MGMT643-21S1

Dialectic Presentation Report

How should strategists reconcile the pressures to drive strategy from the inside-out versus the
outside-in? When and why?

Cleo Vernon
(46180993)

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Introduction

This report aims to answer the question, “How should strategists reconcile the pressures to
drive strategy from the inside-out versus the outside-in? When and why?”
This report will provide insight into business level strategy theory, based on Chapter
four from Bob De Wit’s (2020) publication, ‘Strategy: An International Perspective.’ The
analysis will acknowledge the issue of competitive advantage, providing perspectives on
business-level strategy, analysing and solving the paradox of markets and resources, and
relating business level strategy to an international perspective. This report will refer to the
various readings and case studies within chapter four (De Wit, 2020) and outside resources to
support the analysis and provide greater depth.

Business level strategy

Business level strategy is the detailed outline that incorporates an organisation’s goals,
values, and actions to focus on producing and delivering value to customers while
maintaining a sustainable competitive advantage in a dynamic environment. The
implementation of business-level strategy explores the question, ‘What course of action
should the firm follow to achieve its purpose?’ (De Wit, 2020).
De Wit (2020) details, “the business level, an organisation can only be effective if it
can integrate functional level strategies into an internally consistent whole. To achieve
external consonance, the business unit must be aligned with the specific demands in the
relevant business area.” External consonance is the fit between the firm and its environment,
i.e. the market. Internal consistency is the fit between the firm’s various internal functions
and its resources, i.e. physical and human capital. Achieving the perfect fit between the two is
an ongoing challenge for business-level strategists as the two variables are dynamic and
constantly in flux. This analysis involves trying to align the internal strengths and weaknesses
of the firm with the external opportunities and threats of the environment.

The issue of competitive advantage and its business model

Competitive advantage is dependent on the firm’s business model and how closely it relates
itself to its market. Companies provide superior value by perfectly leveraging their resources
to market adaption, which thus creates value. Following Porter’s (1985) model, organisations
can provide superior value by adopting a cost-leadership strategy by providing the lowest
price good or service in the market. Porter (1985) also suggests a differentiation strategy,

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offering a unique product with high idiosyncratic value, where consumers are willing to pay a
higher price for them. Porter’s (1985) third competitive strategy is the focus strategy. This
outlines when a firm chooses a narrow segment of the market and tailors its business model
to that particular segment.

A business model is the arrangement of inputs (resource base and stock of assets),
throughputs (value-adding activities and the value chain), and outputs (products and their
value proposition) intended to create value for customers. Value-adding activities create the
basis for the value chain of an organisation. These activities include systems and processes,
such as research and design, human resources, production, efficient administration, logistics,
marketing and sales. As seen in figure 4.8 (De Wit, 2020, p.205), two perspectives are
apparent: the outside-in perspective and the inside-out perspective. These two perspectives
form the base for the thesis and antithesis. As shown, the outside-in business strategy
commences at the market. Therefore, businesses begin by evaluating externally, assessing the
market, then changing their needs to meet the market’s preferences and demand. The inside-
out business strategy is the opposite; it commences at the resource base. Therefore,
organisations begin by evaluating internally, assessing their stock of assets, and identifying
the need for additional or contemporary and innovative resources.

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De Wit (2020) states that the key to success is the alignment of the two perspectives.
However, fitting internal, resource-based strengths and weaknesses to external, market-
adapted opportunities and threats are often frustrating because the two sides pull opposite
directions. The resource-based value chain of an organisation can point in a different
direction than the growth and development of the current dynamic market (De Wit, 2020).
Thus, the question stands, “who should be fitted to whom?” (De Wit, 2020). Should a
business adapt to its market, or should the market adapt to the business’s innovation? As De
Wit (2020) elaborates,
“Should strategizing managers take the environment as the starting point, choose an
advantageous market position and then build the resource base and value chain necessary to
implement this choice? Alternatively, should strategizing managers take the organization’s
resource base (and possibly also its value chain) as the starting point, selecting and adapting
an environment to fit with these strengths?”
This report will analyse the two differing theses, and the synthesis will allow the paradox to
move beyond the trade-off point.

The outside-in perspective

Strategic managers who take an outside-in approach believe that businesses should not be
self-centred but should instead use their environment to determine their strategy. These
organisations are market-driven and externally oriented; they have their sights set squarely on
market trends and are determined to respond to the opportunities and threats that arise.
Consumers and rivals provide them with cues, which they use to formulate their strategy.
Essentially, markets are driving the strategy while resources follow (De Wit, 2020). The
market environment is dynamic, constantly shifting and evolving. The outside-in strategy
allows flexibility in shaping the course of action, combatting threats that may emerge while
exploiting opportunities.

The textbook reading, ‘Strategy from the outside in,’ by George S. Day & Christine
Moorman (2010) provides insight into the outside-in perspective. Day and Moorman (2010)
state that companies such as Johnson & Johnson, Amazon, IKEA, and Tesco maintain their
success as they have remained faithful to the purpose of a business: to create and keep
customers. Therefore, the text is based on three lessons the authors have learned from
successful companies with a sustainable competitive advantage.

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The first lesson is that these businesses consistently take an outside-in approach to strategy.
When designing the strategy, these businesses start with their market, asking themselves,
“What can we do for the market?” (Day & Moorman, 2010). Furthermore, these companies
study the market to find where they can create added value for customers above what their
competitors are offering. The purpose of their employment of the outside-in strategy is to
help customers find value and generate profits to their mutual benefit.

The second lesson is that they use market research, which is focused on broad and
comprehensive knowledge that exposes trends and recognizing opportunities that go well
beyond market data and information. Day and Moorman (2010) state that the company must
look at their market first, asking the questions,
How and why are customers changing? What needs do they have? What can we do to
solve their problems and help them make more money? What new competitors are lurking
around the corner, and how do we derail their efforts? (Day & Moorman, 2010, p. 212)
Essentially, the firm works backwards from the market to gain insight into their customers
and competitors’ minds. These questions open up a deeper understanding of the opportunities
and threats within the market to better prepare for the future.

The third lesson explains that strategic managers should focus on every part of the
organisation, achieving, sustaining and profiting from customer value. Day and Moorman
(2010) created the four customer value imperatives to operationalise this strategy. The first
imperative is to establish yourself as a customer value leader with a unique and clear
customer value proposition. The second is to innovate new value for customers. The third
imperative is to capitalize on the customer as an asset. This involves identifying and
maintaining loyal customers, safeguarding them against external threats, and exploiting that
customer asset by deepening and strengthening customer relations. The fourth and final
imperative is to use the brand as an asset. These imperatives build opportunities while
simultaneously weakening the threats of the market.

Day and Moorman (2010) emphasize how important it is to maintain an outside-in strategy,
even though the inside-out strategy’s pressure may be intense. It is prevalent for organisations
to slowly abandon their outside-in strategy favouring an inside-out strategy due to the
popularity and ease of taking a resource-based view. As displayed in table 4.1.1 below, the

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mental models and strategy approaches are conflicting, and it can be easier for an
organisation to slip into the inside-out mentality.

‘Riot: Upsetting the Gaming Industry,’ co-authored by Sander Wisman and Wester Wagenaar
(2019), describes an excellent case study of the outside-in strategy in practice. Riot Gaming’s
online multiplayer PC game, League of Legends, has risen to fame and has become one of the
most popular video games globally. League of Legends hosts 100 million monthly users and
has become a popular game to watch on streaming platforms, generating 1.4 billion US
dollars revenue in 2018. Despite this success, Riot Gaming started with minimal resources.
Riot Gaming was developed under a corporate motto of prioritising consumers’ experience
and comprehending their needs and wants. League of Legends is also the only game under
Riot Gaming’s management, meaning that they can constantly synchronise the game to the
market’s changing preferences. For example, League of Legends was the first to broadcast
live-streamed events, concerts and tournaments to their users across various channels.
Another trailblazing strategy Riot Gaming adopts exclusively hiring gamers to work for their
company across all levels of management. This allows all staff to put themselves in the
position of their customers and view their product from their perspectives. This generates a
sizeable competitive advantage because the staff also become customers. Exclusively hiring
gamers means understanding the video game market consumers are looking for and how Riot
Gaming’s competitors work from the outside to meet these needs. Due to their customer-
centred, market-driven business strategy, Riot Gaming has built a large, supportive
community of gamers, driving sales and profits.

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The inside-out perspective
Strategists adopting an inside-out perspective believe that strategies should not be centred
around market adaption but should focus on an organisation’s strengths. It is argued that
successful businesses build up a solid resource base over time, which offers them access to
developing market opportunities in the medium and short term.

The inside-out strategy employs the resource-based view (RBV). The RBV focuses on the
internal strengths and weaknesses of the company, emphasizing the need for unique and
distinctive competencies to achieve a long term competitive advantage. Inside-out strategists
argue that by focusing internally, they will decrease their susceptibility to threats within the
environment. The RBV emphasizes the need for unique and distinctive competencies to
achieve long-term growth and competitive advantage. Essentially, as shown within the image
below, the RBV relies on resources (tangible and intangible) which must be heterogeneous
and immobile and have valuable, rare, costly to imitate and organised to capture value
(VRIO) that provide competitive advantage (Jurevicius, 2013).

Jurevicius, O. (2013). Resource-Based View. Strategic Management Insight.

https://strategicmanagementinsight.com/topics/resource-based-view.html

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Market positioning is vital for the inside-out strategy. For success, resources should be
leading, and markets should be following. Essentially, the firm’s strategic innovations of its
resource base should lead to new changes in the market (De Wit, 2020).

‘Firm Resources and Sustained Competitive Advantage,’ written by Jay Barney (1991),
analyses the inside-out strategy – the antithesis to the outside-in strategy. Barney
distinguishes resource-based competitive advantage models from Porter-style environmental
models. He does not rule out externally focused reasons for profitability, but he prefers to
investigate the internally focused explanation that idiosyncratic company resources are at the
root of competitive advantage and superior performance. He begins by identifying the two
central assumptions that underpin the resource-based view: that companies have different
resources (resource heterogeneity) and that these resources are difficult to pass to or copy by
other firms (resource immobility), as seen in the first box of figure 4.2.2. Barney continues,
arguing that these resources will be the basis of competitive advantage if they meet four
criteria, as per the second box in figure 4.2.2. That is, the resources are valuable so that it
exploits opportunities and neutralizes environmental threats. Resources must be rare among a
business’s current and potential competition.
Additionally, resources must be imperfectly imitable, i.e. difficult or impossible to imitate.
Lastly, there cannot be substitutes for this resource. If all of these criteria are met, sustained
competitive advantage is guaranteed (Jay Barney, 1991).

‘Dyson: Blown by the wind,’ co-authored by Jeroen Brinkuis and Wester Wagenaar (2010),
describes an excellent case study of the inside-out strategy in practice. James Dyson was

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inspired to create his own vacuum company after noticing that the vacuums within the market
were constantly getting clogged and quickly losing their suction. The only option to fix this
issue was to replace the filters. However, this would result in the same issues happening over
and over again. Dyson chose to employ the inside-out strategy when forming his business,
focusing on creating and improving his resource base. Dyson focused on innovating the
vacuum by utilising air cyclones and creating more than 5000 prototypes. This resulted in one
of the most revolutionary vacuum cleaners of all time. Dyson expanded its focus to other
markets, including selling hand dryers, fans, and heaters – selling all at a premium price.
Dyson repeatedly enters and agitates existing markets with new inventions and technological
advancements, selling their goods at a premium price. Dyson says that his company’s success
because of the “new ideas and the work of teams around the world” (Dyson, 2010; Brinkhuis
& Wagenaar, 2010). The organisation relies heavily on its resources, entering new markets
and coming up with innovative products, following the RBV and inside-out business strategy.

Managing the paradox of markets and resources – the synthesis

This report has analysed two business level strategies for creating sustainable competitive
advantage – the outside-in perspective and the inside-out perspective. These two perspectives
describe the paradox of market adaption and resource leveraging in the field of strategic
management. This paradox is shown in the graph below. The pressure for market adaption
(the outside-in strategy) is displayed on the x-axis and the pressure for resource leveraging
(the inside-out strategy) on the y axis. There is a trade-off between a solely external analysis
of opportunities and threats within the consumer and competitor market and a solely internal
analysis of the strengths and weaknesses of the organisation. The trade-off line symbolises
the infinite possibilities of optimal balance between the outside-in and inside-out strategy.
However, the goal for strategic managers is to move beyond the trade-off line into the
synthesis area. This synthesis area utilises dynamic capabilities to balance the need for
external consonance and internal consistency. Dynamic capabilities are defined as “the
distinct skills, processes, procedures, organizational structures, decision rules and disciplines
that form the basis of a company’s ability to sense, seize and reconfigure capabilities” (De
Wit, 2020). Achieving access to the synthesis area maximises the sustainable competitive
advantage and overall success of the organisation and its business-level strategy.

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So should strategic managers first learn about market trends before designing tools that are
suitable for the environment? Or should they concentrate on creating one-of-a-kind, difficult-
to-copy resources and competing in industries where these resources are most useful?
Although no consensus has yet been reached in strategic management, scholars have
proposed two alternatives: parallel processing and juxtaposing based on dynamic capabilities.

Parallel processing solves the issue of balancing markets and resources by separating
demands over different organisational units. Specific organisational units will primarily focus
on market adaption and demands, while others will focus solely on resource improvement
and innovation. For example, sales managers will focus on market demands, and research and
demand managers focus on resource leveraging.

Juxtaposing is similar to parallel processing, as some employees focus only on market

adaption or resource leveraging, top-level strategic managers must juxtapose both demands,
employing dynamic capabilities. By juxtaposing the need for consumer adaptation and
resource leveraging, dynamic skills manage the paradox of markets and resources.

‘Dynamic Capabilities: An exploration of how firms renew their resource base,’ written by
Veronique Ambrosini, Cliff Bowman & Nardine Collier (2009), builds on existing
knowledge and outlines the synthesis of markets and resources. The authors stress that

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employing dynamic capabilities is imperative when dealing with the reality of fast-changing
market fluctuations with rapid growth and innovation. The text suggests that there are three
levels of dynamic capabilities. The first being incremental dynamic capabilities which focus
on continuous improvement of the firm’s resource base. Secondly, there are renewing
dynamic capabilities which augment, refresh and adapt the resource base. Lastly, regenerative
dynamic capabilities do not affect the organisation’s resource base, but they manage current
dynamic capabilities. Regenerative dynamic capabilities emphasise the reality of the
constantly evolving market and stress the importance of strategic managers to re-evaluate
their strategies to gain added competitive advantage before their rivals. Ambrosini, Bowman
& Collier (2009) argue that dynamic capabilities, from all three levels, are the main factor in
generating long-lasting success.

Conclusion
To summarise, there are various perspectives on how the business level strategy should be
undertaken. The outside-in strategy focuses on market adaption, constantly evaluating their
external opportunities and threats regarding their customers and competitors. The inside-out
strategy focuses on resource leveraging, constantly evaluating their internal strengths and
weaknesses, engaging a resource-based view. De Wit (2020) describes the synthesis, which
will reconcile the pressures to drive strategy from inside-out versus the outside-in. This
synthesis will allow organisations to move beyond the trade-off line: parallel processing and
juxtaposing. These solutions employ dynamic capabilities, which allow firms to balance their
external consonance and internal consistency, while becoming more aware of the rapidly
changing market environment and how they can utilise it to their advantage.

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References
Ambrosini, V., Bowman, C. and Collier, N. (2009). DynamicCapabilities: An
Exploration of How Firms Renew their Resource Base. British Journal of
Management, 20(24)
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of
Management, 17(1), 99-120. https://doi.org/10.1177/014920639101700108
Day, G. S., & Moorman, C. (2010). An outside/in perspective to strategy. Marketing
Management (Chicago, Ill.), 20(3), 22.
De Wit, B. (2020). Strategy: An international perspective (Seventh ed.)
https://doi.org/10.1111/j.1467-8551.2008.00610.x
Jurevicius, O. (2013). Resource-Based View. Strategic Management Insight.
https://strategicmanagementinsight.com/topics/resource-based-view.html
Porter, M. E. (1985). Competitive advantage: Creating and sustaining superior
performance. Free Press.
Porter, M. E. (1991). Towards a dynamic theory of strategy. Strategic Management
Journal, 12(2), 95-117. https://doi.org/10.1002/smj.4250121008

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