Introduction
Over the past few decades, the most popular theories of strategic management were the positioning approach and the resource-based view (RBV) of strategy. Its purpose is to help companies with developing and execute their business plans in the most efficient way. However, strategic objectives can not wholly avoid taking external risks, making it essential for firms to closely examine each theory prior to putting it into practice (Gellweiler, 2018, p. 4). This essay aims to describe and analyze the differences between the two primary schools of strategic management and discuss how they are implemented in practice. The strategies will be applied to an existing company that operates in the car insurance market in the United Kingdom.
Comparison of Theories
To describe the difference, it is vital to understand the basis of each theory. The positioning approach relies on the organic placement of a company among its competitors, thus, it focuses on the external factors (Porter, 1989, p. 133). Witcher (2020, p. 16) defines the five forces as “the primary influences affecting the choice of industry and competitive positioning, which affect an organization’s competitive advantage and profitability.” At the same time, RBV is oriented towards the internal factors of a firm (Witcher, 2020, p. 30). Witcher (2020, p. 29) states that, according to the resource-based view of strategy, “competitive advantage and superior performance are based on the internal management of strategic resources.” The resources of a firm, which range from the raw materials to the strengths of each employee, are put at the top priority when a company follows RBV to gain an advantage (Barney, 1991, p. 206). Therefore, these approaches take a diametrically opposite look at a company when defining its potential.
The conditions for gaining a competitive advantage also differ significantly between the theories. Regarding a positioning approach, Porter (1989, p. 133) states that “the weaker the forces collectively, however, the greater the opportunity for superior performance.” At the same time, the primary condition for success, according to RBV, is proper identification and efficient exploitation of strategically relevant resources of the organization (Barney, 1991, p. 206).
For a company to create an adequate business plan, it is essential to examine all factors that affect its performance. Gellweiler (2018, p. 2) states that these two “fundamental theories still lack connectivity,” as they neglect either internal or external factors. The choice of the strategic position of a company depends not only on the competitive environment but also on its available resources and employees’ skills (Gellweiler, 2018, p. 4). Thus, the necessity to include strengths and weaknesses, as well as opportunities and threats, calls for a hybrid approach (Barney, 1991, p. 204). In practice, a company that chooses to utilize both strategies has a higher chance of succeeding.
Example
To demonstrate the importance of applying a combination of the two theories to practice, I would like to analyze the car insurance company Admiral Group PLC, which operates in the UK market. With almost 11,000 employees and a revenue of $1.4 billion, it is one of the largest companies on the market (“Admiral group PLC,” n.d.). Due to being highly competitive and heavily influenced by the general environment, the car insurance industry requires a constant assessment of the internal factors along with the state of competition (Ralph, 2020). The forces on the market have been weakened by the pandemics, which creates an opportunity for a company to gain a competitive advantage (Burgess, 2020). However, the usage of a positioning approach alone does not reveal all the factors.
Despite the favorable situation in the market, Admiral Group PLC needs to take into account several internal factors that have undergone significant changes in recent times. The trends in the car insurance industry show that companies that operate in this market face rising operational costs (Ralph, 2020). Experiencing relief from the pressure from the external factors, Admiral began transferring the benefits it acquired from optimizing its internal operations onto its customers, thus gaining market share and avoiding customer loss (Ralph, 2020). This example shows how a proper assessment of both internal and external factors allows a company to make the best decision and gain a competitive advantage in practice.
Conclusion
In conclusion, the significant differences between the two fundamental theories of strategic management lead companies to the necessity to use them both in order to take into account all factors. Witcher (2020, p. 32) defines this mix of strategies as a company’s ability to adjust “strategic capabilities to meet the needs of a changing environment.” The SWOT analysis provides such an opportunity, making it one of the essential tools for analyzing the organization (Witcher, 2020, p. 43). In practice, companies that do not pay sufficient attention to either set of factors will inevitably lose their potential (Gellweiler, 2018, p. 10). The internal capabilities of a company have a direct effect on its positing among competitors (Witcher, 2020, p. 46). Therefore, the two fundamental theories of strategic management can provide meaningful results only when applied together.
Reference List
Admiral group PLC. (n.d.) Financial Times.
Barney, J. (1991) ‘Firm resources and sustained competitive advantage’, Journal of Management, 17(1), pp. 99-120.
Burgess, K. (2020) Admiral shows the insurance industry how it is done. Financial Times.
Gellweiler, C. (2018) ‘Cohesion of RBV and industry view for competitive positioning’, Strategic Management, 23(2), pp. 3-12.
Porter, M. E. (1989) ‘How competitive forces shape strategy’, Readings in Strategic Management, pp. 133-143.
Ralph, O. (2020) Admiral bucks motor insurers’ gloom as it signals higher profits. Financial Times.
Witcher, B. J. (2020) Absolute essentials of strategic management. UK: Routledge.