CONTEMPORARY STRATEGY ANALYSIS

Contemporary Strategy Analysis

Table Of Contents

Introduction2

Limits and criticisms of IO3

RBV5

CBC7

Comparative analysis of CT and IO9

Porter's view10

Conclusions12

References14

Appendix25

Introduction

The academic and managerial debate on strategic management appears to have reached a crucial point. There is an active reconsideration of strategic management in general, in the ambit of which the traditional model of industrial organization (IO) is criticized by the upholders of the theories that regard the resources and competencies of a firm as its principal source of competitive advantage (thus not the strategic conduct suited to the industry as, in contrast, the traditional theory maintains).

In this article we carry out an analysis of one of the most recent and controversial branches of research pertaining to corporate strategy: that known as the resource-based view (RBV), competence-based competition (CBC), or dynamic capabilities view (DCV). These approaches, though with some fine distinctions, show the same layout and solution principles to such an extent that one can talk tout court of a “competence theory” (CT).

CT is actually the most concrete and plausible alternative to the dominant strategic model of IO. This latter was introduced at a pioneering level by Bain (1968) and successively developed by Porter (1980, 1985). However, CT, in spite of the number of contributions, still appears as a series of interventions on different problems, treated according to a common prospective rather than a true theoretic body.

Limits and criticisms of IO

Those in favour of CT list a series of limits of Porter's theory, also known as IO because of the importance it gives to industries; the limits are linked to the way of understanding the corporate strategy and can be summarized as follows:

the strategy concerns the competitive positioning of the firm within an industry of a given structure: this is ever less true, given the difficulty of defining the boundaries of industries and in addition their instability;

the strategy aims at existing industries: in this way many possibilities are neglected; and

the strategy is the result of an analytical process, while its execution is an organizational process: the phases of formulation and implementation of the strategy cannot be separated or made sequential, according to the Porterian scheme “structure-conduct-performance” (Prahalad and Hamel, 1994).

Having outlined the limits of a general nature, the strictures made upon the IO model which consequently lead to the affirmation of CT can be traced to the following specific points:

The profitability of the firm determined by the industry to which it belongs (according to the sequence “structure-conduct-performance”). Rumelt (1991), in a well-known study, points out that the different profitability of firms depend on the performances of the single business units of a corporation, that is, on units operating in specific areas of business in an industry, rather than on the whole industry to which the firm itself belongs. The different profitability of firms must then be sought, firstly, not within the contextual factors such as position on the market, though they have a certain influence, but in what Nelson (1991) calls “discretional factors”, that is a decisional process that enjoys a certain margin of autonomy ...