry is modest.
Positioning depends upon exploiting the sources of competitive advantage that exist as a
result of the underlying economic structure of the industry. As we saw in the last Session,
competitive advantage can be divided into two types - low cost or differentiation. A
further dimension to be considered is the scope of activities over which advantage is to be
sought - many segments of the industry or just one or two. Porter argues that requires
organisations to make a choice between the generic strategies outlined in the diagram
below.
Competitive Advantage
Low Cost
Differentiation
Broad
Low Cost Leader
Differentiation
Narrow
Low cost focus
Differentiation focus
Competitive
Scope
Figure 5:3 – Generic Strategies
(Adapted from M E Porter, Competitive Advantage, Free Press, 1985)

Low Cost Leader
According to this strategy the company seeks to be the lowest cost supplier serving most
customer segments. It hopes to achieve superior profitability or competitive advantage
through a lower cost base than its competitors, and consequently higher than average
price/cost margin. The potential sources of this low cost position include economies of
scale and scope and the experience curve. These sources of advantage need to be
sustainable into the long term for the strategy to succeed.
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
Differentiation
Here the company seeks to differentiate itself from its rivals by achieving a degree of
uniqueness that is valued by many customer segments. The company can charge a
price premium, where the premium achieved is more than the costs incurred, leading to
higher than average margins. There are many potential ways of achieving differentiation,
leading to perceived higher value for customers, including product features, branding and
different delivery systems.

Focus
Here the company concentrates on one or two segments of the market using either cost
focus or differentiation focus strategy. The sources of cost leadership and differentiation are
similar to those discussed above. However, the success of a focus strategy depends upon a
clear definition of the segment(s) served and the ability of the company to defend the
segment from attack by broad scope competitors.
Finally, the company needs to consider how to implement the chosen strategy. Porter
argues that the activities that the organisation undertakes and the ways in which they are
linked, as highlighted by the value chain and value system, can all contribute to the
strategy if they exploit the sources of cost efficiency or value added available.
LOW COST STRATEGY
DIFFERENTIATION STRATEGY
Critical Activities
Efficient operations
Low cost logistics & distribution
Process Design - efficient processes
Product Design - easy to make
products
HRM - good labour supervision
Critical Activities
Product design - innovative products
Marketing - brand image promotion
Service - quality customer service
HRM - staff training
Operations - quality assurance
Cost Drivers
Economies of scale
Economies of scope
Experience curve
Supply costs
Differentiation Drivers
Service quality and levels
Product features
Delivery times
Image
Figure 5:4 – Generic Strategies and Value Chain Activities and Linkages
By reconfiguring its value chain and wider value system, a company can concentrate upon
the critical activities and linkages that exploit cost drivers or differentiation drivers
based upon the sources of advantage. The critical point to recognise here is that there
needs to be consistency between all these critical activities and linkages in order to deliver
a clear generic strategy. Further, provided that these drivers can resist erosion by the
actions of competitors then the chosen strategy is likely to deliver sustainable competitive
advantage.
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Whilst other tools like PEST analysis and market segmentation analysis have not been
mentioned as part of the positioning approach, they can also be usefully employed in
assessing the conditions of the external environment and potential customer requirements.
 Adaptations of the Generic Strategies Framework
Michael Porter’s work in the mid-1980s led to a major debate about how organisations could
create and sustain competitive advantage that has continued ever since. Some of the
differing approaches that have emerged and the main points of contention within the debate
will be explored in the following sections, including Porter’s response to his critics and his
own later changes to the positioning approach. However, it is worth dealing with one aspect
of the debate here.
Many of the early criticisms of the generic strategies framework at the heart of the
positioning approach questioned Porter’s clarity about the terms “low cost” and
“differentiation”: did a low cost strategy mean selling at low prices and did a differentiation
strategy require selling at a price premium?
Later work that has offered some clarity on these questions, whilst still being consistent with
the overall positioning approach, is the “Strategy Clock” developed by Cliff Bowman. In
this adaptation of the generic strategies framework, Bowman argues that the key variables
as far as positioning is concerned are those seen by the customer - price and perceived
quality. Using these two dimensions a range of generic options (routes) can be identified
for an organisation within an industry. Using the analogy of a clock there are broadly five
potentially successful routes (combinations of price and perceived quality) and three routes
ultimately likely to fail. These are illustrated in Figure 5.5.
High
Differentiation
Hybrid
4
5
3
PERCEIVED
ADDED
VALUE
Focused
differentiation
Low
price 2
6
7
1
Low price/
low added value
8
Low
Low
PRICE
Strategies
destined for
ultimate failure
High
Source: Based on the work of Cliff Bowman. See C.Bowman and D.Faulkner. Competitive and Corporate Strategy, Irwin, 1996.
Figure 5:5 – The “Strategy Clock”
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Each of the potentially successful routes draws on elements of low cost, differentiation and
scope identified in the original generic strategies framework and are explored in a little more
detail below:

Low Price/Low Added Value (route 1)
This strategy can work where there is a particular price-sensitive segment within a market.
Customers within this segment recognise that the product/service provided is of low quality
but the low price still makes it attractive or they are unable to buy higher priced products.
Companies choosing this route need to strip out superfluous activities and linkages from
their value chain in order that their cost base is as low as possible to support the low price
offer. This focus strategy can only be sustained if the segment remains distinct from the
rest of the market: customers are unwilling to buy higher price/quality alternatives and other
competitors are unable to match the cost base of the company dedicated to this segment.
Within the UK, supermarket chains like Aldi and Netto adopt this route by offering a limited
range of “budget” brand groceries sold within unsophisticated stores with low levels of staff
support, but very low prices.

Low Price (route 2)
Companies choosing a low price strategy aim to sell to a broad range of customers at lower
prices than their competitors but offering a similar level of perceived quality of
product/service. For such a strategy to be sustainable the company needs to be able to
exploit sources of cost advantage like economies of scale or scope within its value chain. In
terms of Porter’s original framework this is a low cost leader strategy, with cost advantages
being invested in lower prices. The biggest risk with this route is that other competitors may
seek to match price cuts, with a price war ensuing. Hence the strategy is sustainable only if
the company can exploit and protect the sources of cost advantage in comparison to its
competitors. The UK supermarket chain Asda, now owned by the American giant Walmart,
uses the slogan “pocket the difference” to highlight lower prices across a broad range of
groceries and other products like the “George” clothing brand. In common with many of its
main competitors it also has in-store bakeries, fish counters and delicatessens within its
stores.

Hybrid (route 3)
In outlining his original generic strategy framework, Michael Porter stressed the need to
make a clear choice between low cost and differentiation strategies. However, some of his
critics pointed out there seem to be many companies that are successful offering higher
perceived quality at lower prices. Whilst the debate about low cost and/or differentiation
will be explored further in the next section, the principles underlying this hybrid route are
explored here.
By selling in sufficient volume, companies are able to exploit the sources of cost advantage
(economies of scale and scope, experience effects etc.). To achieve the required high sales
levels, companies can attract customers through lower prices, higher perceived quality or
some combination of both. Companies choosing this combined, or hybrid, route need to
create a value chain and system that exploits cost advantages where possible, whilst
balancing the needs to invest in the bases of differentiation to create perceived added value
as well as lowering prices.
Tesco, the UK’s largest supermarket chain, promotes itself under the “every little helps”
slogan. The cost advantages Tesco possesses from being market leader allow them to offer
broadly similar prices to Asda, but the company also aims to attract customers with a wider
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range of grocery lines, prepared chilled foods, and non –food products, alongside in-store
bakeries, delicatessens, dry cleaning and other services.

Differentiation (route 4)
The differentiation or higher perceived added-value route requires a company to structure
their value chain and system so as to attract a broad range of customers on the basis of
features they value other than lower prices. There are many possible means of
differentiation (product range and quality, added features, reliability and high service levels
are just some examples), they key being to identify those which are attractive to customers.
It is important to realise that this route is aimed at many customer segments so prices may
not be that different from competitors following routes 2 and 3, depending upon the market.
Indeed, this option can be split further between those offering higher perceived value at
no price premium, where cost advantages are still critical in underpinning the strategy, and
those offering higher perceived value at a price premium. In either case, the
sustainability of this strategy depends upon the company being seen to be offering
something that is seen to be different to competitors, is valued by the customer and that
this difficult for competitors to copy.
After losing its position as the UK’s leading supermarket chain, Sainsbury’s performance has
shown signs of recent improvement with a strategy based around “making life taste better”.
An advertising campaign featuring the trendy TV chef Jamie Oliver promotes the quality and
range of (sometimes exotic) foods available within Sainsbury’s stores. Interestingly,
newspaper advertisements compare Sainsbury’s prices to Safeway, and vice-versa. Both
store chains aim to follow a route of providing higher perceived quality, particularly in food
ranges, rather than pursue the lower price routes adopted by Tesco and Asda. All that said,
the intensity of competition between the largest supermarket chains and other smaller
competitors has led to a series of short-term price wars, perhaps indicating a limit to
sustainable price premiums for supermarkets following broad scope strategies.

Differentiation Focus (route 5)
In contrast to the broad scope strategies implied by routes 2, 3 and 4, a company pursuing a
differentiation focus strategy aims to offer higher perceived value at a substantial price
premium. As with a differentiation strategy there may be many ways of creating this higher
perceived value, but the aim will be to make the product/service attractive to customers
within a particular market segment who are not being well served by other competitive
offerings. As with the low price/low quality strategy (route 1), the sustainability of this
strategy depends upon the extent to which customers within the segment are unwilling or
unable to buy from elsewhere. In the provision of high quality groceries at a high price
premium to an exclusive segment of the market, then the Harrods’ Food Hall and Fortnum &
Mason stores in London would be illustrations of companies following such an approach.

Failure Strategies (routes 6 to 8)
Only in rare circumstances (monopoly for instance) will companies following routes which
involve raising prices without improving perceived quality, or reducing perceived
quality whilst maintaining or raising prices, be likely to achieve positions of competitive
advantage. Either the customer will go elsewhere or new companies following different
approaches will enter the market.
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Finally, it is worth highlighting the point that irrespective of whether the original generic
strategy framework or the strategy clock is utilised, the positioning approach is not static.
The relative positions of competitors will be constantly changing as their strategies change
and new entrants come into the market place. Even if the company wants to maintain a
particular strategy it will need to continually monitor how this will be seen within the market,
making changes accordingly.
SAA 1
The automobile industry has many competing companies, some of whom own more than
one marque or brand. The main competitors include Ford, Nissan, Volkswagen, Renault,
Toyota, Mercedes/Chrysler and General Motors. There is also a number of more specialist
car makers like Jaguar, BMW, Ferrari, Bentley and Rolls-Royce, many of whom are now
owned by the biggest players. In addition, recent years have seen the arrival of new
entrants, particularly those located in the Asia-Pacific, like Proton and Kia. Using your
knowledge of the companies listed and others of which you may be aware, attempt to
classify the strategies adopted by the different marques using the strategy clock. Note that
you may find that you cannot find examples of all the five possible successful routes to
competitive advantage.
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C.
Resource-Based Approaches to Sustainable
Competitive Advantage
The emerging critique of positioning during the 1990s led to the development, by a number
of different authors, of broadly similar views about the nature and creation of sustainable
competitive advantage. Taken together these views form the basis of what has become
known as the resource-based approaches that take a largely inside-out approach to the
creation of sustainable competitive advantage. The views of some of the main proponents
of these approaches are summarised below in Figure 5:6.
Sustainable competitive advantage depends on:
Hard to imitate organisational capabilities based on business processes which
distinguish a company from its competitors in the eyes of the customers
Stalk, Evans & Shulman, “Competing on Capabilities”, 1992
Core competences based on skills and technologies - the collective learning of the
organisation
Prahalad & Hamel, “The Core Competence of the Corporation”, 1990
Possession of capability differentials which are fed from a feedstock of intangible
resources
Hall, “A Framework for Identifying the Intangible Sources of Sustainable
Competitive Advantage”, 1994
Distinctive capabilities which are a feature of its relationships, which others lack or
cannot easily reproduce
Kay, Foundations of Corporate Success, 1995
Figure 5:6 – Resource-based Approaches – Variations on a Theme
Whilst each author tends to use slightly different language, there is a broad agreement on
the way in which the resources and functional competences of the organisation are linked
together by cross-functional strategic capabilities in ways which are difficult for competitors
to copy, as discussed in Session 4.
In these approaches the starting point is with the organisation rather than the challenges
posed by the external environment. Never the less the strategy can only be seen to be
successful if it is seen to be different to the competition and valued by customers. Also
implicit in such an approach is that all sources of advantage are available to be utilised,
provided that this is done in a unique way: there may be no need to choose between
sources of low cost and differentiation.
 An Example of a Resource Based Approach
Just as with the positioning approach, a range of tools and models can be used to assess
and construct a suitable strategy. Many of the models, particularly the value chain, are
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used by proponents of both camps – the differences often lie in the way in which the tools
and for what purpose.
Robert Grant has outlined one resource-based framework that can be used for strategy
formulation, forming a useful link between the principles outlined above and tools/models
with which we are now familiar. The outline of this approach is illustrated in Figure 5:7.
Figure 5:7 – Grant’s Resource-based Framework
Taking each of the stages in turn, the range of tools and models that can be utilised are
explored below:

Analyse the Firm’s Resources
First, Grant suggests the need to identify, classify and assess the resources of the firm. The
most important resources are likely to be intangible resources. As discussed in Session 4,
Hall’s Intangible Assets and Resources framework could be useful here. Once identified,
managers need to assess how their resource base compares with that of their competitors
and identify opportunities to use these resources more efficiently.

Analyse the Firm’s Capabilities
The next stage is to analyse the way in which the resources of the organisation are
combined with its competences to potentially create strategic capabilities. As we have
seen previously, the most useful tool available to help in this process of identification and
analysis is the value chain. Capabilities are created in the way in which the organisation
uses its resources in the activities it undertakes and in the linkages between these
activities and other value chains.
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Grant again points out that the critical task for the manager is to assess these capabilities
relative to those of its competitors. Such a requirement implies the need to conduct
competitor analysis, perhaps by conducting similar analyses for major competitors and, as a
minimum, being aware of the broad strategies they are following and the implications this
has for the resources and capabilities of the company in question.
As well as using value chain analysis, the other models for identifying core competences and
strategic capabilities in Session 4 can also be applied. For example, activity mapping can
help in seeing how activities are linked to creating capabilities, or one can follow the steps
to identify core competences outlined by Gerry Johnson and Kevan Scholes, or apply
Mahen Tampoe’s core competence analysis model.

Appraise the Sources of Competitive Advantage
The next stage of this resource-based approach is to “appraise the rent-generating
potential of resources and capabilities” - based on economic rent as a measure of
competitive advantage. This may sound quite intimidating but the concept is actually
relatively simple to understand and is grounded in the underlying economics in a similar way
to the positioning approach. If an organisation has sole access to a particular resource then
it is able, in theory, to demand a higher price for its use by others, so increasing returns from
its exploitation above that which would exist if it was freely available – these excess profits
are the economic rent. The profits earned by a “pure monopoly” are a particular application
of this definition.
The ability of resources and capabilities to generate economic rents depend upon the
opportunities they offer to exploit the sources of advantage, namely cost efficiency or
added value (back once again to economies of scale and scope, the experience curve and
the ability to differentiate oneself from the competition).
Grant stresses the importance of considering the sustainability and appropriability of
these sources of competitive advantage in assessing their long-term potential. He identifies
four characteristics of the resources and capabilities of the organisation that are likely to be
important determinants of sustainability:

Durability – all resources and capabilities depreciate over time, so the rate of decline is
important to the sustaining of competitive advantage. For example, technological
change means that capital equipment and know-how can become obsolete. Similarly,
brand names and reputation can also decline over time, as can the expertise of the
company.

Transparency - the ease with which competitors can identify, and subsequently
duplicate or replace, a company’s sources of competitive advantage can be critical.
Reverse engineering, where a competitor can dismantle products to see how they are
designed and assembled, can reduce the length of time a company can maintain an
advantage based on product technology. This has led to shorter product life cycles in
many industries as companies try to outperform each other.

Transferability - if a competitor can gain easy access to the resources and capabilities
on which advantage is built, then sustainability is again reduced. The wholesale transfer
of a dealing room team from one competitor to another is not uncommon in today’s
financial markets. Similarly, if cost or added value advantage is based on process
technologies that are available to all then it is likely to be short-lived.
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
Replicability - the more difficult it is to copy the resources and capabilities of a
company, the more sustainable their advantage is likely to be. The sophistication of an
organisation’s value chain and its ability to manage complex linkages all contribute to the
sustainability. As we saw in the previous Session, this places particular stress on
intangible assets and resources that are, by their nature, more difficult to identify and
replicate.
An organisation also needs to consider the appropriability of the returns from these
sources of advantage - can others get the benefits of the resources and capabilities without
owning or do they already belong to others? This is an important issue when considering
strategic alliances with other organisations, as we shall see in the next Session. It is also an
issue when an organisation’s advantage comes as the result of the skills of a limited number
of employees. For example, changes to the contractual position of professional footballers
playing in Europe as a result of free movement of labour principle, encapsulated in the
“Bosman Ruling”, has led to increased players’ wages as clubs attempt to hold onto their
stars or attract players from elsewhere. In effect, the returns for unique footballing
capabilities now accrue largely to the star players rather than the clubs.

Select a Suitable Strategy
Grant argues that the essence of strategy formulation is to design a strategy that makes the
best use of a firm’s most important resources and capabilities. Building upon the previous
point, he identifies these key resources and capabilities as “those which are durable, difficult
to identify and understand, imperfectly transferable, not easily replicated, and in which the
firm possesses ownership and control”.
For Grant, as with the other resource-based authors, this may well combine sources of cost
efficiency and added value. In practice this means that many would dispute the underlying
assumptions of Porter’s original generic strategy framework but that many could accept the
options outlined within the strategy clock. The key is to recognise that whilst the resourcebased approaches stress the importance of looking internally at the resources and
capabilities of the organisation, any successful strategy will still rest upon the strength of this
mix of low cost and added value advantages relative to the external opportunities.
Frequently, this is described in terms of the uniqueness that the strategy creates or is built
upon. Jay Barney talks about the two assumptions of resource heterogeneity (different
organisations having different resources) and resource immobility (the difficulty of
transferring resources between organisations) that will underpin sustainable competitive
advantage for those adopting resource-based approaches.

Identify Resource Gaps and Develop Firm’s Resource Base
The final stage of Grant’s framework is to identify ways in which the organisation can build
on existing resources and capabilities in order to create future advantage. This means
developing strategies that address resource gaps by enhancing current resources and
capabilities, or acquiring new ones. For example, the car makers Honda and Rover created
an alliance during the 1980s to mutually address the differing gaps in their resources and
capabilities - Honda sought knowledge of European car styling, whilst Rover wanted access
to expertise in manufacturing processes, particularly in quality management.
As sustaining competitive advantage is critical, firms need to continually search for new
ways in which to upgrade their resources and capabilities - finding new sources of cost
efficiency or ways to add value. This can mean replacing existing sources of advantage
even whilst the firm maintains an advantage over its competitors. For example, a consumer
electronics company like Sony may launch a new product innovation, despite being the
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market leader with the existing generation of products, in order to stay ahead of the
competition.
Illustration
CREATING SUCCESS AT KWIK-FIT
Sir Tom Farmer founded Kwik-Fit in197. But the 58-year-old self-made Scot, who yesterday
announced that he planned to sell the business to US car giant Ford, reaping a personal
windfall of £77m, insisted he would have no trouble working for somebody else.
"I never felt I worked for myself anyway," said Sir Tom yesterday from his group's Edinburgh
headquarters. "I always thought I worked for a company called Kwik-Fit which has 8,000
shareholders and 9m customers."
Sir Tom left school at 14 to join a tyre firm as a stores boy before setting up his first venture a tyre and accessory company - 10 years later. Fours years after that he sold up and retired
to California for a year before getting bored and returning home to found Kwik-Fit in 1971.
The idea was simple. Drivers were offered an instant fix for their exhausts, tyres or brakes backed up with a zealous commitment to service, a trait for which the independent garage
industry was not renowned.
The business was a success and Sir Tom built up a strong brand. Kwik-Fit and its catchy
advertising jingle sung by dancing fitters, “You can’t get better than a Kwik-Fit fitter, We’re
the ones to trust”, are now so much part of the UK scene that it is easy to forget how much
the group has changed the industry it operates in.
Driving into a Kwik-Fit garage, the motorist can have new tyres, brakes or an exhaust fitted
to their car whilst sitting in a clean waiting room with views of the working area. The
specialisation on only a limited range of garage services means that the facilities and fitters
are tailored to the specific operations required. The large turnover of cars also means that
the motorist is offered a good range of the main branded and own-label products at very
competitive prices.
Punctures and broken exhausts are “part of the joys of motoring”, often taking place at
inconvenient times and away from home. Kwik-Fit has a national coverage of branches and
is open seven days a week. A credit card scheme also allows the motorist to cope with the
unexpected repair and spread payments.
In recent years, some of the main car manufacturers, including Ford, have attempted to set
up similar operations within their main dealership networks. However, success has been
limited, with many motorists still believing that such garages will charge the traditionally high
dealership prices. The dealerships also have the problem of separating this quick turnover
service from their more complex full maintenance operations.
Add Kwik-Fit’s move into selling insurance in 1995 and last year's expansion into continental
Europe with the £105m acquisition of a French business, and the attractions the group holds
for Ford become clear.
Ford first approached Kwik-Fit at the end of last year, at which point the two groups first
discussed possible joint ventures. But the agenda quickly moved on to a take-over. Sir Tom
had rejected offers in the past - notably and most publicly an approach in 1989 from
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Continental, the German tyre group. This time, he said, the time was right, but "we mainly
did it because Ford is right".
"This is a terrific development," he said. "Businesses and industries keep changing and the
automotive industry itself is changing. To be approached by a company of such standing and
prestige as Ford means this gives us a tremendous future."
Last month, announcing a 17 per cent increase in pre-tax profits to £64.3m, Sir Tom
signalled a year of consolidation, promising to pay off the group's £105m of debt - taken on
to fund the European acquisition - "as soon as possible".
Now, with the financial muscle that being part of Ford will bring, Kwik-Fit can step up its
growth. The group needs to expand its continental European operations - predominantly
those in Germany, where it trades under the Pitstop name and in France, Belgium and Spain
where it trades as Speedy. Sir Tom said the number of German outlets could easily be
increased from 160 to as many as 450, while the small presence in Spain and Portugal could
grow to about 250.
He said that the group's longer-term focus would be on services for cars from the showroom
to the scrap yard. Almost any car-related business would be considered, with the most likely
being bodyshops, car accessory retailing, and windscreen and radio replacement.
Sir Tom said that in striking the deal he "felt like the father of the bride who is there giving his
daughter away". However, he stressed that he had done that in real life and gained "three
beautiful grandchildren". He said he held out the same hopes for the marriage with Ford.
Source: based on an article by Susanna Voyle in the Financial Times, Tuesday April 13, 1999.
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SAA 2
Read the illustration Creating Success at Kwik-Fit and identify the sources of competitive
advantage within the company at the time of its take-over by Ford.
Assess the sources of competitive advantage you have identified for sustainability and
appropriability.
Sustainability:
 Durability

Transparency

Transferability

Replicability
Appropriability
Given the future strategy for the organisation outlined by Sir Tom Farmer at the end of the
illustration, what comments would you make concerning potential resource gaps and
development of the resource base?
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D.
The Debate between the Positioning Approach
and Resource-based Approaches
To a large extent, the debate about the approach to creating sustainable competitive
advantage began with Michael Porter in the early 1980s. Many of the resource-based
approaches grew out of a critique of the positioning approach during the 1990s. However,
Michael Porter did not take the critique of positioning lying down and he is still playing a key
role in the debate about sustainable competitive advantage.
This section explores the two questions that have remained at the heart of this debate for
over twenty years:
 Are low cost and differentiation mutually exclusive?
 Should the search for sustainable competitive advantage be outside-in or inside-out?
 Are Low Cost and Differentiation Mutually Exclusive?
In his original work, Michael Porter argued that as the ways in which organisations sought to
exploit sources of low cost or differentiation depended upon largely different and
contradictory activities, those organisations that failed to make a clear choice between
generic strategies were likely to become “stuck in the middle”.
However, many resource-based proponents, including Richard Grant, have argued that as
the activities that exploit low cost or differentiation advantages are different then they will not
necessarily conflict. Indeed, an organisation should seek to exploit all sources of advantage
open to it in order to create a unique strategy.
Indeed, in an article published in 1996 called “What is Strategy?” Michael Porter argued that
a company creates sustainable competitive advantage by delivering greater value, creating
comparable value at lower cost, or by doing both. The stress was on the unique mix of
value created by a different set of activities rather than the choice between low cost and
differentiation. In other words, he had changed his own position!
That said, in the same article, Porter raised a number of issues directed at some of the
proponents of resource-based approaches. These issues are explored below:

Operational Effectiveness and Strategy
Porter made a distinction between operational effectiveness and strategy. Operational
effectiveness meant performing similar activities better than rival competitors, whilst
strategy was about performing different activities to rivals or performing similar
activities in different ways.
He argued that operational effectiveness meant organisations doing things better, whether
that was improving value to the customer or improving the company’s relative costs. It was
about better utilisation of resources reducing defects or developing new products faster.
This is consistent with the view that sees no conflict between pursuing cost efficiency and
added value.
However, Porter went on to argue that operational effectiveness is a necessary but not
sufficient condition for superior performance. He highlighted this by reference to what he
calls the productivity frontier shown in Figure 5:8.
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Figure 5:8 – The Productivity Frontier
The productivity frontier shows the state of best practice at any moment in time achievable in
terms of value added and cost efficiency. Not all organisations have achieved best practice
so, like Company A, they can increase operational effectiveness by adopting techniques like
TQM and benchmarking, improving both cost efficiency and value added. However, once
the productivity frontier is reached, as with Company B, there is a need to make a choice
between further cost efficiencies or adding value, as both cannot be improved
simultaneously. In other words, the company needs to define a unique strategy with a
different mix of low cost and added value to competitors.

Dangers of Hypercompetition
For Porter, the risk of most competitors in an industry pursuing similar routes to operational
effectiveness is that the competitors merely shift the productivity frontier outwards over time.
Whilst absolute operational effectiveness increases, there is no relative improvement for
any one competitor. In such circumstances competitors come increasingly to resemble each
other as they seek the same improvements through benchmarking against each other. The
result, argued Porter, was hypercompetition with companies facing diminishing returns as
they become increasingly homogenous - with similar cost structures, new product
development times, product quality etc. Perhaps the recent history of restructuring in the car
industry, with many mergers and alliances across the globe reflects the pressures of
hypercompetition?
 Is the Search for Competitive Advantage Outside-in or Insideout?
The previous sections in this Session have highlighted the way in which the positioning
approach can be seen as outside-in, whilst the resource-based approaches are inside-out.
What is meant by these descriptions and can the implied differences be resolved?
A number of points can be made in this debate to both more closely define the meaning of
the terms and to explore remaining points of agreement or difference:
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
Strategy Content or Strategy Process?
In discussing the nature of strategy in Session 1, a distinction was drawn between strategy
content and strategy process. At first sight, the frameworks for positioning and resourcebased approaches outlined above seem to suggest particular views about the process of
strategy formulation – each describing a series of stages that need to be undertaken in order
to devise a new strategy. In fact, as the example of Churchill Tableware illustrated, the
process tends to be less rationalistic and sequential in practice – most companies will not
slavishly follow the stages of either the positioning approach or a resource-based approach.
However, this insight into strategy as it is practiced does not invalidate the central issues that
are at the heart of this debate. Both the positioning approach and the resource-based
approaches are largely concerned about the relative significance of the external environment
and organisational capabilities upon the underlying logic of particular strategies. In other
words, the debate about positioning or resource-based approaches is largely about strategy
content – should a company’s strategy be market-driven or capabilities-driven?

One Size Fits All?
A colleague at Durham University commented on the range of companies frequently
highlighted by proponents of a resource-based approach, stating that “not one of them
clothes you, feeds you or puts a roof over your head”. He graphically illustrated a point that
certain strategies may suit companies in certain industries - computer software, financial
services and consumer electronics for example - but that it is dangerous to assume that
similar strategies will suit all contexts.
Interestingly, this mirrors one of the original critiques of the generic strategies framework:
imposing a limited range of options irrespective of the external context. It is usually
dangerous to assume there is only one right answer to the problem. Whatever approach is
taken, a strategy needs to build upon the capabilities of the particular organisation whilst
addressing the challenges of the particular external environment in which it exists.

Re-defining Positioning
As mentioned above, Michael Porter has changed approach to positioning. From a supply
side perspective he now argues, in line with a resource-based approach, that positioning
depends upon a unique set of activities based on cost, value or both. However, he also
stresses the importance of a demand side perspective – defining a position within the
market that is distinct from competitors, serving customers in a different way or serving
different customers. He goes on to define three approaches to positioning that can
individually or jointly define the company’s approach to the market:

Needs-based positioning - serving the needs of a particular group of customers with a
tailored set of activities e.g. IKEA, the Swedish furniture retailer, targets designconscious but price-sensitive furniture. These customers are willing to trade time
erecting the ready-to-assembly products in return for a low price. The company operates
out of large self-service stores with its products displayed in room-like settings to allow
customers to see how the items will fit into their own homes. The chosen items are then
selected from pallets in the warehouse section of the store.

Variety-based positioning - producing a sub-set of an industry’s products, which attract
customers some of the time e.g. Kwik-Fit (see the illustration above) concentrates on
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replacing tyres, exhausts and brakes on a while-you-wait basis rather than offering a full
range of car maintenance services.

Access-based positioning - using a different set of activities to reach customers in a
new way, often as a function of geography or scale e.g. Carmike operate very low cost
cinemas across the rural USA, enabling it to operate in towns with smaller populations
than other multiplex chains. Carmike builds standardised theatre complexes with fewer
screens and less sophisticated projection technology. Proprietary information systems
and management processes reduce overheads and staff costs, whilst group purchasing
power ensures the pick of films on good terms from the distributors.
The critical point here is to see that a successful strategy needs to be unique and seek to
reach target customers in ways that are difficult for competitors to copy or circumvent.

Dealing with Uncertain Futures
One of the key insights of the resource-based approaches was to see that one of the primary
roles of strategy was to invest in the resources and capabilities of the organisation, both
to build on the existing resource base and to cover resource gaps. This is particularly
important if the future is uncertain. In their article, Competing on Capabilities, George Stalk,
Philip Evans and Lawrence Shulman argue that dominating an existing market segment
might be less important than being able to create new products and exploit them quickly.
Their stress is upon the organisation’s capabilities to meet or even anticipate market
trends and customer needs, trying out new ideas and moving quickly into new market
opportunities. This means that the organisation needs to focus upon the development of
those capabilities that may allow it to compete successfully in the future.
E.
Summary
This Session has focused upon two approaches to the search for sustainable competitive
advantage, outlining the elements in each approach and the tools and models that can be
used at each stage.
The positioning approach stresses the need for an organisation to make a clear choice
about its strategy, based on sources of low cost and differentiation advantage, so that it
addresses the challenges it faces from the external environment.
The resource-based approaches stress the need to build and use the resources and
capabilities of the organisation so that it can exploit sources of low cost and differentiation
advantage in a unique manner.
Over the past twenty years a debate has raged over which of these approaches best meets
the needs of organisations as they seek to develop successful strategies. The two central
questions in this debate have been:

Are low cost and differentiation mutually exclusive?
Whilst the early debate concentrated upon whether these sources of advantage could be
combined, the stress today is upon achieving a unique combination of low cost and
differentiation advantage that makes the organisation distinct from its competitors
either in what it does or how it does it.

Is the search for competitive advantage outside-in or inside-out?
The positioning approach is often described as outside-in, whilst the resource-based
approaches are seen as inside-out. However, this is less about describing the stages of
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a strategy process and more about the underlying logic of the strategy content – should
the strategy be market-driven or capabilities-driven. Most within the argument now
accept that both are important – distinct positioning within the market compared to
competitors and the development of capabilities to meet ever-changing market needs
are both pre-requisites for sustainable competitive advantage.
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