Resources are the financial, physical, human, technological, and organizational assets of a company. A distinctive competency is unique to a company and allows it to earn a profit rate that is above the industry average. Distinctive competencies are the products and services that directly fulfill the organizations goals, and is what the company does uniquely well. Therefore, resources used to create distinctive competencies are the fundamental building blocks of the companys success. A resource must be in demand, or scarce, or difficult and costly to imitate, or have no substitute to add to a companys competitive advantage. In addition, it is only those resources which directly contribute to the core competencies of a company that add to its competitive advantage.
The internet can both increase the difficulty of imitation for a company, and it can also make it easier for other companies to copy. Some companies use the internet as a core resource. An example is EBay, which would not exist if it were not for the internet. However, the fact that EBay functions via the internet remains one of its core resources. It has proven incredibly difficult for competitors to imitate to provide the level of service and marketplace which EBay enjoys. Of course, EBay is continuously improving upon this core resource. On the other hand, the internet creates a basic platform for selling.
One of the impacts of the Internet on companies using barriers of imitation as a competitive advantage is that they must be constantly improving and developing their products and services. The internet allows consumers to browse many companies offering the same services. If a company is able to do something better, or offer a superior product, they must be able to show this over the internet. A small fashion designer selling their products over the internet runs a great risk of being copied quickly. This may provide greater incentive for the designer to be continuously creating new designs and styles.
The resource based view and market views of competitive advantage are complementary. They can both be used by the same company to determine what its key competitive advantages are, and also help a company explore what new competitive advantages they may want to develop. The resource based view looks at what the company has. Its physical assets as well as it process assets. What the company does uniquely well. The market view of competitive advantage looks at the marketplace first. It identifies the way the company markets itself or the consumer need it fulfills.
When looking at a company from the market view, the question asked is How is this company unique in the marketplace. A company can benefit from taking both a resource-based view and a market view of competitive advantage. A company can analyze its internal resources and identify the resources that are key to its success and fulfillment of the organizational goals. When it performs this analysis, it knows which attributes it must keep in order to stay competitive. It is able to identify its internal core competencies. On the other hand, the company can analyze the marketplace. It can identify its role ion the market. Is it satisfying its customers? In what ways? What are the core strengths of the company in the market?
These are the core competencies of the organization on the marketplace. The company may choose to develop these further, if greater competitive advantage would be gained, or perhaps focus on developing a new market capability if the external environment is shifting. When the company then takes its external and internal analysis and put them together, a better picture of the companys true core competencies is displayed. The company can then see where it may need to make adjustments or where resources or markets should be developed to take advantage of strengths.
There are basically two ways the Internet can add to a companys cost advantage. One, it can reduce the operating costs for a company. Two, if a company has a cost advantage, they can increase the volume of their sales. First, selling goods via the internet allows a company to keep a virtual location. In this scenario, the company may not need to keep its own inventory or staff. The company could order products from its vendors as ordered by customers and not keep any inventory at all. There are no physical displays that need maintenance, nor are there any salespeople on the floor who need to be paid. This is a strategy pursued by Amazon. They do not have any brick-and-mortar stores to maintain, so they have no displays to maintain, and no salespeople to pay.
The overhead for maintaining the website is less than the overhead for maintaining the shop. This gives Amazon a competitive cost advantage over Borders. Also, when consumers are shopping via the Internet they are able to compare prices over multiple suppliers very easily. Search tools like MySimon and others search the internet for the product the user enters and returns the prices from various online stores. In this way, the internet can increase the volume of shoppers buying from a particular company. If the shopper is only concerned with price, they will often choose the company that has the lowest cost. Therefore, if the company is able to provide the lowest price, they can gain a competitive advantage via the internet by increasing their customer base.
Effective differentiation is achieved by a company when they really stand out in the consumers mind as something different. They have developed a unique attribute to a point where customers buy from them based on their unique image. Two ways the internet can help a company achieve effective differentiation is through exploitation of niche markets and providing services and products in a real-time environment. On the internet, the market for any one website is much larger than what a store can typically reach. In this way, the company has access to many more markets by using the internet than they would otherwise. This allows for the flourishing of niche market products and services or highly effective and differentiated services.
An example of a niche product on the internet market is a flea collar for dogs that is safe for the whole family! It has a small chamber into which it draws fleas via scent. The fleas cannot escape from this chamber and die. The price is high, but the market is environmentally sensitive dog owners. Via the internet, sufficient promotion can be done to make production of this item profitable. It could be much more difficult to market this product via stores. Another way the internet can be used to differentiate a company in the marketplace is in the speed and responsiveness of the company to the real world. The best example that comes to mind is the news. News companies on-line can present stories to consumers much more quickly than in print.
Customers are able to choose their source for news based on how real-time the news source is able to present the information. Businesses must actually focus on differentiating itself from its customers to effectively compete in the internet marketplace. There are so many providers of the same service or product, that a company must create and emphasize its difference to gain customers. Some focus on ease of use, some on reliability, some on image, and others on customer service. There are many ways to create differentiation, but the company must be aware that simply being on the internet does not automatically create a competitive advantage.