Thus far, it has been argued that, in perfectly competitive strategic factor markets, the cost of the resources necessary to implement a strategy will approximately equal the discounted present value of that strategy once it is implemented. It has also been argued that competitive imperfections in this market can give ﬁrms opportunities for obtaining economic rents when implementing strategies, but that the existence of these imperfections depends on diﬀerent ﬁrms having diﬀerent expectations concerning the future value of a strategy. Other apparent competitive imperfections in strategic factor markets, including lack of separation, uniqueness, lack of entry, and diﬀerent ﬁnancial resources, in fact, reﬂect the expectational characteristics of either current or previous strategic factor markets.
In imperfectly competitive strategic factor markets, ﬁrms can obtain competitive advantages from acquiring the resources necessary to imple- ment strategies in one or a combination of two ways. First, ﬁrms with consistently more accurate expectations about the future value of a strategy than other ﬁrms can use these insights to avoid economic losses and obtain economic rents when acquiring or developing resources to implement strategies. Second, ﬁrms can obtain competitive advantages through luck when they underestimate the true future value of a strategy. Thus, because luck is, by deﬁnition, out of a ﬁrm’s control, an important question for managers becomes, ‘How can ﬁrms become consistently better informed about the value of strategies they are implementing than any other ﬁrms?’ Firms that are successful at doing this can, over time, expect to obtain higher returns from implementing strategies than less well-informed ﬁrms, although, as always, ﬁrms can be lucky.
There are fundamentally two possible sources of the informational advantages necessary to develop consistently more accurate insights into the value of strategies: the analysis of a ﬁrm’s competitive environment and the analysis of organizational skills and capabilities already controlled by a ﬁrm (Stevenson 1976; Lenz 1980; Porter 1980; Barney 1985a, 1985b). Each of these possibilities is considered below.
1. ENVIRONMENTAL ANALYSIS
Of these two sources of insights into the future value of strategies, envi- ronmental analysis seems less likely to systematically generate the expecta- tional advantages needed to obtain competitive advantage. This is because both the methodologies for collecting this information (Porter 1980; Thompson and Strickland 1980) and the conceptual models for analyzing it (e.g. Henderson 1979; Porter 1980) are in the public domain. It will normally be the case that ﬁrms applying approximately the same publicly available methodology to the analysis of the same environment will collect about the same information. And these same ﬁrms applying publicly avail- able conceptual frameworks to analyze this information will typically come to similar conclusions about the potential of strategies. Thus, analyzing a ﬁrm’s competitive environment cannot, on average, be expected to gen- erate the expectational advantages that can lead to expected competitive advantages in strategic factor markets.
Some would suggest that it is not the availability of these environmental methods of data collection and analysis that is important, but rather the skill with which these methods are applied. More skilled ﬁrms can thus generate the required expectational advantages through an analysis of the competitive environment. However, the skills of environmental analysis can be ‘rented’ from various investment banking and consulting ﬁrms, and thus skill advantages in analyzing competitive environments will typically only be temporary.
It may be the case that, in the collection of information concerning the value of a strategy from a ﬁrm’s competitive environment, a ﬁrm might ‘stumble’ onto some information that gives it an expectational advantage over other ﬁrms. However, if such information was obtained through the systematic application of environmental analysis techniques, then other ﬁrms besides the ﬁrm that has this information would have obtained it and it would no longer give an advantage. Thus, only if the information was obtained through nonsystematic means can it give a ﬁrm expectational advantage. However, such information, because it does not result from the systematic application of environmental analysis methodologies, must be stochastic in origin. Any informational advantages obtained in this manner must reﬂect a ﬁrm’s good fortune and luck, not their skill in evaluating the return potential of strategies.
2. ORGANIZATIONAL ANALYSIS
While ﬁrms cannot obtain systematic expectational advantages from an analysis of the competitive characteristics of their environment, it may be possible, under certain conditions, to obtain such advantages by turning inwardly and analyzing information about the assets a ﬁrm already con- trols. Firms will usually enjoy access to this type of information that is not available to other ﬁrms. If these assets also have the potential to be used to implement valuable product market strategies, and if similar assets are not controlled by large numbers of competing ﬁrms, then they can be a source of competitive advantage. Examples of the types of organizational assets that might generate such expectations include special manufacturing know-how (Williamson 1975), unique combinations of business experi- ence in a ﬁrm (Chamberlin 1933), and the teamwork of managers in a ﬁrm (Alchian and Demsetz 1972). Firms endowed with such organizational skills and abilities can be consistently better informed concerning the true future value of strategies they implement than other ﬁrms by exploiting these assets when choosing strategies to implement.
Source: Barney Jay B., Clark Delwyn N. (2007), Resource-Based Theory: Creating and Sustaining Competitive Advantage, Oxford University Press; Illustrated edition.