Competitive Advantage Approaches (Inside Out and Outside in)
“Focusing on gaining a sustainable competitive advantage is a dangerous approach to planning and more likely to lead to failure than success”
Introduction
The debate continues in distinguishing the most preeminent way of seeking a sustainable competitive advantage. The two approaches formed by the debate ― the positioning approach and the resource-based approach: have become apparent strategies of attaining and sustaining a competitive advantage (Barney, 1991; Porter, 1996). Regardless of the approach, attaining both customer- value and product differentiation are the two determinants of a successful business strategy (Barney, 1991; Porter, 1996; Woodcruff, 1997). The positioning approach, often referred to as the “outside-in” approach, starts by looking at challenges posed by the external environment. It aims at establishing a position that best meets the competitive forces within the organisations industry (Porter, 1980; Porter, 1985). Michael Porter further constructed three strategies to support this approach, later critiqued by Cliff Bowman and other theorists. The resource-based approach (“inside-out” approach), conversely, argues that the source of competitive advantage resides within the company. It focuses more on the core competencies and internal factors of the organisation first, before challenges posed by the external environment (Barney, 1986; Barney, 1991; Barney, 2001; Prahalad & Hamel, 1990). Barney supports this approach, suggesting that organisations must follow the VRIN criteria (Valuable, Rare, In-Imitable and Non-Substitutable), in order to gain and maintain a strong competitive advantage (Barney, 2002). In simpler terms, the “outside-in” approach focuses on the opportunities and threats, to then develop its internal strengths and weaknesses, whereas the “inside-out” approach develops its internal strengths and weaknesses, before focusing on the external opportunities and threats (Barney, 1986; Porter, 1985). Understanding customer
Introduction
The debate continues in distinguishing the most preeminent way of seeking a sustainable competitive advantage. The two approaches formed by the debate ― the positioning approach and the resource-based approach: have become apparent strategies of attaining and sustaining a competitive advantage (Barney, 1991; Porter, 1996). Regardless of the approach, attaining both customer- value and product differentiation are the two determinants of a successful business strategy (Barney, 1991; Porter, 1996; Woodcruff, 1997). The positioning approach, often referred to as the “outside-in” approach, starts by looking at challenges posed by the external environment. It aims at establishing a position that best meets the competitive forces within the organisations industry (Porter, 1980; Porter, 1985). Michael Porter further constructed three strategies to support this approach, later critiqued by Cliff Bowman and other theorists. The resource-based approach (“inside-out” approach), conversely, argues that the source of competitive advantage resides within the company. It focuses more on the core competencies and internal factors of the organisation first, before challenges posed by the external environment (Barney, 1986; Barney, 1991; Barney, 2001; Prahalad & Hamel, 1990). Barney supports this approach, suggesting that organisations must follow the VRIN criteria (Valuable, Rare, In-Imitable and Non-Substitutable), in order to gain and maintain a strong competitive advantage (Barney, 2002). In simpler terms, the “outside-in” approach focuses on the opportunities and threats, to then develop its internal strengths and weaknesses, whereas the “inside-out” approach develops its internal strengths and weaknesses, before focusing on the external opportunities and threats (Barney, 1986; Porter, 1985). Understanding customer
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