This chapter introduces the reader to the meaning of competitive advantage and posits that a firm’s strategy is defined as the managers’ theory about how to gain and sustain competitive advantage. The author demonstrates how a firm creates its competitive advantage by creating more economic value than its rivals, and explains that profitability depends upon value, price, and costs. The relationship among these factors is explored in the context of high-technology consumer goods – laptop computers and cars. Next, the chapter explains the SWOT [s(trengths) w(eaknesses) o(pportunities) t(hreats)] analysis. Examining the interplay of firm resources, capabilities, and competencies, the chapter emphasizes that both must be present to possess core competencies essential to gaining and sustaining competitive advantage through strategy. Next, the chapter describes the value chain by which a firm transforms inputs into outputs, adding value at each stage through the primary activities of research, development, production, marketing and sales, and customer service, which in turn rely upon essential support activities that add value indirectly. After describing the PEST [p(olitical) e(conomic) s(ocial) t(echnological)] Model for assessing a firm’s general external environment, the chapter explains Porter’s Five Forces Model. The chapter then describes the strategic group model and illustrates that model by reference to the pharmaceutical industry. The author notes that opportunities and threats to a company differ based upon the strategic group to which that firm belongs within an industry. Finally, the chapter explores the importance of strategy in technology-intensive industries and emphasizes that sustained competitive advantage can be accomplished only through continued innovation.
The author thanks Marie Thursby for helpful comments and suggestions. For an in-depth treatment of Strategy, see Rothaermel (2014). The author maintains a Strategy Blog at http://facebook.com/ftrStrategy and be reached via Twitter @ftrStrategy, or https://twitter.com/ftrstrategy
Rothaermel, F. (2016), "Competitive Advantage in Technology Intensive Industries", Technological Innovation: Generating Economic Results (Advances in the Study of Entrepreneurship, Innovation and Economic Growth, Vol. 26), Emerald Group Publishing Limited, pp. 233-256. https://doi.org/10.1108/S1048-473620160000026008Download as .RIS
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