Looking Inside for Competitive Advantage

Jay B. Barney – Looking Inside for Competitive Advantage
Academy of Management Executive, 1995, Vol. 9, No. 4

Summary
A competitive advantage is shaped by both environmental threats and opportunities, and internal strengths and weaknesses. The author Jay B. Barney indirectly states that valuable tools are available to analyze external forces, but there seems to be a lack of valuable tools to analyze internal threats and opportunities – in the article referred to as “internal attributes” or “resources and capabilities” that are built on a company’s financial, physical, human, and organizational assets. In order to overcome this gap, which the traditional SWOT analysis leaves out, Barney suggests focusing on:
1. The question of value – Is the organization able to consistently add value?
2. Rareness – Resources and capabilities must be rare in order to guarantee a competitive advantage and/or a unique selling proposition.
3. Imitability – Companies who enter the market might have a cost disadvantage by imitating e.g. production, design, distribution channels.
4. Organizations – A culture that fosters competitive potential towards competitive advantage

Evaluation
By reading the article only once, the reader could wrongly assume that the SWOT analysis solely focuses on the external environment, while neglecting the internal environment at the same time. Organizations usually use the SWOT analysis to evaluate both external and internal threats and opportunities.
The author mentions various examples of how organizations were and are able to react in the market place. In order to be successful in adding sustainable value, he suggests to reward risk taking and creativity. Some organizations do not foster risk taking at all, and creativity falls short. But there are still successful entities in the marketplace, and consistently able to add value – for other reasons (monopoly, backward-integrated feedstock, etc.).
When he talks about rareness as a means for an organization to position itself, he does not mention the possible downsides of decentralizations (see AT&T e.g.), and the possible time frame necessary to not only prepare and educate the people involved, but also to implement what can be considered a cultural change in the organization.
Regarding Imitability, Jay Barney does not mention that entire industry segments, mainly in Asia, exists and operate successfully, simply because they only produce and offer me-too products. In addition, a company that is able to simply copy a product successfully without spending millions of dollars on research and development has a clear cost advantage, and not – as he describes it – “firms [have] a cost disadvantage in imitating another’s resources and capabilities”.
Last but not least, Mr. Barney mentions organizations as such that need to focus on the competitive potential of its internal attributes. His examples are valuable, but he does not mention leadership as a powerful part of an organization that basically can create this competitive potential. Sam Walton (Wal-Mart) and Michael O’Leary (Ryanair) are only two excellent examples as leaders as well as entrepreneurs.