Your Current Products and Services Are Not Your Competitive Strategy- Part 1
Well, you the reader just probably said, “Bigler you have gone off the deep end this time”. Well, I don’t think I’ve done that as regards established firms. But for the new venture their competitive strategy is all about their current initial product and service offering. This article will present a new phrase for strategy: “growth constellations” and make some important distinctions, I think, for the field of competitive strategy. I think the phrase growth constellation could be at least a complimentary, if not better way, to describe your firm’s competitive strategy in today’s world of quick change, transient competitive advantage and the need for dynamic capabilities.
Students of strategy and some practitioners of strategy will recognize that the Resource Based View (RBV) of strategy is the school of thought that popularized the notion that a firm’s competitive strategy is not its current products and services. Note this is my interpretation of the RBV school of thought. This school was first popularized by Dr. Jay Barney in 1991 in an article titled “Firm Resources and Sustained Competitive Advantage”. However, Edith Penrose gave much earlier views of these aspects in her 1959 economics book The Theory of the Growth of the Firm. Google on VRIN or VRIO for articles describing this view of strategy in more detail, but I will provide a synopsis below in the context of the purpose of this article: to show that growth constellations can help your firm describe its strategy and execute it better than most approaches to competitive strategy for today’s world, of which I am aware.
As I stated above, the essence of the RBV is what your firm is offering now in terms of products and services is not your competitive strategy. In fact, current products and services are really reflections or symbols of your firm’s real competitive strategy, not the strategy itself. A few definitions:
Resource: according to Barney is “all assets, organizational processes, firm attributes, information, knowledge, etc. owned or controlled by a firm that enables that firm to conceive and implement strategies that improve its efficiency and effectiveness”. Italics are mine. Well, I have never thought this is a great definition, but it will do for now.
Capabilities: “are special types of resources, specifically an organizationally embedded, non-transferrable, firm-specific resource whose purpose is to improve the productivity of the other resources possessed by the firm”. Whew, a mouthful and notice the circularity here, but again OK for now. By the way, I like to use the phrase capabilities sets, and not just capabilities, for reasons described below.
A good example of a unique capabilities set comes from the recent good book titled Strategy That Works, by Leinwand, Mainardi, and Kleiner. The following is Frito Lay’s capabilities set according to these authors:
- Rapid highly successful flavor innovation
- Development of local customer and retail marketing programs
- Direct store delivery
- Consistent manufacturing and continuous improvement
Competitive Advantage: “when a firm is able to implement a value creating strategy not simultaneously being implemented by any current or potential competitor”. Well, again an underwhelming circular definition that does not define “value creating”. But hang with me here.
Furthermore, for a resource and capabilities set to confer competitive advantage, they have to have all of the following attributes, called the VRIN attributes:
Valuable – again enable the firm to implement strategies that improve its efficiency and effectiveness. I like to add that the owned or controlled resources must contribute to the for-profit firm earning more than its weighted average cost of capital. Now we have some meat in this definition.
Rare – not available to other competitors
Inimitable – not easily copied and implements by others
Non-substitutable – not able to be replaced by some other non-rare resource. Like bicycles for automobiles.
My favorite example of a resource that meets all of these criteria is the McLLhenny Company in South Louisiana that makes Tabasco sauce. The land on top of their salt domes produces the finest peppers for making hot sauce in the world. I do not think any of the 250 other brands of hot sauce have such a resource. Now many firms find they do not have any resources that meet the above criteria. What can they do? They can have unique capabilities sets to offset the lack of VRIN resources. These can supply enough competitive advantage for at least the short to mid term.
Later writers combined Inimitable and Non-substitutable together and added an O for the acronym VRIO. The O is for the firm’s Organization. That is can the structure and people of the firm actually implement the other VRI attributes. Ok still with me?
Of course, what your firm is offering in terms of current products and services is very important to your current cash flow and profitability. Current cash flow is the lifeblood of your firm. But the question is what is the engine that will have your firm providing products and services five years (or more) hence that are demanded and will provide the life-blood of cash flow then? In fact, in today’s business world current products and services can actually be a barrier to future success. Wow, I know this sounds like blasphemy.
I need to emphasize the above statements refer to the established firm, not the new start-up. For the new start-up, what it is offering in terms of products and services is that firm’s de facto competitive strategy. The new venture is fighting to get traction in the marketplace with its initial offerings. It is fighting for cash flow to pay bills and stay afloat. So for the new venture, the observations in this article do not apply. But if the venture does gain traction and becomes an established firm, the observations will apply.
Part 2 of this article will follow in a few days.
This article is part of a series on what causes a firm’s value to increase.
Dr. William Bigler is the founder and CEO of Bill Bigler Associates. He is a former Associate Professor of Strategy and the former MBA Program Director at Louisiana State University at Shreveport. He was the President of the Board of the Association for Strategic Planning in 2012 and served on the Board of Advisors for Nitro Security Inc. from 2003-2005. He has worked in the strategy departments of PricewaterhouseCoopers, the Hay Group, Ernst & Young and the Thomas Group. He can be reached at firstname.lastname@example.org or www.billbigler.com.