Strategic management requires an in-depth knowledge of the systems that affect the company. The two primary approaches that aim to help companies to identify their potential aim at the different sources of advantage. In order to achieve any level of success, the company needs to construct a plan, which, in turn, requires a strategic approach to determine what factors bear the utmost importance for the company. However, when the applied strategy is poorly understood, or the analysis is not extensive, the company can be significantly hindered by its implementation to the point of bankruptcy. This essay reviews the resource-based view of strategy by Prahalad and Hamel and the positioning approach by Porter in order to define their application in practice.
The positioning approach uses the company’s desired position among the competitors on the market to provide an advantage over the others. Its focus lies primarily on the external factors, which are, while crucial, are not the only influence on the firm’s performance. Porter’s Five Forces framework allows the company to determine an optimal place on the market where it can earn the highest profitability. According to Porter (1989, p. 133), “the corporate strategist’s goal is to find a position in the industry where his or her company can best defend itself against these forces or can influence them in its favor.” This approach relies heavily on the analysis of competitors in the market and finding a niche spot that will provide the best opportunity for the company. However, this theory can serve as a hindrance for a company that operates in a market with a low entry barrier or with a high potential for imitation (Lanzolla & Markides, 2020, p. 2). The positioning approach aims to reveal the unused potential on the market, instead of the firm itself, and can be used to guide the company towards the spot with higher profitability.
The resource-based view (RBV) of strategy provides the company with an analysis of its potential in accordance with its internal resources. According to this theory, the identification and optimization of the firm’s inner performance, from the research and development to its execution, boosts its profitability. The company’s resources must be assessed to determine their value, rarity, imitability, and organization, which will effectively provide the necessary data on its competitive advantage (Prahalad & Hamel, 2006, p. 281). It is essential for a firm to identify the resources it possesses appropriately, whether they are tangible or intangible, to avoid losing the opportunity to exploit said resources to gain an advantage over competitors.
In practice, it is more efficient for a firm to use a balanced mix of strategies to avoid making decisions without considering all crucial factors. None of the strategic approaches should be regarded as definitive, as they do not cover all aspects of the business (Mishra et al., 2017, p. 620). Their perspective excludes either macroeconomic factors (for RBV) or microeconomic ones (for a positioning approach). Therefore, it is vital for a company to link its resources and capabilities with the overall situation in the market (Lanzolla & Markides, 2020, p. 4). Gellweiler (2018, p. 5) states that “internal strategic objectives must match external strategic objectives and vice versa.” Consistent assessment of factors from both theories provides the most relevant and reliant data that leads to a competitive advantage.
I would like to use the car insurance market in the United Kingdom as an example of the necessity to use both a resource-based view and a positioning approach. The market was chosen due to its high barrier to entry and the crucial role of analysis in the success of businesses that operate in it. There are numerous parameters that are worth considering when choosing the focus of the firm that attempts to enter the car insurance market, such as the location, the range of services, the desired customer base, and many others. However, the market is highly saturated, meaning it does not provide an instant high demand for newcomers. As can be seen from statistics, the top companies in this market possess over 100 years of experience in this industry, which makes innovation mandatory for an entrant to become competitive (Libatique, 2020). A positioning approach can reveal a free niche spot, such as usage-based car insurance, however, it does not provide any additional data on further improvements of the situation for the firm. The strong need for innovation requires well-planned resource management, where RBV will be the most useful.
In conclusion, every company on the market must construct a thorough plan that is based on the analysis of the external environment as well as its own resources in order to succeed. Both approaches aim to provide the company with an insight into its future potential and allow it to strengthen its position in the market. Each theory, when applied to the practice only by itself, will be disconnected from the whole view of the current opportunities. Moreover, these strategies for defining competitive advantage are compatible and complement each other. It is essential for analysts to combine a resource-based view with a positioning approach in order to assess the situation adequately.
Reference List
Gellweiler, C. (2018) ‘Cohesion of RBV and industry view for competitive positioning’, Strategic Management, 23(2), pp. 3-12.
Lanzolla, G., and Markides, C. (2020) ‘A business model view of strategy’, Journal of Management Studies.
Libatique, R. (2020) Top 10 car insurance companies in the UK. Insurance Business – News & Analysis for Brokers.
Mishra, S. P., Mohanty, B., Mohanty, A. K., and Dash, M. (2017) ‘Approaches to strategy – A taxonomic study’, International Journal of Applied Business and Economic Research, 15(4), pp. 619-630. Web.
Porter, M. E. (1989) ‘How competitive forces shape strategy’, Readings in Strategic Management, pp. 133-143.
Prahalad, C. K., and Hamel, G. (2006) ‘The core competence of the Corporation’, Harvard Business Review, 69(3), pp. 275-292.