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Developing Strategic Competitiveness

 

There are two approaches to deriving competitive advantage, and therefore superior returns, using strategic management process.  The first, the industrial company model, suggests that the external environment should be considered as the primary determinant of a company's strategic actions.  The second is the resource-based model, which perceives the company's resources and capabilities (the internal environment) as critical links to strategic competitiveness.  Following the discussion in this Chapter, as well as later, you should take care that these models must be integrated to achieve strategic competitiveness as both the views are important in the understanding of the strategic management process.

 

The two alternative models, Industrial Company (or externally focused) model and the Resource-based (or internally focused) model, have different focuses and there has been a strong debate on which one describes the process best. Both of them are shown in the figure below.

 

 

Figure: Strategic Models Leading to Superior Returns

 

Again there is no one best solution and both are used together or independently as the situation demands. The I/O model is more suitable in situations where you are looking for a new investment opportunity and have not started the company as yet. The Resource based model is more suitable in situations where you have an existing company and want to leverage its resources to enter a new industry.