INSTITUTIONAL RENEWAL AND ADAPTATION (IRA):

CREATING AND MANAGING SUSTAINABLE COMPETITIVE

ADVANTAGE (SCA)
By
Bashir Alfadda
balfadda@aol.com

A Thesis
Submitted to the
Graduate faculty
of
University of Maryland University College
In Partial Fulfillment of
The Requirements for the Degree
of
Doctor of Management

Dissertation Directed By:

Dr. James P. Gelatt
Dr. Kathleen Edwards
Dr. Michael A. Evanchik
Dr. Irmak Renda-Tanali,
Dr. Rana Kahn

December 13, 2010

ii
 UMI Number: 3475086

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 ABSTRACT

INSTITUTIONAL RENEWAL & ADAPTATION (IRA):

CREATING AND MANAGING SUSTAINABLE COMPETITIVE
ADVANTAGE (SCA)
By

Bashir Alfadda
balfadda@aol.com

The primary purpose of this study is to propose and explore a theoretical framework linking the
construct of Institutional Renewal and Adaptation (IRA) to the firm‘s ability to build and sustain
its competitive advantage, which determines its ability to generate returns on capital for its
shareholders and increase long-term value. The proposed framework builds upon the sources of
competitive advantage foundations established by the prevailing theories on the subject,
including the resource-based view, the market-based view, institutional theory, the dynamic
capabilities framework, and the eclectic paradigm. The framework underscores the important
roles a firm‘s resources, capabilities, market-based strategies, and institutional context play as
key contributors to competitive advantage. The study argues that IRA is a mechanism that
effectively fosters institutional learning, development, and sustainability. Relevant practices
include innovation; organizational learning and competence-building; firms‘ management,
organizational, and strategy development; flexibility of cultural values; global aptness and
cultural intelligence; and a keen sense to detect shifts in markets and business environments. The
current study also links IRA to sustainable competitive advantages using the Competitive
Advantage Index (CAI), an operational metric defined and developed by the author, specifically
for this purpose. Finally, this study seeks to contribute to the theoretical work that is needed to
help understand how firms achieve and sustain above-average market returns as well as what
would cause these returns to dissipate over time. The ultimate goal of the study is to advance the
knowledge of how to build a better theory of firm performance and to expand knowledge related
to the possible sources of sustainable competitive advantage.
__________________________________________________________________
Keywords: Sustainable Competitive Advantage (SCA); Institutional Renewal and Adaptation
(IRA); Competitive Advantage Index (CAI); High Performance/Competitive Advantage
Enablers

iii
 © Copyright by
Bashir A. Alfadda
2010

iv
 Table of Contents

Abstract ......................................................................................................................................... iii

Table of Contents .......................................................................................................................... v
List of Tables ............................................................................................................................... vii
List of Figures .............................................................................................................................. vii
Chapter 1: Research Topic and Relevance to the Practice of Management ........................... 7
Statement of the Problem and Significance ................................................................................ 8
Thesis and Propositions ............................................................................................................ 13
Propositions............................................................................................................................... 14
Research Question and Context ................................................................................................ 15
Summary ................................................................................................................................... 17
Chapter 2: Review of Literature and Thesis Investigation ..................................................... 19
Literature Review...................................................................................................................... 20
Literature Review Synthesis ..................................................................................................... 35
Innovation: Classic and contemporary approaches................................................................... 37
Supporting Studies .................................................................................................................... 45
Summary ................................................................................................................................... 48
Chapter 3: Findings, Analysis, and Theory .............................................................................. 52
Theory-Building Approach ....................................................................................................... 52
Research Question and Context Revisited ................................................................................ 54
Research Findings ..................................................................................................................... 57
Discussion ................................................................................................................................. 60
The Institutional Renewal and Adaptation (IRA) Conceptual Framework .............................. 66
IRA Framework in a Business Context .................................................................................... 69
Propositions Revisited .............................................................................................................. 71
Metrics: Competitive Advantage Index (CAI) ......................................................................... 71
Limitations and Constraints ...................................................................................................... 77
Chapter 4: Trends, Implications and Conclusions .................................................................. 79
Analysis and Implications of Trends ........................................................................................ 79
Implications for Management Practice ..................................................................................... 83
Areas for Further Research ....................................................................................................... 87
Summary ................................................................................................................................... 88
References .................................................................................................................................... 90
Appendices ................................................................................................................................... 96
Appendix A – Primary Data Validation Methodology ............................................................. 96
Appendix B – Expert Panel Reviews ...................................................................................... 111

v
 List of Tables

Table Title Page

1 Competitive Advantage Shifting Dynamics 10
2 Implications and Synthesis of Key Competitive Strategy Theories 36
3 Innovation Strategies 40
4 Closed vs. Open Innovation 41
5 Red Ocean versus Blue Ocean Strategies 42
6 Shifting Strategy Focus 43
7 Major Findings of the Thesis Supporting Studies 46
8 Contextual Interpretation of the Findings of the Thesis Supporting Studies 49
9 Summary of Findings 51
10 Conclusions from Literature Review and Synthesis 58
11 Establishing Cause-and-Effect Relationships Between High-performance
Enablers and Competitive Advantage, Institutional Renewal, and/or
Institutional Adaptation 59

List of Figures

Figure Title Page

1 Research questions and context 16
2 The innovation value chain 44
3 Components of a theory 53
4 Research questions and context 56
5 IRA conceptual framework 68
6 IRA conceptual framework in a business context 70
7 Evolving stages of economic development 80
8 IRA and the strategic business evolution of the firm 86

vi
 Chapter 1: Research Topic and Relevance to the Practice of Management

The current study seeks to understand how firms become successful, how they sometimes

remain that way, why and how they improve, why they sometimes decline, and the role

sustainable competitive advantage (SCA) plays in shaping these phenomena. To this end, the

study explores and investigates sources and enablers of SCA, proposing the construct of

Institutional Renewal and Adaptation (IRA), a theoretical framework that integrates these

sources and enablers into a mechanism to help firms create and manage SCA. Researchers have

long sought to develop theory to help businesses create and sustain competitive advantage.

Indeed, Utterback (1994, p. 215) posits that

Even the casual observer of industrial enterprise must be struck by the cycle of

development, growth, maturity, and decline through which most individual firms

pass. Growth companies eventually run out of steam, or are eclipsed by new

competitors. Solid blue chip companies that once seemed permanent fixtures of

the economic scene suddenly fall under a weight of problems. Their descent from

market leadership is often public and painful, marked by massive financial losses

and employment disclosures.

Some blame the expanding global competition for the difficulties of beleaguered firms whereas

others see them as victims of macroeconomics and structural shifts beyond the clear control of

government and corporate managers (Utterback, 1994).

As a theoretical foundation, the study's proposed framework builds upon the prevailing

competitive strategy theories. Prevailing theories are those that the current author found to be the

most discussed, referenced, and debated on the subject. Those thought leaders who have

7
contributed to the seminal work of this subject are also referenced very frequently (several

hundred to several thousand times) according to the Web of Science database. Among those

theories are the resource-based view of a firm (Amit & Shoemaker, 1993; Barney, 1991; Peteraf,

1993), the market-based or competitive forces view of a firm (Porter, 1985), institutional theory

(Bresser & Millonig, 2003; Oliver, 1997), the dynamic capabilities framework (Teece, Pisano &

Shuen, 1997), and the eclectic paradigm (Dunning & Lundan, 2008). The study examines

innovation; sociopolitical legitimacy; organizational learning and competence building;

management, organizational, and strategy development; flexibility of cultural values; and global

aptness and cultural intelligence as key performance enablers, connecting them to the proposed

IRA and SCA constructs.

Statement of the Problem and Significance

This study promotes an understanding of the impact of the institutional context of the

firm on its ability to create and sustain a competitive advantage. A company‘s competitive

advantage strongly affects its ability to generate above-average market returns on capital for its

shareholders and to remain a viable business entity. SCA is essentially the firm‘s ability to create

superior value for its customers in addition to superior financial performance for itself.

Barney (1991) posits that a firm has a competitive advantage when it is implementing a

value creation strategy not being simultaneously implemented by any current or potential

competitor. Furthermore, he defines SCA as the firm‘s ability to implement the value creation

strategy previously discussed while other firms are unable to duplicate the same. Other authors

have defined SCA as simply a competitive advantage that lasts a long period of time (Jacobson,

1988; Porter, 1985, as cited in Barney, 1991, p. 102). The concept of SCA used in the current

8
study refers to an organization’s continuous ability to acquire and develop the required

combination of attributes that enables it to outperform its competitors on a long-term

basis.

During the last two decades, the global economic landscape has been redefined. The era

has witnessed the proliferation of the internet, increased dependence on e-commerce, and a

broadening of the labor pool to include virtual teams across the globe. China and India have

emerged as economic superpowers in a world characterized by fewer economic boundaries and

higher levels of interdependence across firms, industries, and nations. To a large extent, the new

environment represents fundamental change in the way in which commerce is conducted and

firms compete. Markets, competitors, labor pools, and supply chains extend across the globe and

no longer have rigid geographic or demographic limitations. Indeed, Prahalad and Hamel (1990,

p. 80) posit that,

Once, the diversified corporation could simply point its business units at a

particular end product markets and admonish them to become world leaders.

However, with market-boundaries changing ever more quickly, targets are elusive

and capture is at best temporary. A few companies have proven themselves adept

at inventing new markets, quickly entering emerging markets, and dramatically

shifting patterns of customer choice in established markets. These are the ones to

emulate.

SCA can be attained even if the resources available at the firm‘s disposal are neither perfectly

imitable nor substitutable without great effort (Hoopes, 2003, p. 891; Barney, 1991, p. 117).

According to Porter (2004), cost, differentiation, and focus are the three fundamental types of

competitive advantage.

9
 The new global economic environment makes it possible for firms to compete in markets

that span the globe. Yet this means that firms also face a much broader base of competitors in

domestic as well as international markets, as evidenced by the dramatic shifts in competitive

advantages witnessed among firms, industries, and national economies during the period in

which globalization evolved. Competitive advantage can be sustained over time (as evidenced by

Toyota, HP, Intel, and Microsoft), partially shifted to competitors (Sun Microsystems, retail

booksellers, and General Motors), or completely eroded (PC industry for IBM, UK auto industry,

minicomputers for DEC) (see Table 1).

Table 1.

Competitive Advantage Shifting Dynamics

Company / Competitive Possible Cause(s) Effect(s) Prevailing entity/

Industry Position beneficiary

1 IBM (PC) Imitability Loss of PC Business Intel, MS, PC

firms
2 Novell Substitutability Loss of Network OS MS
leadership
3 Sun Substitutability Loss of HP, Dell
workstation and PC
leadership firms
4 Silicon Graphics Substitutability Loss of workstation HP, Dell and PC
leadership firms
5 Netscape Substitutability Loss of Google,
search engine yahoo,
leadership MS
6 DEC Substitutability Loss minicomputer PC and WS
market leaders
7 IBM, Fujitsu, Substitutability Diminished PC, servers, WS,
Amdahl, Data mainframe market network firms
General share
8 GM, Ford, Imitability and Loss of leadership and Toyota, Honda,
Chrysler substitutability market share Nissan, BMW

9 Texas Inst. (TI) Imitability and Loss of calculator HP, Toshiba,

substitutability business Casio, others
10 Motorola substitutability Loss of mobile phone Nokia, Samsung,
leadership etc.

10
 Company / Competitive Possible Cause(s) Effect(s) Prevailing entity/
Industry Position beneficiary

11 Retail book- Substitutability Loss of market share Amazon.com,

sellers internet
commerce
12 Retail travel Substitutability Loss of market share Travelocity,
agency Orbitz, Expedia,
etc.
13 UK Auto Industry Substitutability Loss of Industry Auto
manufacturers

14 HP (Printer Enhanced and/or Maintain leadership of HP

business) maintained position printer business

15 Intel Enhanced and/or Maintain leadership of Intel

maintained position Microprocessor B.

16 Toyota, Honda, Enhanced and/or Increase market share Toyota, Honda,

BMW maintained position and leadership BMW

17 Microsoft Enhanced and/or Maintain leadership of MS

maintained position PC OS and Apps.

Table 1 presents several examples that demonstrate the influence of imitability and

substitutability on a firm‘s competitive position. Imitability and substitutability are possible

causes of the shifts in the competitive advantage positions among firms, industries, and nations.

If a valuable resource is controlled by only one firm, it could be a source of competitive

advantage (Barney, 1991, p. 107). ―This advantage is sustainable if competitors are not able to

duplicate this strategic asset perfectly‖ (Peteraf, 1993, p. 183). Imitability occurs when

competitors are able to duplicate a firm‘s strategic assets perfectly and offer identical or similar

goods and services at lower prices and/or better terms. The displacement of IBM as the principal

producer of PCs during the 1990s can be attributed to imitability. The same can be said about

Texas Instruments‘ loss of the hand-held calculator business. Yet even if a resource is rare,

potentially value creating, and imperfectly imitable, an equally important aspect is lack of

substitutability (Barney, 1991, p. 111). Examples of substitutability over the past two decades

11
include the centralized computing environment using mainframe computers being largely

substituted by an environment of personal computer networks, some postal mail categories being

largely substituted by email, certain segments of traditional media advertising being substituted

by internet advertising, and pagers being substituted by mobile telephones.

One of the most evident examples of the impact of these factors on sustainability is the

failure of Digital Equipment Corporation (DEC), Data General, and Silicon Graphics to

anticipate the impact of the emergence of the PC industry on their ability to maintain a

competitive advantage, which largely resulted on the dismantlement of the firms or a complete

loss of a business segment. Meanwhile, IBM—the inventor of the PC—has entirely surrendered

the PC industry due to competitive pressures from rivals. It might be argued that IBM has

abandoned the PC industry as a conscious strategic decision to focus on other priorities, such as

services and consulting. Personal computing and related industries have evolved into a

substantially larger business opportunity than the one IBM currently serves. Indeed, IBM could

have profoundly reinforced its leadership position had it been able to maintain its hold on the PC

segments of the information technology industry. Likewise, General Motors, Ford, and Chrysler

have all been struggling for survivorship in recent years because of their failure to cope with the

trends of the automotive industry and effectively counter the emergence of fierce competition

from Japanese, German, and Korean manufacturers. Meanwhile, Microsoft, BMW and Toyota

have been able to sustain and reinforce their competitive advantage positions over time. This

discussion highlights the importance of SCA to the well-being and survivorship prospects of a

firm or a national industry.

The current study proposes that an effective Institutional Renewal and Adaptation (IRA)

strategy contributes to building and sustaining a competitive advantage. This study explores and

12
promotes an understanding of the IRA propositions (discussed below and revisited in Chapter 3),

their impact on the institutional context of the firm, and how they will affect the firm‘s ability to

create and sustain a competitive advantage.

Thesis

As the literature review (Chapter 2) will reveal, the prevailing theories on this subject

offer multiple perspectives and remedies for building and sustaining a competitive advantage.

Each theory, when taken in isolation, presents plausible arguments regarding the value that its

respective remedies (strategies) have on building and sustaining a competitive advantage within

a firm. However, what remains unclear is whether any of these theories will solely yield a

sustainable competitive advantage if instituted discretely within a firm in isolation of other

initiatives. Although all thought leaders in the literature review offer their theories and

perspectives on the subject matter, none has argued that her or his perspective is the only

solution for achieving SCA. In fact, several have argued against any one suggestion or solution

as the key to sustained corporate success.

As will be demonstrated in Chapter 3, this study suggests that the deliberate and systemic

application and integration of a combination of management disciplines - sources and enablers of

competitive advantage - will foster institutional learning, development, and sustainability,

thereby yielding an IRA environment. Furthermore, this study explores the influence of IRA on

the firm‘s ability to create and sustain a competitive advantage in a global business environment.

Utterback (1994) posits that business leaders adopt a number of panaceas to extend their

period of leadership. By right-sizing and refocusing, removing layers of management and

building teams, and installing total quality management and lean manufacturing, corporations are

13
attempting to bolster lagging sales, productivity growth, and profitability. Although each of these

approaches to corporate maintenance have merit and may have demonstrated remarkable efforts,

they are nevertheless inherently limited solutions. They help companies become more effective

in their current lines of business for a time, but they do little to help them if the changes

prescribed are made in isolation or if, as is often the case, they have little staying power.

Propositions

This study is concerned with three propositions. The first two propositions are shown

below and will be tested in this study. Proposition Three will be introduced as a theoretical

model derived from the analysis of this study. However, the empirical validation of proposition

three is beyond the scope of the current study and may be a topic of related future studies.

Proposition One: An IRA culture is an outcome of a deliberate and systemic

application and integration of the high-performance enablers that will be

identified in this study (see the literature review synthesis in Chapter 2, and

Chapter 3).

Proposition Two: An IRA culture is a principal source of SCA.

Proposition Three: SCA can be effectively measured using the Competitive

Advantage Index (CAI) metric.

These propositions will be revisited in Chapter 3, along with the test results of this study.

14
Research Question and Context

As previously outlined, the purpose of this study is to explore and promote an

understanding of the sources and means needed to create a competitive advantage as well as the

role of IRA framework on a firm‘s ability to build and sustain a competitive advantage. The rest

of this document will focus on these ideas and establish a conceptual model for that purpose

through a process that includes answering the following key questions, as illustrated graphically

in Figure 1 and discussed in depth in Chapter 3:

 What can we learn from the prevailing literature and subject-matter experts about

building and sustaining a competitive advantage?

 What combinations of attributes can be identified, integrated, and acquired to achieve

IRA?

 Could these attributes be used as levers to influence the context of IRA and therefore

a firm‘s SCA?

 How can we measure SCA? Is the proposed CAI a good metric for measuring SCA?

15
 New discoveries and
advancements in
management theory

What combinations of What can be learned from the

enablers can be identified, prevailing literature and subject -
acquired, and integrated to matter experts about building and
achieve IRA? sustaining competitive advantage?

A culture of Institutional Sustainable Competitive

Renewal & Adaptation (IRA) Advantage (SCA) as
defined in this study?

Could attributes be How do we measure SCA?

modified, refined, and Using the Competitive
adjusted to affect the Advantage Index (CAI)?
context of IRA?

Figure 1. Research questions and context

The strategic management concepts posed by the resource-based view, the market-based

view, institutional theory, and the other theories mentioned in the introduction and explored in

detail in Chapter 2 offer credible approaches to value creation and competitive advantage.

Subsequent work by Oliver (1997) on the resource-based view argues that a firm‘s SCA is also

highly influenced by the institutional context of the firm and its resource decisions. The

resource-based view emphasizes the importance of social complexity and causal ambiguity as

16
inhibitors of imitation. Furthermore, Bresser and Millonig (2003) proposed an integrative model

of competitive advantage that draws on the prevailing concepts presented by the two views

mentioned thus far as well as institutional theory.

A number of competitive advantage/high performance enablers have been introduced and

examined by management literature to varying degrees and within different contexts. These

enablers, as listed below, have been identified through the synthesis of the literature review of

the key competitive strategy theories discussed in detail in Chapters 2:

Innovation in resources, capabilities, and markets

Social legitimacy
Flexibility of cultural values
Organizational learning and competency building
Management, organizational, and strategy capabilities to reconfigure, sense, absorb,
and integrate
Global aptness and cultural intelligence

This study will examine the influences of these enablers, once integrated and institutionalized,

have on the firm‘s ability to develop an IRA culture and consequently achieve SCA as measured

by the CAI, illustrated and discussed at depth in Chapter 3. Some of these enablers may overlap,

and research suggests that they do not carry equal weight with respect to their influence on IRA

and SCA, as discussed in Chapters 2 and 3.

Summary

This study focuses on the SCA of a firm (for-profit business entity), including its sources

and enablers and how they are acquired, managed, and maintained. The dissertation relies on an

in-depth review of the prevailing scholarly literature on the subject as well as on secondary

17
research data and case studies as the basis of support for the key arguments. The dissertation

proposes IRA, which is a theoretical framework based on the synthesis of the literature and other

evidence presented throughout this study. The IRA framework is intended as an embedded

mechanism that will enable the creation and management of SCA within a firm operating

globally. Furthermore, the dissertation proposes the CAI—a theoretical operational metric

defined and developed specifically to measure SCA. CAI presents future empirical research

opportunities.

The dissertation comprises four chapters. In addition to Chapter 1 (the current chapter),

Chapter 2 presents a literature review of the prevailing theories and secondary research data on

the subject, followed by a synthesis and implications analysis. Chapter 3 presents a detailed

discussion and analysis of the propositions, frameworks, and the resulting conceptual model.

Chapter 4 concludes the dissertation with a discussion on the study‘s implications and future

research opportunities.

18
 Chapter 2: Review of Literature and Thesis Investigation

Barrett and Peterson (2000) argue that the postindustrial era and the forces of

globalization have changed some of the most basic business and organizational assumptions. The

traditional measures of cost, quality, and timing alone are no longer sufficient to provide

organizations with SCA. Furthermore, only organizations with cultures that promote learning,

renewal, and innovation will have the capacity to compete. Moran, Palmer, and Borstorff (2007)

posit that the current global environment is changing and some competitive advantages are

losing their sustainability as new competitors imitate distinctive competencies of incumbent

firms. Companies with strong cultures will be harder to imitate as culture requires specific

conditions and time for its formation.

This chapter will explore the most debated and cited scholarly views about building and

sustaining competitive advantage. The objective is to support the thesis and propositions outlined

in Chapter 1, which will be discussed in Chapter 3. Wernerfelt (1984), Porter (1985), Barney

(1986a), Prahalad (1990), and Teece (1997) are among the top thought leaders who have made

substantial contributions to the seminal work in this field. The current chapter will also provide a

synthesis of the literature review while examining classic and contemporary approaches to

innovation—an attribute found to be the most prominent in building and sustaining a competitive

advantage. In addition, this chapter will explore frequently referenced scholarly studies that offer

supporting arguments to those made by this dissertation. The concluding summary of findings

will establish relationships between the attributes and constructs presented by this dissertation

based on the evidence provided by the empirical supporting studies presented herein.

19
Literature Review

Resource-based view. The resource-based view is a highly debated, referenced, and

discussed competitive strategy theory. The thought leaders of this theory are cited thousands of

times in the Web of Science database. The fundamental principle of the resource-based view is

that the basis for a firm‘s competitive advantage lies in the application of the bundle of valuable

resources at the firm‘s disposal (Wernerfelt, 1984). According to Barney (1991), a firm‘s

resources must be heterogeneous in nature and not easily imitated or substituted in order for the

firm to sustain its competitive advantage. To gain a competitive advantage, the firm‘s resources

must be valuable, rare, inimitable, and non-substitutable (VRIN). Wernerfelt (1984) defines

resources as the tangible and intangible assets that are tied semi permanently to the firm, such as

brand names, in-house knowledge of technology, employment of skilled personnel, trade

contacts, machinery, efficient procedures, and capital. Amit and Shoemaker (1993) split

resources into resources and capabilities. This distinction is also recognized by the current study

as it has been widely adopted through the resource-based view literature.

Oliver (1997) suggests that, in a resource-based view, resource selection and

accumulation are a function of both the firm‘s internal decision making and externally focused

strategies. The internal managerial choices are guided by an economic rationality and by motives

of efficiency, effectiveness, and profitability. The external factors include buyer and supplier

power, intensity of competition, and industry and product structure. These factors influence

resource selection and deployment. However, whether resource selection and deployment result

in enduring variation across firms depends on the barriers to acquisition, imitation, and

substitution of key resources and inputs (Barney, 1986b, 1991). Such barriers inhibit

20
competitors‘ abilities to obtain or duplicate critical resources (Oliver, 1997) and lead to long-

term differences among firms in terms of their competitive positions.

Wu (2010) conducted an empirical study on the impact of the resource-based view and

the dynamic capabilities framework (to be discussed later in this chapter) of the firm‘s

competitive advantage. His sample comprised 2,000 randomly selected Taiwanese firms. After

excluding 17 questionnaires that were returned due to incorrect addresses and the removal of 8

invalid questionnaires, the final number of valid questionnaires totaled 253, representing a return

rate of 12.65%, which was considered a valid return rate by the author. Saunders, Lewis, and

Thornhill‘s (2007) examination of response rates to recent business surveys reveals response

rates of 10 to 20% for postal surveys, an implication of the respondents‘ questionnaire fatigue (p.

215) .The study found that firms‘ resources and competitive advantage are significantly

correlated (0.69, p<0.01). Such findings indicate that the accumulation of VRIN resources

increases a firm‘s competitive advantage. Furthermore, King and Zeithaml (2001) studied the

relationship between causal ambiguity and inimitability on one hand and a firm‘s performance

on the other. The study involved 224 executives in 17 organizations. On-site interviews were

conducted with the chief executive of each organization in addition to 224 valid surveys. The

study concluded that causal ambiguity severely limits imitation, and inimitability is a source of

competitive advantage.

Meanwhile, Priem and Butler (2001a & b) argue that the resource-based view is

tautological, or self-verifying. They further claim that Barney (1991) defined a competitive

advantage as a value-creating strategy that is based on resources that are, among other

characteristics, valuable (1991, p. 106). However, this reasoning is circular and therefore

operationally invalid. Barney (2001) provided counterarguments to this and other criticisms,

21
although this is beyond the scope of the current paper. The resource-based view has gained wide

acceptance by competitive strategy scholars and thought leaders; indeed, a Web of Science

search on the subject yields more than 2,500 scholarly articles.

Market-based view or competitive forces view. Firms with a superior position generate

premium returns on investment because they succeed in restraining the productive output of

others (Bresser & Millonig, 2003). Within the market-based view, competitive advantage results

from a firm‘s superior position in the industry, which a firm can attain by pursuing what Porter

(1980) calls generic strategies. In his book Competitive Advantage: Techniques for Analyzing

Industries and Competitors, Porter (1980) outlined three general market strategies for businesses

to achieve competitive advantage: cost leadership, differentiation, and market segmentation (or

focus). Cost strategy emphasizes efficiency while the differentiation strategy is aimed at the

creation of unique products and services; the market segmentation strategy is concerned with the

firm‘s ability to focus on a select few target markets.

Zahay and Griffin (2009) conducted an empirical study to test the applicability of

Porter‘s generic strategies to firms in the B2B business. Respondents were selected from

stratified random samples of business-to-business insurers (SIC code 6331, NAICS code

524126) and software companies (SIC code 7372, NAICS code 51121) from Dun and Bradstreet

and Ward‘s Business Directory. A marketing research company contacted firms to prescreen for

the person in the business unit with the most knowledge of three areas—namely, customer

information management practices, strategic concern, and performance. Interview requests were

mailed to that person, and appointments were scheduled. The survey was administered by

telephone to 209 marketing executives in the software and insurance industries (109 software

22
firms and 100 insurance firms). In several cases, multiple informants in the same business unit

were used to provide the necessary combination of organizational knowledge. The response rate

to the survey was 48 percent (209 of 433 companies) and 31 percent on a per-contact basis (209

of 684 mailed contacts). T-tests were conducted to judge the risk of non-response bias. The

respondents‘ characteristics were not statistically different from those who did not respond .The

study found that firms that simultaneously pursue Porter‘s low cost and differentiation strategies

achieved higher performance than those firms that did not. Such results reinforce the

applicability of Porter‘s generic positioning and segmentation strategies for B2B industry.

Koo, Song, Kim, and Nam (2007) also conducted a study that applies Porter‘s generic

strategies to the e-business context. The study randomly chose 1,000 firms from a directory

published by the Korea National Statistical Office. The survey was conducted by mail and

targeted CEOs, IS managers, or strategic planning managers. In order to increase participation,

the survey population was contacted again via post cards, e-mail, and phone calls two weeks

after the questionnaires were mailed. One hundred twenty-three firms responded (response rate

12.3%). The survey questionnaire involved several constructs, with multiple items corresponding

to each construct. The constructs were cost leadership, market differentiation, market focus,

innovative differentiation, uncertainty, market turbulence, and performance. The items relating to

performance included return on sales, return on asset, return on equity, total profit, and total

margin. The study confirmed that Porter‘s differentiation strategy positively influenced firm

performance.

Some critics have questioned the use of Porter‘s strategies, claiming that they lack

specificity, lack flexibility, and are limiting; others argue that a viable middle ground exists

between strategies. Like the resource-based view, Porter and others have provided

23
counterarguments and the strategies have become widely accepted and cited by competitive

advantage literature. Michael E. Porter, as one of the key thought leaders of this theory, is also

the author of the Five Competitive Forces That Shape Strategy (2008), in which he identifies the

threat of new entrants, the threat of substitute products of services, buyers‘ bargaining power,

suppliers‘ bargaining power, and rivalry among existing competitors as the five forces that shape

industry competition. This thought leader has been cited more than 6,400 times in the Web of

Science database. Although being frequently cited is not, in and of itself, evidence of

scholarship, it is certainly one clear indicator of scholarly work.

Institutional theory. In contrast to the resource-based view and the market-based view,

the basic premise of the institutional theory is that firms tend to conform to predominant norms,

traditions, and social influences in their internal and external environments.This tendency leads

to homogeneity among firms in their structures and activities; successful firms are those that gain

support and legitimacy by conforming to social pressure (Oliver, 1997). According to

institutional theorists, conformity to social expectations contributes to organizational success and

survival (Baum & Oliver, 1991; DiMaggio & Powell, 1983). In other words, organizations

conform to social expectations because they are rewarded for doing so through increased

legitimacy, resources, and survival capabilities (Scott, 1987, p. 498). For example, a firm that

produces energy-efficient vehicles, complies with emission standards, uses environmentally

friendly manufacturing and recycling processes, and projects an image of social responsibility is

more likely to succeed and survive than a firm that does not conform to these expectations.

In her frequently cited (273 times) theoretical study of the resources-based view and the

institutional theory, Oliver (1997) suggests that firms operate within a social framework of

24
norms, values, and taken-for-granted assumptions about what constitutes appropriate or

acceptable economic behavior. Economic choices are constrained not only by the technological,

informational, and income limits that classical models emphasize but also by socially constructed

limits that are distinctly human in origin, like norms, habits, and customs. Zukin and DiMaggio

(1990) suggest that motives of human behavior extend beyond economic optimization to social

justification and social obligation.

With respect to the institutional context and its impact on SCA, Oliver (1997) argues that

a firm‘s sustainable advantage depends on its ability to manage the institutional context of its

resource decisions. Furthermore, she asserts that a firm‘s institutional context includes its

internal culture as well as broader influences from the state, society, and inter-firm relations that

define socially acceptable economic behavior.

Bresser and Millonig (2003) endorse Oliver‘s (1997) assertions as noted herein, taking

them a step further. They posit that an organization‘s institutional context is a major driver of

competitive advantage and that organizations can develop a competitive advantage by

proactively managing both their internal and external institutional contexts. Furthermore, the

authors present an integrative explanation of competitive advantage based on institutional and

strategic management theory (p. 226), which suggests that an institutionally embedded

competitive advantage is possible at three levels: 1) at the individual level as cognitive capital, 2)

at the organizational level as normative capital, and 3) at the inter-organizational level as

regulative capital. The advantage of this explanation is that it encompasses the influences of the

broader environments, the external as well as its internal.

Utilizing the broadly cited and discussed literature on resource-based view outlined thus

far as well as Oliver‘s (1997) subsequent resource-based view institutional context, Auh and

25
Mengue (2009) conducted a study to determine whether institutional factors influence

developing and deploying resources and capabilities. The names and addresses of CEOs/senior

executives and marketing managers of 1,000 large and mid-sized manufacturing firms were

obtained from a private databank company. The authors conducted a pretest of the questionnaire

using 20 CEOs and marketing managers from the original list (the 20 names were subsequently

removed from the survey, leaving only 980 potential contacts). The article does not provide

details about the exact methodology that was followed or provide specifics about the questions

included in the survey. The survey packet was mailed to all potential participants. Four weeks

later, a follow-up letter with an additional copy of the questionnaire was sent to all those who

had not responded. As a result, the authors received 260 usable questionnaires for a response rate

of 26.5%. The authors conducted a confirmatory factor analysis to assess the reliability and

validity of the multi-item constructs used. The key findings of the study suggest that the

institutional factors are deeply involved in the development and deployment of resources and

capabilities that enhance firm performance, thereby confirming Oliver‘s (1997) findings.

Furthermore, the study suggests that

Results pertaining to the direct effect of institutional factors on resources and

capabilities development indicate that even valuable, rare, in-imitable, and non-

substitutable resources and capabilities might not be accepted and developed

unless they receive support or legitimacy from top management team or are

compatible with the surrounding context. In other words, even if valuable

resources and capabilities are available, the firm may not adopt or nurture them if

they are not approved or accepted. (p. 765)

26
 Identity-based view and competence-based view. Fiol (1991) claims that studies of

organizational cultures, as currently framed, have not provided adequate answers regarding how

organizations can manage the cognitive processes by which a firm invests in resources for a

competitive advantage. She reframes the culture concept to highlight the role of contextual

identities in linking behaviors and their social meaning in organizations. Furthermore, she argues

that cognitive processes in organizations do not directly reflect either behaviors or underlying

beliefs; rather, they represent the interface between the two. Managing cognitive processes for

competitive advantage requires attending to the identities by which people make sense of what

they do, in relation to a larger set of organizational norms. According to Fiol (1991, p. 208),

―Organizational competency is critical competitive sources. In particular, the ambiguity of

decision rules that link skills/assets and action outcomes is an essential ingredient for achieving a

sustainable competitive advantage.‖

Fiol‘s (1991) findings are derived from her study, which included close observation and

analysis of General Electric (GE) behavior patterns after the company‘s diversification from its

core appliance business. Given the change from the appliance business and the diversification

into business ventures, new corporate values and identities emerged along with the new sets of

behaviors. The firm did not, at the time of acquisition, incorporate those identities into a common

set of organizational values. The old identity (self-definition as an appliance manufacturer)

remained intact; however, new contexts were so disconnected from the old that it became

difficult to speak of a cohesive meaning system binding the pieces of the organization together

(p. 205). Furthermore, Fiol‘s study examined the impact and the behaviors of six American

forest product firms during the environmentally turbulent early 1980s. Most of the 1970s

represented a stable period for the forest products industry. At the time, the six largest firms were

27
vertically integrated and for decades had held dominant positions in the upstream lumber

operations. Behaviors historically associated with successful vertical integration included

efficient production techniques, large contract negotiation skills, and heavy capital outlay. These

ingrained behaviors over several decades had molded into a single and dominant identity for

those firms that regularly referred to themselves as the forest giants of the industry. In the early

1980s, firms in the industry faced drastic changes as a result of the rising cost of capital, the rise

of lumber imports, and the rapidly shifting demand patterns from upstream lumber to

downstream specialty paper products. Although the new picture was clear to the six firms, the

integrated giants were challenged to manage not only their behaviors or strategic maps, but also

the deeper-level organizational values of culture maps that had become tightly coupled with an

outdated set of behaviors—namely, heavy capital spending on upstream lumber operations (Fiol,

1991).

Prahalad and Hamel (1990) define core competencies as the collective learning in the

organization, especially in regard to coordinating diverse production skills and integrating

multiple streams of technologies. Prahalad and Hamel (1990) analyzed the growth path and

strategic behavior patterns of several corporations, including GTE, NEC, Cannon, Honda, Xerox,

Chrysler, GE, and 3M. Based on their analysis, the authors define core competence (p. 82) as:

communication, involvement, and deep commitment to working across

organizational boundaries. It involves many people and all functions. World-class

research in, for example, lasers or ceramics can take place in corporate

laboratories without having an impact on any of the businesses of the company.

The skills that together constitute core competence must coalesce around

individuals whose efforts are not so narrowly focused that they cannot recognize

28
 the opportunities for blending their functional expertise with those of others in

new and interesting ways.

Core competencies are the collective learning in the organization. Unlike physical assets, which

do deteriorate over time, competencies are enhanced as they are applied and shared. However,

competencies still need to be nurtured and protected; knowledge fades if it is not used.

Competencies are the glue that binds existing businesses. They are the engine for new business

development. They may guide patterns of diversification and market entry, not just by the

attractiveness of markets (Prahalad & Hamel, 1990).

To illustrate the importance of core competencies to the corporation, Prahalad and Hamel

(1990, p. 82) draw an analogy between the corporation and a tree. The diversified corporation is

a large tree. The trunk and major limbs are core products, the smaller branches are business

units; the leaves, flowers, and fruits are end products. The root system that provides nourishment,

sustenance, and stability is the core competence. Competitors‘ strengths can be overlooked by

looking only at their end products in the same way that a tree‘s strength might be missed when

only looking at its leaves.

Based on his longitudinal study of a superior performing Swedish company, Osarenkhoe

(2008) argues for the competency-based view by asserting that ―firms‖ should be viewed as both

a collection of products and a collection of competencies. In the long run, he argues,

―competitiveness derives from an ability to build, at lower cost and more speedily than

competitors, the core competencies that spawn unanticipated products‖ (p. 172). Furthermore, he

posits that:

core competencies: 1) provide access to a wide variety of markets, 2) make a

significant contribution to customers‘ perception, and 3) are difficult for rivals to

29
 imitate. Core competencies, unlike physical assets, do not deteriorate with use but

are enhanced as they are applied and shared. (p. 172)

The author bases his findings on a six-year (2001-2007) longitudinal case study. The case

company was Lansforsakringar (LF), a Swedish insurance company, that won the ―company

with the most satisfied customers‖ award during the ten years prior to 2007. The award is based

on a survey conducted by the Swedish Quality Index (SKI) and analyzed by the Stockholm

School of Economics. The study included focus group discussions of customers and employees.

A total of 10 groups were formed, with 6 members each, and a session with each group lasted for

2 hours with the assistance of a professional moderator. The study also included 60 two-hour

face-to-face interviews with strategic, operations, management, and customer service employees.

Finally, the study analyzed data collected from six lectures delivered by the top management of

LF to the author‘s university classes during the period. The study‘s major finding is that the

outcome of the firm‘s strategy is attributed to socially complex phenomena such as the prevailing

culture in the organization and the firm‘s commitment to continuous improvements, each of

which is a vital source for firms to attain SCA.

Management of competencies for competitive advantage involves not only acquiring the

right number, type, and mix of tangible assets, but also managing the cognitive decision rules

that determine how people transform those assets into action outcomes. Theories pertaining to

the management of tangible assets for competitive advantage rest on a consistent body of

research coming out of economics, finance, marketing, and accounting. In contrast, theories

pertaining to the management of cognitive processes for competitive advantage appear

sporadically (Nelson & Winter, 1982; Prahalad & Bettis, 1986). Organizational competency is a

critical competitive resource. In particular, maintaining and managing the ambiguity of decision

30
rules that link skills/assets and action outcomes are essential ingredients for achieving a

sustainable competitive advantage (Fiol, 1991).

Dynamic Capabilities Framework. Based on an extensive theoretical examination of

what Teece et al. (1997) describe as the three dominant paradigms in the competitive strategy

field—namely, the competitive forces approach (also known as the market-based view)

developed by Porter (1980); the strategic conflict approach, which is closely related to the first

approach but emphasizes the tools of game theory; and the resource-based view (Penrose, 1959;

Rumelt, 1984; Teece, 1984; Wernerfelt, 1984, as cited by Teece et al., 1997) —Teece et al.

(1997) presented their own paradigm, which they called the Dynamic Capabilities Framework

(DCF). The framework focuses on the sources and methods of wealth creation and capture by

private enterprise firms operating in environments of rapid technological change. The framework

examines a firm‘s ability to build and sustain a competitive advantage by exploiting its existing

internal and external firm-specific capabilities as well as developing new ones. The DCF is an

expanded paradigm to advance the argument that the competitive advantages of a firm lie within

its managerial and organizational processes, shaped by its specific asset position, and the

expansion paths available to it. The authors posit that the managerial and organizational

processes refer to the way things are done in the firm or the patterns of current practices and

learning. ―Asset position‖ refers to the firm‘s current specific endowments of technology,

intellectual property, complementary assets, customer base, and external relations with suppliers

and complementors. ―Expansion paths‖ refer to the strategic alternatives available to the firm. In

support of their argument, the authors examine, compare, contrast, and identify gaps in the

prevailing competitive strategy paradigms, including the competitive forces approach (Porter,

31
1980), the strategic conflict approach (Shapiro, 1989), and the resource-based theory (Barney,

1986b; Wernerfelt, 1984).

As previously discussed, Wu (2010) conducted an empirical study on the impact of the

resource-based view and the dynamic capabilities framework of the firm‘s competitive

advantage. His sample comprised 2,000 randomly selected Taiwanese. After excluding 17

questionnaires that were returned due to incorrect addresses and 8 invalid questionnaires, the

final number of valid questionnaires was 253, representing a valid return rate of 12.65%, which

the author considered to be a valid return rate. The study found that a significant relationship

exists between dynamic capabilities (Teece et al., 1997) and competitive advantage (correlation

coefficient, 0.62, p<0.01). The study examined the relationship of the DCF and competitive

advantage in both low/medium volatility environments and in high volatility environments. In

both environmental conditions, two of the three dynamic capabilities significantly influence

competitive advantage. In the low/medium volatility environment, 8 of 12 sets of coefficients (3

dynamic capability indices and 4 resource-based view indices) are significant and positive. In

high volatility environments, 11 of 12 coefficients are positive and significant. Thus, Wu (2010)

concludes that, in high volatility situations, dynamic capabilities enhance firm competitive

advantages.

Teece et al. (1997) propose that the ability to achieve new forms of competitive

advantage through the dynamic capabilities framework emphasize two key aspects that were not

the main focus of attention in previous strategy perspectives. The term dynamic refers to the

capacity to renew competencies so as to achieve congruence with the changing business

environment. ―The term ‗capabilities‘ emphasizes the key role of strategic management in

appropriately adapting, integrating, and reconfiguring internal and external organizational skills,

32
resources, and functional competences to match the requirements of a changing environment‖

(Teece et al., 1997, p. 515). The concepts introduced by the authors will have significant

supporting impact on this thesis as shown later in this chapter.

The Eclectic or OLI paradigm. In addition to the five schools of thought on the subject,

Dunning and Lundan (2008) published their book entitled Multinational enterprises and the

global economy, in which they introduced the eclectic or ownership, location, and internalization

(OLI) paradigm, an analytical framework for accommodating a variety of operationally testable

economic theories of determinants of foreign direct investment (FDI) and the foreign activities of

multinational enterprises. The paradigm is introduced with in-depth arguments and case studies

to support the argument that the extent, geography, and industrial composition of foreign

production undertaken by multinational enterprises is determined by the interaction of three sets

of interdependent variables, which comprise the components of the three sub-paradigms—

namely, ownership (O), location (L), and internalization (I) advantages. The framework offers a

mechanism for multinational enterprises to build and sustain a competitive advantage as they

operate globally. The authors (pp. 104-105) further identify four key factors that drive

multinational enterprises (MNE) to engage in foreign activities:

 Natural resource seeking—to gain privileged access to resources

 Market seeking—to protect existing markets and counteract behavior of competitors;

to preclude rivals of potential rivals from entering new markets

 Efficiency seeking (products and processes)—for the purpose of regional or global

product rationalization and/or to gain advantage of process specialization

33
  Strategic asset seeking—to strengthen global innovation or product competitiveness;

to gain new product lines or markets

In terms of competitiveness at the national level, Dunning and Lundan (2008, pp. 113,

332-333) developed the Investment Development Path (IDP) model as a means of describing and

analyzing the underlying reasons for FDI-induced restructuring at different stages of a nation‘s

development. The five stages of development identified by the authors (pp. 332-333) are defined

in terms of the balance of ownership (O) and internalization (I) advantages, outlined in the OLI

paradigm. The stages are: (1) the natural resource based stage, (2) the investment driven stage,

(3) the innovation driven stage, (4) the increasing knowledge and service intensity stage, and (5)

the knowledge economy stage.

Hitt, Keats, and DeMarie (1998) suggest that a new competitive landscape is developing

largely based on the technological revolution and increasing globalization. The strategic

discontinuities encountered by firms are transforming the nature of competition. Navigating

effectively in this new competitive landscape while building and maintaining a competitive

advantage requires a new type of organization that is able to exercise strategic flexibility.

Furthermore, the new economic development and changes in political rule (e.g., free-trade

agreements) make it easier for firms to enter international markets, oftentimes through strategic

alliances with other firms or acquisitions of firms currently operating in these domestic markets.

Moving into new markets provides many opportunities, but also multiple challenges. For

example, moving into global markets increases incentives for innovation and improved

opportunities to earn returns on innovation due to the expanded marketplace.

However, international expansion also greatly complicates operating

environments. To take advantage of the opportunities for economies of

34
 geographic scope, firms must learn effective ways of coordination operations

across country borders, oftentimes in many different countries. This often requires

complex structural arrangements [such as establishing foreign subsidiaries,

mergers and acquisitions of foreign entities, strategic alliances, and other local

representation in foreign countries]. (Hitt et al., 1998, p. 24)

Literature Review Synthesis

The theories examined in this literature review explore a firm‘s competitive advantage

and its underlying fundamentals from varying perspectives. The resource-based view emphasizes

valuable, rare, and inimitable resources as the basis for achieving a competitive advantage while

the market-based view attributes the competitive advantage to cost leadership, the creation of

unique products and services (differentiation), and the limiting of the firm‘s focus on a select few

target markets (segmentation). The resource-based view can be viewed as a theory that

emphasizes innovation in the firm‘s resources and capabilities whereas the market-based view

emphasizes innovation in market strategies. Similarly, the institutional theory, the identity-based

theory, the competency-based theory, the dynamic capabilities framework, and the Eclectic

paradigm reveal their own common themes as shown in Table 2.

35
Table 2.
Implications and Synthesis of Key Competitive Strategy Theories
Theory Competitive advantage / high performance enablers

Resource-based view
Market-based view
Institutional theory
Identity-based view
Competency-based view
The Dynamic Capabilities
Framework
The eclectic (OLI) paradigm
Innovation in resources and capabilities (valuable, rare, and inimitable
resources)
Innovation in market strategies (cost, differentiation, segmentation)
Social legitimacy and institutional context of internal culture as well as broader
external influences (flexibility of cultural values)
Manage cognitive process (organizational learning)
Build organizational competency (organizational competency building)
Managerial and organizational processes, asset position, and strategic alternatives
(management, organizational, and strategy development to reconfigure,
sense, absorb,and integrate)
A firm‘s ability to conduct foreign activities and foreign direct investments
(global aptness & cultural intelligence)

The following key competitive advantage/high performance enablers identified from the

synthesis of the literature review (also see Table 2) constitute the principal building blocks of the

IRA/SCA conceptual framework discussed in depth in Chapter 3. Throughout this document, the

following list shall be denoted as the ―enablers.‖ Competitive advantage/high performance

enablers shall also mean the same as ―enablers.‖

Innovation in resources, capabilities, and markets

Social legitimacy
Flexibility of cultural values
Organizational learning and competency building
Management, organizational, and strategy capabilities to reconfigure, sense, absorb,
and integrate
Global aptness and cultural intelligence

These enablers shall be examined further through a literature review of related studies in the

following sections of this chapter.

36
Innovation: Classic and contemporary approaches

As discussed thus far, innovation is prominent in all competitive advantage theories.

Whether it is product, service, process, technology, management philosophy, manufacturing

technique, or an environmental strategy, innovation is a primary contributor to superior

performance. In the current era of accelerated change, managing the innovation process has

become essential for maintaining a competitive advantage. Managing innovation is a broad and

complex challenge, and numerous authors have contributed their approaches, as demonstrated in

the existing literature. This section examines key classic and contemporary innovation

approaches to enhance the understanding of this key attribute as well as how it relates to the

various aspects of this dissertation.

Innovation is a change or improvement that has a positive outcome with respect to

customers, stakeholders, and organizations. The ability to innovate faster than the competition or

the expectations of customers and stakeholders is a key factor in achieving and maintaining a

sustainable competitive advantage (Rainey, 2008). Innovation is an idea that is driven to the

profitability of return on investments (Sirkin, 2007).

Innovation capabilities can be characterized as being radical or incremental. Radical

innovations are breakthroughs or major changes of products, services, or processes that may lead

to obsolescence of existing designs or technologies. Incremental innovations focus on existing

products, services, or processes with the objective of refining and reinforcing their ability to

create value for the firm (Köhler, Sofka, & Grimpe, n.d.). Innovations that are radical, early, and

inventive flow more naturally from a proactive strategy. Conversely, those that are incremental,

late, and imitative are best supported by what Gilbert (1994) calls a reactive innovation strategy.

37
Both proactive and reactive innovation strategies have their advantages. If a company chooses

the one that fits its history, present resources, and future goals better and then follows it

consistently, mistakes are more apt to be avoided and profits from innovations are more likely to

follow (Gilbert, 1994).

Continuous innovation is the engine that drives highly successful companies such as

Apple, Google, Honda, Hewlett-Packard, and Procter & Gamble. Innovation is an especially

potent competitive weapon in tough economic times because it allows companies to redefine the

marketplace in their favor and achieve much needed growth (Rothaermel & Hess, 2010). One

increasingly popular way to think about innovation is to conceive of it as an open rather than a

closed system and by creating uncontested market space rather compete in existing market

space—concepts Henry Chesbrough, Chan Kim, and Renee Mauborgne have written about. To

continue to be innovative in a world of widely distributed knowledge, many companies are

recognizing that they must open their innovation process to combine internal and external

innovation resources and research and development, including Procter & Gamble, IBM, and

several high technology companies that have shared innovations in the area of environmental

sustainability. This can be achieved by bringing in new human capital, engaging in strategic

alliances, or acquiring innovative technology ventures. Similarly, internal inventions that a

company decides not to pursue should not simply be shelved, but rather considered for

commercialization through licenses, spin-offs, or joint ventures.

In order to determine which innovation strategies a company should pursue and which

innovation strategies go well together, Rothaermel and Hess (2010) spent five years studying

how global companies built innovation capabilities. The authors documented, in great detail, the

annual research and development expenses of 81 global pharmaceutical companies over a 22-

38
year period, along with every biotech and non-biotech patent the companies filed, every scientist

who worked for one of the companies, all alliances entered into, and all acquisitions

consummated during that period. Furthermore, the authors tracked approximately 900

acquisitions, 4,000 alliances, 13,200 biotechnology patents, 110,000 non-biotechnology patents,

and 135,000 scientists; they used U.S. biotechnology patents granted as a proxy for innovation in

the industry. According to the authors, although the global pharmaceutical industry is unique to

some extent, their findings also hold for many other industries as new knowledge, human capital,

strategic alliances, and acquisitions increasingly determine the success or failure of individual

businesses across a large number of industries today. Table 3 explores the different types of

innovation approaches and identifies some of their key characteristics.

39
Table 3.
Innovation Strategies

Innovation Upsides Downsides Some exemplar Requirements

Strategy companies
Recruiting and • Better control of IP • Organic growth is • Goldman Sachs • Astute strategic
Retaining Superior • Long-term growth slower • Google human resource
Human Capital focus • Challenge of • Merck management
• Difficult for identifying and • Research In • Organizational
competitors to valuing superior Motion flexibility
imitate human capital • Southwest Airlines

Internal R&D • Internalization of • Full risk exposure • Apple • Culture of risk

Spending skills and • Long time horizon • BMW tolerance
capabilities • Uncertain returns • Hewlett-Packard • Organizational
• Full capture of flexibility
returns • Long-term
commitment

• Shared risk • Potential loss of • IBM • Dedicated function

Strategic Alliances • Multiple, small- IP control • Eli Lilly for the management
scale • Challenge of • Oracle of partnerships
investments alignment • Procter & Gamble
provide of goals
strategic options • Shared returns
• Faster than internal
development

Acquisitions • Faster than • Risk of overpaying • Cisco • Capability to

growing • Cultural • General Electric identify
organically integration • Pfizer and assimilate
• Acquire innovative concerns • Microsoft acquisition targets
technologies before • Involves relying
startups become on others for
competitors innovation
Adapted from Rothaermel and Hess (2010)

How do firms out-pace rivals? How do they out-compete? How do they create new

markets? How do they gain a competitive advantage? Firms and scholars alike seek to find

answers to these strategic questions. Kim and Mauborgne (2005) offer the Blue Ocean new

market creation strategy, Porter (2008, 1980) offers the Five Forces competitive strategy, and

Wernerfelt (1984) and Barney (1991) offer the resource-based strategy that calls for unique and

immobile resources. Scholars have offered these three strategies, as well as several others, in

40
their attempt to provide answers to those key strategic questions. All approaches to market

strategies have their devotees. However, the three key approaches identified herein support the

notion that innovation enhances whatever strategy or combination of strategies a firm may

embrace.

Table 4 contrasts Chesbrough‘s (2003) open innovation model and the closed innovation

model.

Table 4.
Closed vs. Open Innovation
The Closed Innovation Model The Open Innovation Model

Definition In this model, a company generates,
develops, and commercializes its own
ideas. Companies invest more heavily in
internal R&D than their competitors, hire
the best and brightest, discover the best
and greatest number of ideas and get to
market first, and vigorously protect their
intellectual property. This philosophy of
self-reliance dominated the R&D
operations of many leading corporations
for most of the 20th century.
In this model, a company commercializes both its
own ideas as well as innovations from other firms
and seeks ways to bring its in-house ideas to
market by deploying pathways outside its current
businesses. The boundary between the company
and its surrounding environment enables
innovations to move more easily between the
two.

Principles The smart people in our field work
for us
To profit from R&D, we must
discover, develop, and ship it
ourselves.
If we discover it ourselves, we will
get it to market first.
If we are the first to commercialize
an innovation, we will win
If we create the most and best ideas
in the industry, we will win
We should control our intellectual
property (IP) so that our competitors
don‘t profit from our ideas
Principals adapted from Chesbrough‘s (2003, p. 38)
Not all the smart people work for us, so we must
find and tap into the knowledge and expertise of
bright individuals outside our company
External R&D can create significant value;
internal R&D is needed to claim some portion of
that value
We don‘t have to originate the research in order
to profit from it
Building a better business model is better than
getting to market first
If we make the best use of internal and external
ideas, we will win
We should profit from others‘ use of our IP, and
we should buy others‘ IP whenever it advances
our own business model,

41
 Kim and Mauborgne (2004; 2005) came up with the Blue Ocean strategy to argue that

head-to-head competition results in nothing but a ―bloody red ocean‖ as rivals fight over

shrinking profits. Success comes not from battling competitors, but from making the competition

irrelevant by creating new demand in uncontested market space. The authors came up with this

strategy based on an extensive analysis of more than 30 industries going back over 100 years.

They concluded that there are neither perpetually excellent companies nor perpetually excellent

industries; rather, companies and industries rise and fall based on the strategic moves they make.

Value innovation is the cornerstone of the Blue Ocean strategy. It is called value innovation

because, instead of focusing on beating the competition in the existing market space, firms focus

on getting out of existing market boundaries by creating a leap in value for buyers and the

company, which leaves the competitors behind (Kim & Mauborgne, 2005).

Table 5.
Red Ocean versus Blue Ocean Strategies
Red Ocean Strategy
Compete in existing market space
Beat the competition
Exploit existing demand
Make the value/cost trade-off
Align the whole system of a company‘s activities with
its strategic choice of differentiation or low cost
Adapted from Kim and Mauborgne (2004)
Blue Ocean strategy
Create uncontested market space
Make the competition irrelevant
Create and capture new demand
Break the value/cost trade-off
Align the whole system of a company's activities in
pursuit of differentiation and low cost

Considering the emergence and proliferation of the internet, the rise of multimedia, and

the speed of globalization, the rate of change seems to increase as new knowledge, idea creation,

and global diffusion accelerate. Kim and Mauborgne (2004; 2005) provide several examples of

companies creating a blue ocean. For example, Ford created a blue ocean by making the

42
automobile easy to use, affordable, and priced so that the majority of Americans could afford it.

With Ford‘s one-car single model strategy, GM created the blue ocean of stylish cars for every

purpose and purse. Kim and Mauborgne (1999) suggest that these changes require a shift in the

strategic focus of corporations from the conventional focus to the value creation focus (see Table

6).

Table 6.
Shifting Strategy Focus
Strategy building Conventional focus Value creation focus
blocks
Competition Outperforming the competition Seeking radically superior value to make the
competition irrelevant
Customers Retaining and better satisfying Targeting the mass of buyers by following
existing customers noncustomers closely and willingly losing some
existing customers
Corporate capabilities Leveraging and extending the Willing to combine with other companies‘
current capabilities of a company capabilities
Adapted from Kim and Mauborgne (1999, p. 50)

Hansen and Birkinshaw (2007) posit that there is no universal solution for organizations

wanting to improve their ability to generate, develop, and disseminate new ideas. Every firm

faces its own challenges in that regard. In today‘s highly competitive global environment,

managers need to take an end-to-end view of their innovation efforts, pinpoint their particular

weaknesses, and tailor innovation best practices as appropriate to address the deficiencies. Figure

2 represents a framework for innovation value chain. The framework breaks innovation down

into three phases: (1) idea generation, which is the critical activities of in-house idea generation,

cross-pollination, and external sourcing; (2) conversion, which includes selection and

development; and (3) diffusion, which concerns the spread of the idea. Using the innovation

43
value chain, managers can identify the company‘s weaknesses and, as a result, be more selective

about which innovation tools and approaches to implement.

In-house (creation Selection Spread

within a unit) (screening and (dissemination
Cross-pollination initial funding) across the
(collaboration Development organization)
across units) (movement from
External idea to first result)
(collaboration with
parties outside the
firm)

Figure 2. The innovation value chain (adapted from Hansen & Birkinshaw, 2007, p. 124)

Competitive advantage is increasingly coming from an organization‘s knowledge and its

ability to innovate based on knowledge (McDonough, Zack, Lin, & Berdrow, 2008).

Successfully leveraging an organization‘s knowledge and innovative capability requires that the

company explicitly recognize the role of knowledge and innovation in developing its strategy.

Organizations need to consciously design and develop their strategy in a way that ensures the

integration of the three key strategic positions—namely, product/markets, knowledge, and

innovation. Success and competitive advantage also depend on the organizations‘ ability to not

only align these positions initially, but also to realign them as market externalities dictate. This

44
will require constant monitoring of the competitive landscape and altering their current

alignment in light of changes in their environment (McDonough et al., 2008).

Institutionalizing innovation strategies throughout an enterprise supports the creation of

competitive advantage and produces superior performance. Firms without innovative strategies

are likely to be marginalized, shrink, and may cease to exist. Whether innovation strategies are

incremental or radical, first to market or otherwise, or proactive or reactive, innovation strategies

are essential if institutions want to remain competitive and survive. A key challenge for firms

with innovative strategies is the ability to sustain the pace of innovation through continual self-

renewal and adaptation to an ever-changing global operating environment.

Thesis Supporting Studies

The previously identified enablers that have been determined to support the creation of

competitive advantage are shown below:

Innovation in resources, capabilities, and markets

Social legitimacy
Flexibility of cultural values
Organizational learning and competency building
Management, organizational, and strategy capabilities to reconfigure, sense, absorb,
and integrate
Global aptness and cultural intelligence

This dissertation attempts to identify the relationship between and among these enablers on the

one hand and between the enablers and SCA and IRA on the other. To achieve this objective, a

large number of related scholarly studies have been identified and reviewed. Only frequently

cited (please see the number of citations listed immediately following the source in Table 7)

45
articles from credible sources and rigorous validation parameters have been included in the

summary shown in Table 7. The summary is limited to the aspects relevant in this study.

Although the list identifies the most frequently cited articles, it is by no mean an exhaustive list.

This list can be expanded if statistical analyses are deemed appropriate for determining the

weight each of these themes has on IRA and, subsequently, on SCA.

Table 7.
Major Findings of Thesis Supporting Studies
Source Attribute/enabler Competitive Empirical Major findings
examined advantage/firm approach
performance
assessed
Lumpkin and Dess Entrepreneurial yes Primary data – 1. Proactiveness
(2001) orientation: 124 executives positively relates to
Cited: 83 1. Proactiveness from 94 firms performance.
2. Competitive 2. Competitive
aggressiveness aggressiveness poorly
associated with
performance
Zaheer and Bell Innovative yes Primary data – Both firm‘s innovative
(2005) capabilities and 77 firms and capabilities and network
Cited:86 network structure their associated structure enhance firm
network performance.
structures
McGrath, Competence – the yes Primary data – Comprehension affects
MacMillan and degree to which the 160 initiatives in deftness; both lead to
Venkataraman firm or its subunits 40 organizations emerging competence,
(1995) can reliably meet or from 16 which replaces the
Cited: 100 exceed objectives countries competitive advantage
that erodes over time
with a new competitive
advantage.
Porter and Kramer Corporate social Yes Case study Corporate social
(2006) responsibility – Social analysis – Whole responsibility viewed
Cited: 115 legitimacy Foods Market using the same
and Toyota. framework that guide
core business can be a
potent source of
innovation and
competitive advantage
Calantone, Cavusgil Organizational Yes Primary data – 1. Learning orientation
and Zhao (2001) learning and survey of 400 enhances an
Cited: 153 Innovation R&D vice organizational
presidents performance directly

46
Source Attribute/enabler Competitive Empirical Major findings
examined advantage/firm approach
performance
assessed
and indirectly
through its influence
on competitive
advantage.
2. Innovativeness is
positively related to
firm performance

Danneels (2002) Product innovation Partially Primary data– Product innovation

Cited: 135 And firm multiple case activities develop firm
competencies studies competencies and thus
contribute to firm
renewal over time.
Hurley and Hult 1. Organizational yes Primary data- 1. Organizational
(1998) learning Survey of 9648 learning enables
Cited: 343 2. Culture flexibility employees from organizations to
3. Capacity to 56 organizations adapt to their
innovate environment and
develop competitive
advantage.
2. Innovative cultures
lead to greater
capacity for
adaptation.
3. Cultures that
emphasize learning
lead to
innovativeness.

Hitt, Keats, and 1. Strategic yes Secondary data – The five attributes lead
DeMarie (1998) leadership. example case to strategic flexibility
Cited: 127 2. Core studies and and competitive
competencies. theoretical advantage. Strategic
3. Effective use of exploration flexibility is defined as
new technologies. the capability of the firm
4. Exploit global to be proactive or
markets. respond quickly to
5. Flexible changing competitive
organizations and conditions and thereby
cultures develop and/or maintain
competitive advantage
(Adaptability)
Teece, Pisano, and Dynamic capabilities: Yes Secondary data – The framework suggests
Shuen (1997) Dynamic refers to the example case that wealth creation,
Cited: 2279 capacity to renew studies and within a firm, depends
competencies so as to theoretical on technological,
achieve congruence exploration organizational, and
with the changing managerial processes
business environment inside the firm.
(renewal ) Dynamic Capabilities,
Capabilities— and thus by implication,

47
Source Attribute/enabler Competitive Empirical Major findings
examined advantage/firm approach
performance
assessed
strategic management renewal and adaptation,
to adapt, integrate, reflect an organization‘s
and reconfigure skills, ability to achieve
resources and competitive advantage.
competencies to
match the
requirements of
changing environment
(Adaptability).

Zahra and Covin Corporate Yes Primary data— CE is positively

(1995) Entrepreneurship—in three associated with company
Cited: 151 this study it represents longitudinal financial performance,
risk taking, studies and the strength of this
innovation, and conducted over 7 relationship tends to
aggressive years grow over time
competitive action CE is a significantly
better predictor of
financial performance
among firms in hostile
environments than
among firms in benign
environments.

As Table 7 demonstrates, all relevant enablers and constructs involved in this study have been

examined to varying extents and within different contexts. The following section offers an

interpretation of the findings from an IRA/SCA perspective.

Summary

Table 8 summarizes the key findings of the studies covered and presented in Table 7,

presenting the same findings in a cause-effect relationship (second column). These relationships

are presumed to be scholarly acceptable conclusions based on the empirical validation presented

in these highly cited studies. The third column of the table presents a contextual interpretation

48
based on IRA/SCA. The interpretation uses words and language consistent with this dissertation

while maintaining the accuracy and the spirit of the findings.

Table 8.
Contextual Interpretation of the Findings of the Thesis Supporting Studies

Source Established relationship (validated (IRA/SCA) Contextual Interpretation

hypothesis/proposition)
Zaheer and Bell Innovative capabilities Innovation
(2005) Firm performance Competitive Advantage
Cited:86
McGrath, Competence building Competency building
MacMillan and Competitive advantage Competitive advantage
Venkataraman
(1995)
Cited: 100
Porter and Kramer Corporate social responsibility Social legitimacy
(2006) Innovation & Comp. Advantage Competitive advantage
Cited: 115
Calantone, Cavusgil Organizational learning Organizational learning
and Zhao (2001) Competitive advantage
Cited: 153 Competitive advantage
Innovation Firm performance
Innovation

Competitive advantage
Danneels (2002) Product innovation Innovation
Cited: 135 Firm competencies Institutional renewal
Firm renewal Competency building
Institutional renewal
Hurley and Hult Organizational learning Organizational learning
(1998) Institutional adaptation & CA Institutional adaptation
Cited: 343 Innovative Cultures Flexibility of Cultural values
Greater capacity to adapt Institutional adaptation
Cultures of learning
Innovativeness

49
Source Established relationship (validated (IRA/SCA) Contextual Interpretation
hypothesis/proposition)
Hitt, Keats, and Strategic leadership, core competencies, 1. Strategic leadership
DeMarie (1998) effective use of new technologies, exploit
Cited: 127 global markets, Competitive advantage through
and flexible organizations and cultures organizational adaptability
Strategic flexibility
Competitive advantage
2. Competency building
through adaptability
Comp. adv. through org. adaptability
3. Technology Innovations
Comp. adv. through org. adaptability
4. Global aptness
Comp. adv. through org. adaptability
5. Organizational development
Comp. adv. through org. adaptability
6. Flexible cultural values
Comp. adv. through org adaptability
Teece, Pisano, and Dynamic capabilities 1. Dynamic Capabilities
Shuen (1997) Management, organizational & strategy Management, organizational & strategy
Cited: 2279 development development
Dynamic capabilities Renewal and adaptation
Sustainable competitive advantage 2. Management, organizational & strategy
development
Dynamic Sustainable competitive advantage
Capacity to renew 3. Renewal & adaptation
Capabilities Sustainable competitive advantage
Ability to adapt
Zahra and Covin Corporate Entrepreneurship Corporate Entrepreneurship
(1995) Financial performance Innovative strategy
Cited: 151 CE in this study it represents: risk taking,
innovation, and aggressive competitive Competitive advantage
action

Lumpkin and Dess Entrepreneurial orientation Strategy development

(2001) Firm performance Competitive Advantage
Cited: 83

Based on the information in Table 8, several important observations can be made:

Innovation in resources, capabilities, and markets has been linked to competitive

advantage in four studies and to organizational renewal in one.
Social legitimacy has been linked to competitive advantage in three studies, including
one study summarized in Table 8 as well as Orsato (2006) and Russo and Fouts
(1997).
Flexibility of cultural values has been linked to competitive advantage in one study
and to institutional adaptation in two studies.

50
 Organizational learning and competency building have been linked to competitive
advantage in three studies, to institutional renewal in one study, and to institutional
adaptation in two studies.
Management of organizational and strategy capabilities to reconfigure, sense, absorb,
and integrate has been linked to competitive advantage in two studies, to institutional
renewal in one study, and to institutional adaptation in two studies.
Global aptness and cultural intelligence has been linked to competitive advantage and
institutional adaptation in one study.

Table 9.
Summary of Findings

Enabler Leads to Competitive Institutional Institutional

Advantage Renewal Adaptation

1. Innovation

2. Social legitimacy

3. Flexibility of cultural values

4. Organizational learning &

competency building

5. Capabilities to reconfigure,
sense, absorb, integrate, and
innovate

6. Global aptness and

cultural intelligence

Chapter 2 has established the relationships between and among the enablers on one hand

as well as the enablers and IRA/SCA on the other, as proposed by this study. Analysis and

discussion of the implications of these findings as related to the research questions and the

IRA/SCA proposed framework will be discussed in Chapter 3.

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 Chapter 3: Findings, Analysis, and Theory

This study builds upon the principles established by several schools of thought in

competitive strategy management listed in Table 2 in Chapter 2, including the resource-based

view (Barney, 1991; Peteraf, 1993; Rumelt, 1991; Wernerfelt, 1984), market-based view (Porter,

1998), institutional theory (Bresser & Millonig, 2003; DiMaggio & Powell, 1983; Oliver,1997),

competency-based and identity-based views (Fiol, 1991; Prahalad & Hamel, 1990), the dynamic

capabilities framework (Hou, 2008; Teece et al., 1997; Wu, 2010), and the eclectic paradigm

(Dunning & Lundan, 2008). The current study seeks to advance our understanding of the impact

of institutionalizing renewal and adaptation strategies on a firm‘s ability to sustain its

competitive advantage. Virtually all firms have a competitive advantage at a specific point in

time—indeed, that is the reason they exist; the challenge is to sustain that advantage over time by

utilizing a systemic approach and internally embedded mechanisms that overcome rivals‘

imitation and substitution attempts.

Theory-Building Approach

Reynolds (1971, p. 11) defines theory as either ―an abstract statement considered to be

part of the body of [organizational] knowledge in a set-of-laws, an axiom, or a description of

causal processes.‖ The causal process form of theory is a set of descriptions of interrelated

causes and effects. Reynolds further suggests that the preferred form of theory is the causal

process form because it provides a sense of understanding and makes it easier to describe new

paradigms. Furthermore, it allows for more efficient research and enables a more concise

portrayal of organizational relationships. The causal process form of theory development

52
 correlates well with the current study because it proposes the establishment of cause-and-effect

relationships (Reynolds, 1971) between the high performance enablers established in Chapter 2

and IRA and SCA (for a graphic illustration of the IRA framework, see Figure 5 later in this

chapter).

Bacharach (1989) describes organizational theory as a system of constructs and variables

in which the constructs are related to each other by propositions and the variables are related to

each other by hypotheses. The whole system is bounded by the theorist‘s assumptions. This

relationship is demonstrated in Figure 3.

Boundary = Assumptions about value, time, and space

High G
E
N
E
R Propositions
A Constructs
Constructs
L
I
Z
A
B
I Variables Variables
L Hypotheses
I
T
Low Y

Figure 3. Components of a theory (adapted from Bacharach, 1989, p. 499).

As a rationale for his theory construction model depicted in Figure 3, Bacharach (1989, p.

498) builds on the works of previous students of theory construction (Cohen, 1980; Dubin, 1969;

Nagel, 1961, as quoted by Bacharach, 1989) to conclude that researchers define a theory as a

53
statement of relationships between constructs and variables. Constructs such as centralization,

satisfaction, or culture cannot be operationalized and directly measured. Meanwhile, variables

can be empirically measured. The primary goal of a theory is to answer questions of how, when,

and why whereas the goal of description is to answer the question of what. Bacharach‘s (1989)

theory construction model is helpful in delineating the constructs from the variables in the

current study. SCA and IRA are the constructs while the competitive advantage enablers

identified in the literature review are the variables.

Research Question and Context Revisited

Figure 4 outlines the thought process for developing the IRA conceptual framework. The

process identifies logical steps for answering the research questions (as presented in Chapter 1),

establishes causal relationships between key competitive advantage determinants and the IRA

construct, and uses deductive logic and empirical evidence from Chapter 2 to form and support

the proposed conceptual framework. In this section, the development process will be discussed in

detail to yield the conceptual framework (shown later in this chapter in Figures 5 and 6).

As outlined at the beginning of this chapter, the process of testing and validating the

propositions of this study hinge upon the empirical studies conducted to validate the key

principles (presented in Table 10 of the following section) of the schools of thought explored in

Chapter 2. The schools of thought have been exploited to varying degrees and within different

contexts by progressive enterprises as demonstrated by the literature review and by the widely

circulated scholarly business publications. Having spent more than two decades in the industry as

middle and senior executive of global enterprises and having reviewed many of the best sellers in

the field, the author observed that some of the contemporary management theories are commonly

54
packaged by business consultants and marketed as practical guides to affect change in

corporations seeking improvements. This process usually takes the form of management

initiatives intended either to correct a specific diagnosed deficiency at the firm or to induce

general improvements. Such initiatives commonly receive a high level of attention from senior

management for a limited period while being held to short-term performance measurement

criteria or being combined with or replaced by other initiatives with higher marketing hype or

higher management visibility. The extent to which a firm reaps benefits from such initiatives

largely depends on many factors, including senior management‘s commitment to the initiative,

the applicability of the initiative to the specific business requirements, and the ability of the

organization to execute and make necessary adjustments to affect change. IRA, in contrast, is not

a single dimension limited span initiative. IRA is a dynamic change that institutionalizes the

process of renewal and adaptation as an integral part of the firm‘s evolution. The diagram in

Figure 4 illustrates this exploratory process. A detailed discussion of its components and the

findings from the literature reviews of Chapter 2 follows.

55
 New discoveries and
advancements in
management theory

What combinations of What can be learned from the

enablers can be identified, prevailing literature and subject -
acquired, and integrated to matter experts about building and
achieve IRA? sustaining competitive advantage?

A culture of Institutional Sustainable Competitive

Renewal & Adaptation (IRA) Advantage (SCA) as
defined in this study?

Could attributes be How do we measure SCA?

modified, refined, and Using the Competitive
adjusted to affect the Advantage Index (CAI)?
context of IRA?

Figure 4. Research questions and context

As outlined in Chapter 1, the purpose of this study is to explore and promote an

understanding of the sources and means needed to create competitive advantage as well as the

role IRA plays in affecting the firm‘s ability to build and sustain a competitive advantage. To

this end, several research questions have been posed as outlined in Chapter 1; these are

summarized below and graphically illustrated in Figure 4.

56
  What can be learned from the prevailing literature and subject-matter experts about

building and sustaining a competitive advantage?

 What combinations of attributes can be identified, integrated, and acquired to achieve

IRA?

 Could these attributes be used as levers to influence the context of IRA and therefore

a firm‘s SCA?

 How can we measure SCA? Is the proposed CAI a good metric for measuring SCA?

Research Findings

Based on the literature review conducted in Chapter 2 and the corresponding synthesis,

several themes have emerged, as shown in Table 10.

57
Table 10.
Conclusions from Literature Review and Synthesis of Chapter 2, as outlined in Tables 2, 8 and 9

Theme Theory/Author(s)
1. Innovations in resources and capabilities lead to Resource-based view
higher performance/competitive advantage and (Barney, 1991; Peteraf, 1993; Rumelt, 1991;
institutional renewal Wernerfelt, 1984)
2. Innovations in market strategies lead to higher Market-based view
performance/competitive advantage and (Porter, 1998)
institutional renewal
3. Social legitimacy and flexibility of cultural values Institutional theory
lead to higher performance/competitive advantage (Bresser & Millonig, 2003; DiMaggio & Powell,
and institutional adaptation 1983; Oliver,1997)

4. Organizational learning and competency building Identity/Competency-based theory

lead to higher performance/competitive advantage, (Fiol, 1991; Prahalad & Hamel, 1990)
and institutional renewal and adaptation
5. Management, organizational, and strategy The Dynamic Capabilities Framework
capabilities to reconfigure, sense, absorb, and (Hou, 2008; Teece et al., 1997; Wu, 2010)
integrate lead to higher performance/competitive
advantage and institutional renewal and adaptation
6. Global aptness and cultural intelligence lead to The Eclectic–OLI Paradigm
higher performance/competitive advantage and (Dunning & Lundan, 2008)
institutional adaptation

The key high performance enablers identified from the synthesis of the literature review

(as shown in Table 2 in Chapter 2 and listed below) constitute the principal components of the

IRA/SCA conceptual framework discussed in depth in this chapter. To review, these high

performance/competitive advantage ―enablers‖ are:

Innovation in resources, capabilities, and markets

Social legitimacy
Flexibility of cultural values
Organizational learning and competency building
Management, organizational, and strategy capabilities to reconfigure, sense, absorb,
and integrate

58
 Global aptness and cultural intelligence

Two types of literature reviews were conducted in Chapter 2. The first was conducted

with the objective of identifying key enablers that support high performance/competitive

advantage. The second literature review of the highly cited empirical studies was intended to

explore any cause-and-effect relationship between the identified high performance enabler

(shown in the preceding bulleted list) and competitive advantage, institutional renewal, and/or

institutional adaptation. Table 11 summarizes the relationships between the high performance

enablers and IRA/SCA. These relationships will serve as key building blocks of the IRA

framework (discussed in detail later in this chapter).

Table 11.

Establishing Cause-and-Effect Relationships between High-performance Enablers and

Competitive Advantage, Institutional Renewal, and/or Institutional Adaptation

High performance Lead to Effects

enablers (causes)
Innovation Competitive Advantage
Institutional Renewal
Social legitimacy Competitive Advantage

Flexibility of cultural values Competitive Advantage

Institutional Adaptation
Organizational learning & competency Competitive Advantage
building Institutional Renewal
Institutional Adaptation
Management, organizational, and strategy Competitive Advantage
capabilities to reconfigure, sense, absorb, Institutional Renewal
integrate, and innovate Institutional Adaptation
Global aptness & cultural Competitive Advantage
intelligence Institutional Adaptation

59
 The following section provides further discussion of the cause-and-effect relationships

between the enablers and IRA/SCA.

Discussion

A synthesis of the literature review reveals the high performance enablers, as outlined in

the previous section. In this section, a combination of these enablers will be identified,

developed, acquired, and then integrated to achieve a culture of IRA. Furthermore, the enablers

will also be used as ―IRA levers.‖ The levers will be utilized to adjust IRA in order to yield IRA

characteristics deemed most appropriate, as indicated by a firm‘s managers, to achieve the firm‘s

unique requirements for sustainable competitive advantage. The conceptual framework seeks to

establish relationships among the high performance enablers previously identified and IRA on

one hand and between IRA and SCA on the other.

The following discussion examines the effect of high performance enablers on IRA and,

consequently, on SCA. The study presents an argument that the IRA conceptual framework is the

management vehicle for attaining SCA (which will be discussed in further detail in the next

major section).

Innovation in resources, capabilities, and markets. The basis for a firm‘s competitive

advantage lies in the application of the bundle of valuable resources within the firm (Wernerfelt,

1984). Porter (1985) posits that competitive advantage results from a firm‘s superior position in

the industry. For example, from 2005 through 2009, Apple share prices grew approximately

500% while Dell computer share prices lost about two thirds of its value (Yahoo Finance, 2009).

During the same period, the major market indices—namely, The Dow, S&P500, and

60
NASDAQ—ended up practically unchanged after swinging in both directions. Prior to 2004,

Apple was merely a niche player in the PC industry. The company‘s transformation was largely

due to its innovations in digital music players (iPod), online digital media (iTunes), smart mobile

phones (iPhone), and its product distribution strategy. The popularity of these products has also

driven demand for its traditional computer products. Apple‘s success underscores the importance

of innovation in both resources and markets, which is one of the key drivers for achieving a

culture that leads to SCA. These great innovations drove the gains in Apple‘s revenues, profits,

and market share; meanwhile, the iPod, iTunes, and iPhone are merely products that will go

through their own product lifecycles and ultimately cease to be sources of competitive

advantage. Only by following a continuous and relentless innovative path can a culture be

created that brings about SCA at Apple. How would Apple have looked like had it not been for

these innovations? Was it possible for Apple to survive just by being a niche player in the highly

competitive PC industry? What other factors besides innovation contributed to Apple‘s superior

performance and its competitive position? The implications of these questions underscore the

importance of innovation as a key IRA enabler—an enabler that can be used by firms‘ managers

to fine-tune the firms‘ IRA framework to the extent necessary to create and sustain a competitive

advantage. The innovation enabler is one without which it may be impossible for a firm to

outpace its competitors, especially in technology-intensive industries.

Social legitimacy and flexibility of cultural values. Successful firms are those that gain

support and legitimacy by conforming to social pressure (Oliver, 1997). Conformity to social

expectations contributes to organizational success and survival (Baum & Oliver, 1991;

DiMaggio & Powell, 1983). Indeed, seeking conformity to social expectations ultimately drove

61
Exxon to spend approximately $1.28 billion to clean up the spill of the Exxon Valdez, a disaster

that took place in 1989. The company provided fishermen with $75 million to make up for lost

fishing revenues and provided villages along shorelines with food as hunting and fishing had

been interrupted (Boise State University, n.d.).

Seeking ―social legitimacy‖ drives corporations to contribute to local communities and

social programs as well as create a perception of being environmentally friendly. For example,

by moving auto manufacturing to the United States, thereby creating jobs in America and

benefiting the American economy, Japanese automobile manufacturers largely diffused the

debate of whether buying foreign vehicles is good for America. A firm may not sustain its

competitive advantage unless it has social legitimacy internally as well as externally, as

illustrated by the debate between Wal-Mart and its critics about the company‘s use of child labor

and other practices. Ultimately, firms disappear if customers stop buying their products and

employees cease to care about the firm‘s welfare when they are unable to find employment

elsewhere. Although this IRA enabler helps a firm outperform other firms, all other factors being

equal, a lack of sensitivity to social legitimacy could cause firms to lose entire markets or even

vanish.

Another dimension to this enabler is the firm‘s flexibility of its cultural values. Firms

operate within a social framework of norms, values, and taken-for-granted assumptions about

what constitutes appropriate or acceptable economic behavior (Oliver, 1997). For example, when

an American firm such as HP, Dell, IBM, or Accenture starts operations in India or China, the

firm will face different social values and frameworks of norms and assumptions. Firms will have

to adjust their internal cultural values to accommodate the new framework of social expectation

in these countries. It is unlikely that the social expectations that have evolved over hundreds of

62
years in these countries will change to accommodate a new foreign entity, despite attempts in

that direction by local regulators to lure new businesses. From an IRA perspective, a firm‘s

success in new operating environments or existing environments with evolving social

expectation will hinge significantly upon the firm‘s ability to adjust its own cultural values to

accommodate those of the environments in which it operates.

Organizational learning and competency building. While examining the core

competence of the corporation, Prahalad and Hamel (1990) considered the evolutions of GTE

and NEC during the 1980s and beyond. In the early 1980s, GTE was well positioned to become a

major player in the evolving information technology industry. It had a variety of businesses,

including telephones, switching and transmission systems, digital PABX, semiconductors, packet

switching, satellites, defense systems, and lighting products. In 1980, GTE‘s sales were $9.98

billion; NEC was much smaller with sales of $3.8 billion. Yet by 1988, GTE‘s sales were $16.46

billion and the company had become, in effect, a telephone operating company with a position in

defense and lighting products. In contrast, NEC‘s sales were higher at $21.89 billion, and the

company had emerged as the world‘s leader in semiconductors and a first-tier player in

telecommunication products and computers. During this period, NEC executed its 1970s

articulated strategic intent to exploit the convergence of computing and telecommunications. The

company entered into a myriad of strategic alliances—more than 100—aimed at building core

competencies rapidly and at a low cost by internalizing partners‘ skills. According to Prahalad

and Hamel (1990), while NEC conceived of itself as a portfolio of competencies, GTE conceived

of itself as a portfolio of products.

63
 Another example is Dell, Inc., which had excellent operational models that worked very

well during the 1990s. Dell's direct sales model, which increased efficiencies and reduced costs,

was a key competitive advantage. Dell competitors have been able to imitate the company‘s

model and neutralize its effect, thereby eroding its competitive advantage. Excluding its

operational excellence, name recognition, and broad customer base, Dell has apparently failed to

pursue core competencies in technology development or internal resources to secure a long-term

competitive advantage—a situation that has led to the loss of dominance and market share (based

on the author‘s experiences working for Dell between 1996 and 2001).

Organizational learning and the building of core competencies are closely related.

Prahalad and Hamel (1990) define core competencies as the collective learning in the

organization, especially in regard to coordinating diverse production skills and integrating

multiple streams of technologies. Organizational learning and building core competencies are

powerful IRA enablers that have a high impact on SCA. Both enablers significantly affect the

long-term prospects and continuity of the firm. Both are essential for attaining a competitive

advantage that is sustainable for the long haul, which is precisely the essence of SCA.

Management, organizational, and strategy capabilities to reconfigure, sense, absorb,

and integrate. A firm‘s capability to reconfigure, sense, absorb, and integrate is a key IRA

enabler that concerns execution—namely, the capability to leverage the firm‘s resources, assets,

and core competencies to maximize its returns in an ever-changing business environment. The

term capability here emphasizes the key role of management in appropriately adapting,

integrating, and reconfiguring internal and external organizational skills and functional

competencies to meet the needs of a complex and changing environment (Teece et al., 1997, p.

64
515). For example, Amazon.com operates as an online retailer in North America and

internationally. The company started as a bookseller and steadily expanded to offer a wide array

of retail products from a large network of producers. The company now has tens of millions of

customers, hundreds of thousands of sellers and merchants, hundreds of thousands of items and

titles, a large number of warehouses and fulfillment centers, and a very elaborate supply-chain

system. The company processes millions of low-dollar transactions in real time at an operating

margin below 5% (SEC, 2010; Yahoo Finance, 2009), yet the company is profitable and admired

by the financial investment community for its financial performance and growth rate. Amazon‘s

extremely complex operating environment, while enabled by very sophisticated information

technology systems, is highly dependent upon execution. The ability to transact with customers;

manage order fulfillment; manage suppliers, developers, partners, and independent merchants

using the Amazon.com platform; make strategic acquisitions; keep the online store up-to-date;

and manage the rapid expansion—all at a slim operating margin, which nevertheless produces

impressive overall company returns—is an indication of Amazon‘s superior execution

capabilities. This example underscores the importance of this IRA enabler of honing internal

technological, organizational, and managerial processes inside the firm as well as external

capabilities to outperform competitors and contribute to building SCA.

Global aptness and cultural intelligence. To demonstrate the importance of this key

IRA enabler and its far-reaching impact in building SCA globally, an examination of key

highlights of IBM—a truly global enterprise—is appropriate. According to its 2008 annual

report, IBM has a significant global presence, operating in more 170 counties, with an

increasingly broad-based geographic distribution of revenue. In 2008, approximately 65% of

65
IBM‘s revenues came from outside the United States. About 50% of the company‘s plants,

property, and equipment are located outside the United States. Its consolidated revenue growth is

8.9%; revenue growth was 5.2% in the Americas (the lowest rate), 14.5% in Europe/Middle

East/Africa (EMEA), and 11.8% in the Asia Pacific. According to the report (p. 23), the

company‘s sales and distribution organization manages a strong global footprint, with dedicated

country-based operating units focused on delivering client needs. The units deliver value by

understanding the needs and businesses of local clients, and then bring together capabilities from

across IBM and an extensive network of business partners to develop and implement solutions.

Moreover, IBM is successful in Japan, a country with several capable Japanese competitors.

IBM‘s global orientation and its aptness to operate in different cultures enabled the company to

attain this level of success globally. Having 65% of its business from markets outside the United

States makes IBM an international entity rather than a firm that belongs to one specific culture.

Can the same be said about General Motors, or Ford?

The Institutional Renewal and Adaptation (IRA) Conceptual Framework

The real-life context of the examination of the IRA enablers, which included discussions

of Apple, Dell, Exxon, Japanese auto manufacturers, Wal-Mart, GTE and NEC, Amazon.com,

IBM, and others, as well as the findings from the literature review, summarized in Table 11,

reveal several key conclusions.

Conclusion 1. Innovation is a tool of renewal and is a source of competitive advantage

(e.g., Apple).
Conclusion 2. Social legitimacy is a source of competitive advantage (e.g., Exxon,
Japanese auto manufacturers, Wal-Mart).

66
 Conclusion 3. Flexibility of cultural values is a tool of adaptation and is a source of
competitive advantage (e.g., HP, Dell, IBM, and Accenture‘s expansion in India
and China).
Conclusion 4. Organizational learning and competency building are tools of renewal and
adaptation and a source of competitive advantage (e.g., GTE, NEC, Dell).
Conclusion 5. Management, organizational, and strategy capabilities to reconfigure,
sense, absorb, and integrate are a tool of renewal and adaptation and a source of
competitive advantage (e.g., Amazon.com).
Conclusion 6. Global aptness and cultural intelligence are tools of adaptation and a
source of competitive advantage (e.g., IBM, GM, Ford)
The examination of the IRA enablers demonstrated that each enabler contributes to the

competitive advantage of the firm, and most (five out of six enablers, as shown in Table 9 in

Chapter 2) lead to the firm‘s renewal or ability to adapt to its operating environment or both.

Hence, the common characteristics of the IRA enablers are their causal relationships to

competitive advantage, to the firm‘s renewal, and to the firm‘s adaptation, as illustrated by the

conceptual framework depicted in Figure 5 and the subsequent discussion.

The conceptual framework shown in Figure 5 identifies the interrelationships among the

various components of the IRA framework. The illustration establishes a causal relationship

between IRA and SCA of a firm. In addition, the figure highlights the process of developing the

firm‘s self-renewal and adaption culture through a deliberate and systemic application and

integration of the high performance enablers as examined herein. Furthermore, the conceptual

framework introduces a metric for measuring SCA—namely, the Competitive Advantage Index

(CAI), which will be further examined in this chapter. The conceptual framework also introduces

two other influential determinants: new discoveries and advancements in management theory

and a feedback loop that links the CAI metric to the IRA enablers. These elements elevate the

model from being a ―snap shot‖ or a static model to a time-sensitive dynamic one. A key

67
implication of this dynamic dimension is to enable an entity to alter its strategic direction in a

manner consistent with its attained CAI value.

Institutional Renewal and Sustainable Competitive

Adaptation (IRA) Advantage (SCA)

Measured
by

Competitive Competitive Advantage

Systemic
Application Advantage Index (CAI)
&
Integration

Innovation in resources, capabilities and Modify, refine, and adjust

markets
Social legitimacy
Flexibility of cultural values
Organizational learning and competency
building New discoveries and
advancements in management
Management, organizational, and strategy
theory
capabilities to reconfigure, sense, absorb,
and integrate
Global aptness and cultural intelligence

Synthesis

Competitive Advantage Theories START

Figure 5. IRA conceptual framework

68
IRA Framework in a Business Context

The conceptual framework depicts the roles of resources, capabilities, market-based

strategies, and institutional capital as key contributors to competitive advantage. Furthermore,

the IRA framework is positioned as a mechanism for overcoming the organizational inertia and

countering possible decay and complacency that may take place at some organizations as they

evolve through their lifecycle, thereby eroding the organization‘s ability to sustain its

competitive advantage. For the advocates of the eventual decline and death of any entity as part

of its lifecycle, IRA may be viewed as a mechanism to break the lifecycle or at least substantially

delay the eventual decline and death of the business entity. The concept is not a specific action or

unique initiative in itself; rather, it is an organizational state of mind and an institutionalized

mechanism, resulting from a systemic and deliberate application and integration of the high

performance enablers concerned with institutional learning, development, and sustainability.

The thought leaders of sustainable competitive advantage discussed in Chapter 2 offer a

broad perspective on the issue. Oliver (1997, p.709), Fiol (1991, pp.191, 209), Hoffman et al.

(2005, p. 99), and Platje (2008, p. 225), among many others reviewed in Chapter 2, have called

for additional research in the area of the influence of the institutional context on sustained

competitiveness and therefore superior performance. The concept of institutional renewal and

adaptation and its impact on SCA require additional inquiry and research as well.

It is presumed that for any business entity to exist, it must offer value. The value creation

may emanate from resources, capabilities, coordinated activities, and/or unique processes. As

Figure 6 suggests, the injection of IRA into a firm‘s environment enhances the firm‘s internal

69
value creation abilities and creates a capacity for attaining sustainable competitive advantage,

which leads to superior performance. The framework establishes a causal relationship between

IRA and SCA. Profitable growth in market share is used to measure SCA, which cannot be

operationalized. Lacking market share data, the firm‘s revenue growth rate compared to the

revenue growth rate of its respective industry is used as a measure of SCA (only one metric must

be used in any given study to ensure consistency and data integrity). The chosen measurement

metric and the rationale for this choice will be discussed in subsequent sections in this chapter.

IRA Enablers

Culture of Modify, refine and

Institutional adjust attributes
Renewal &
Adaptation
(IRA)

Resources Coordinated Sustainable

activities & unique Competitive Advantage
embedded (SCA)
Capabilities processes

Competitive
Advantage Index
(CAI)
Growth in Market Share
Growth in revenue
Superior financial
performance

Figure 6. IRA conceptual framework in a business context

70
Propositions Revisited

Based on the findings of Chapter 2, the preceding analysis in this chapter, and the

conceptual framework, Propositions One and Two—which represent the essence of this study—

have been tested and confirmed. Meanwhile, Proposition Three is introduced as a well-defined

theoretical model (discussed in the next section). The empirical validation of Proposition Three

is beyond the scope of this study and may be a topic for future study.

Proposition One: An IRA culture is an outcome of a deliberate and systemic

application and integration of the high-performance enablers that will be

identified in this study (see the literature review synthesis in Chapter 2 and

Chapter 3).

Proposition Two: An IRA culture is a principal source of SCA.

Proposition Three: SCA can be effectively measured using the Competitive

Advantage Index (CAI) metric.

Metrics: Competitive Advantage Index (CAI)

Analysis of performance measurement tools and considerations for the CAI metric.

By definition, having a competitive advantage implies having the ability to outperform other

firms while having SCA implies continuing to outperform others over the long term. Therefore,

to determine that a firm has a competitive advantage over other firms, one must measure the

firm‘s performance against those of competitors. A firm and all of its competitors make up the

industry in which they belong. Hence, outperforming an industry is outperforming competition.

71
An industry‘s performance is the collective performance of all the firms within that industry. A

firm that outperforms its industry for multiple years is denoted as having SCA. Thus, the study

considers the following as theoretical guidelines for defining the SCA measurement metric—

namely, CAI:

A firm‘s competitive advantage is measured in terms of the firm‘s performance

compared to the performance of its industry.

A firm‘s SCA is measured in terms of the firm‘s performance compared to the

performance of its industry for multiple years.

This study addresses ―for-profit‖ business entities only. Other organizational types

(e.g., nonprofit, government organizations) are not considered in this study, although

they could be addressed in future studies. Wealth creation is the essence of the

business entities. Therefore, to measure a firm‘s performance is to measure its wealth

creation (i.e., financial performance). There are numerous ways to assess financial

performance including fundamental measures such as revenue, net income, total

assets, liabilities, and shareholder equity; valuation measures such as share price,

market capitalization, price/earnings (PE) ratio, yield; or growth and profitability

measures, such as revenue growth, earning per share (EPS), market share growth,

profit margins, and EPS growth. As defined herein, competitive advantage implies

outperforming others in financial terms, hence, growing profitably at a faster rate than

others (in its industry). Furthermore, SCA implies outperforming others over the long

term. Financial measures that focus on short-term performance, fluctuate widely, or

have ―anticipatory‖ components (e.g., forward-looking financial community

sentiments) may not be suitable for measuring SCA.

72
 Performance should be measured in terms of profitable growth.

Growth can be either revenue growth or market share growth.

The competitive advantage metric should focus on long-term performance.

The competitive advantage metric should be based on actual performance, not on

anticipated performance.

The competitive advantage metric should be consistent in expanding as well as

contracting economic environments.

CAI metric summary. Based on the considerations outlined, the following items

summarize the CAI metric:

A firm‘s performance is measured against the performance of its industry.

For SCA, multiple years are measured.
Performance is measured by profitable growth.
Growth can be either revenue growth or market share growth.
The metric focuses on long-term performance.
The metric is based on actual performance, not anticipated performance.
The metric is consistent in expanding as well as contracting economic environments.
CAI is a theoretical model; therefore, these items are theoretical considerations as well.

Empirical validation of the CAI metric as described herein is a topic for future studies.

CAI metric discussion. Sustainable competitive advantage can be measured using the

Competitive Advantage Index (CAI). CAI is calculated based on one of two methods: (1) a

firm‘s revenue growth rate compared to the revenue growth rate of its respective industry for the

same period (as shown in Equations 1 and 3), or (2) growth in market share (as shown in

Equations 2 and 4). A positive CAI value indicates a gain in competitive advantage. Positive

73
CAI values for several consecutive years indicate that the firm or national industry is

experiencing SCA. The strength of the SCA is measured by the magnitude of the CAI value and

the number of years CAI values remains positive. The larger the value of CAI and the higher the

number of positive CAI years, the greater the firm‘s or national industry‘s SCA. Negative CAI

values indicate a loss of competitive advantage.

Researchers must exclusively use either method one or method two in any given study. If

market share data are available, method 2 is used; otherwise, method one is used, which uses

revenue growth. Both methods provide a measurement of SCA. Two methods are provided to

allow alternative ways to calculate CAI. In the absence of market share data, the revenue-based

method may be used. This is analogous to measuring matter by either weight or volume. The

equations for measuring CAI of a firm, CAI of a national industry, and CAI of a business

segment, discussed in the following sections provide consistent results in expanding as well as

contracting economic and industry environments.

CAI of a firm

Equation 1:

Competitive Advantage Index (CAI) of a firm = Firm‘s annual revenue growth

rate - Relevant industry revenue growth rate

Values in Equation 1 are in revenue growth percentage at or above average

industry profitability

Equation 2:

Competitive Advantage Index (CAI) of a firm = market share for year (x) -
Market share for year (x-1)

74
 Values in Equation 2 are in market share percentage at or above average industry

profitability.

CAI of a national industry.

Equation 3:

Competitive Advantage Index (CAI) of a national industry = Annual revenue

growth rate of a national industry - annual revenue growth rate of the same Global
industry

Values in Equation 3 are in revenue growth percentage at or above average

industry profitability.

Equation 4:

Competitive Advantage Index (CAI) of a national industry = Global market share

of a national industry for year (x) - Global market share of the same industry for
year (X-1)

Values in Equation 4 are in market share percentage at or above average industry

profitability.

CAI of a business segment.

Equation 5:

Competitive Advantage Index (CAI) of a business segment = Segment's annual

revenue growth rate - Relevant industry revenue growth rate

Values in Equation 5 are in revenue growth percentage at or above average

industry profitability.

Equation 6:

75
 Competitive Advantage Index (CAI) of a business segment = market share of the
business segment for year (x) - (Market share of the business segment for year (x-
1)

Values in Equation 6 are in market share percentage at or above average industry

profitability.

Interpretation of CAI values. For the purpose of this study, the outcome of any

of the equations provided in the previous sections is the annual CAI. If the annual CAI

value is greater than zero, the business segment, firm, or industry is denoted as having a

competitive advantage. If a positive CAI value is maintained for multiple years, the

business segment, firm, or industry is presumed to have SCA.

The higher the CAI values of a firm or an industry, the stronger the competitive

advantage. A firm with a CAI value of 10 is deemed to have significantly stronger competitive

advantage than a firm with CAI value of one. A negative CAI value is an indication that the

entity is losing its competitive advantage to rivals. A firm with a CAI value of -4 is expected to

have a fundamentally different strategic direction than a firm with CAI value of +6.

In order for CAI to be meaningful, a firm must be compared to its industry that represents

the same or similar products, services, or business activities. Measuring Microsoft to the

computer software industry is meaningful. However, measuring the same company against the

electronics industry would be of little relevance from the perspective of assessing the company‘s

sustainable competitive advantage. Likewise, a pharmaceutical firm, an automobile maker, and a

beverage maker must be measured against the drug industry, the auto industry, and the beverages

industry, respectively.

76
 For highly diversified firms such as GE, which has many business segments in multiple

industries, an overall GE CAI value may only be meaningful if calculated based on the

individual CAI values of its respective business units. GE has business segments in the financial

industry, aviation, media (NBC), healthcare, energy, lighting, and other industries. Each segment

belongs to an industry that has its own unique characteristics and dynamics and therefore should

have its own CAI value. Segment-specific CAI values have implications on how parent

companies internally assess their business units and manage their portfolio of investments. A

weighted average CAI value for GE would still represent a valuable tool for the company to

track its own institutional performance by comparing its most recent CAI value with its own

prior CAI values. This is particularly important if GE, due to its diversity, is unable to compare

itself to a specific industry or a set of competitors with similar business portfolio characteristics.

The CAI concept should not be taken to a more granular level to measure product or

service performance. Unit growth, revenue growth, market share, and other commonly used

metrics are more suitable than CAI to measure short-term product performance. CAI is a

measure of SCA, which implies broad institutional context considered over a relatively long

period.

Limitations and Constraints

As discussed, the concept of SCA is a function of time, presupposes the existence of

competitive environments with level playing fields, and, in itself, cannot be operationalized.

Therefore, the following constraints and limitation apply to the study and its measurement

criterion.

77
 Time constraints. The study proposes that SCA can be meaningful only if measured

over relatively long periods (several years). The longer the number of consecutive years of

positive CAI values, the stronger the SCA of a firm. This is necessary to avoid distortion

imposed by the phenomenon of temporary competitive advantages, which is a characteristic of

most short-lived success stories. Therefore, the study is limited to firms and industries with

sufficient historical data. However, young and emerging firms and industries may benefit from

the study‘s findings in their strategic planning process to achieve SCA.

Competitive environment limitation. SCA presupposes the existence of competitive

environments free from direct external influences such as governmental incentives or restraints

specifically applied to a limited group within an industry. The competitive landscape should be

either unconstrained or having regulations equally imposed upon all firms or industries operating

within the business environments being considered. Absence of a level playing field may favor

certain firms or industries over others due to forces other than competitive market forces. The

global competitive environment is becoming increasingly less constrained due to the effects of

the World Trade Organization‘s (WTO) rules for member nations, the drive for creating global

markets with rules that apply to all, and the bilateral agreements between trading partner-nations

with respect to opening their respective markets to each other‘s goods. The study and its findings

may not be applicable to regulated monopolies such as some municipal utility firms, government

subsidized industries (renewable energy), and protected national industries (military and

agriculture in certain countries). Furthermore, the study may not be applicable to manipulated

cartels (e.g., OPEC) or other firms and industries protected by governmental laws and policies

against foreign competition.

78
 Chapter 4: Trends, Implications and Conclusions

Analysis and Implications of Trends

Increasingly changing competitive landscape. During the past two decades, the

development of information and communication technologies and the globalization of firms and

industries produced a blurring of boundaries that amounted to a massive reordering of business.

As such, it has become even more difficult to identify competitors, much less fully analyze them

(Hitt et al., 1998). For example, new communication technologies are forcing

telecommunications, television, internet access providers, and utility companies to compete and

perhaps eventually blend some of these distinct businesses into one or more larger industries.

While Apple, Amazon.com, and Google originally emerged to serve distinctly different market

segments, the three huge entities have became competitors in online advertising, media

distribution, e-readers, and cloud computing. Further evidence of this trend can also be seen in

the software and auto industries. Software makers now provide financial services and software as

a utility (software as a service) while automakers sell insurance and provide financing.

This study confirmed that five of the six IRA enablers—namely, innovation; flexibility of

cultural values; organizational learning and competency building; capabilities to reconfigure,

sense, absorb, and integrate; and global aptness and cultural intelligence—lead to either

institutional renewal and/or institutional adaptation. As a result of the increasingly redefined

competitive landscape, firms face significant uncertainty, ambiguity, and an increasing number

of strategic discontinuities. Managers are challenged with the task of creating a balance between

the stability necessary to allow for the development of strategic planning and decision processes

79
and instability that allows continuous change and adaptation to a dynamic environment (Hitt et

al. 1998). Renewal and adaptation are essential institutional characteristics for managers in

business environments of such significant uncertainty, ambiguity, and increasing number of

strategic discontinuities.

Globalization is increasing the interaction between entities and nations at different stages

of their development cycle. Firms, industries, and nations all around the world are engaged in

different stages of economic development. Certain nations are described as developed (e.g., the

United States, several Western European nations), developing (e.g., India and Brazil), or

underdeveloped (e.g., many nations in Sub-Saharan Africa). Dunning and Lundan (2008, p. 332)

define five stages of economic development that apply to firms (see Figure 7).

• Natural resources based

• Limited to small specialized products for sale in neighboring territories or
Stage 1 niche markets

• Investment driven
• Ability to produce low-cost, standardized products, or those based on natural
Stage 2 resources of home country

• Innovation driven
• Ability to differentiate products and/or adapt to local consumer tastes; some
Stage 3 limited product and process innovation

• Increasing knowledge and service intensity; knowledge economy

• Substantial increase in property rights, intangible assets, complementary assets
Stages (resulting from size and economies of scale), and institutional assets (culture, leadership,
value-added processes, diversity).
4 and 5 • Coordination of internal and external networks and increased importance of open
innovation

Figure 7. Evolving stages of economic development (adapted from Dunning & Lundan, 2008, p.

332).

80
 The variability of the development stage of a firm can result from many factors, including

geopolitical influences, country regulations, cultures, sophistication of the country‘s

infrastructure, and discovery and exploitation of resources. Each firm within its own

development stage and corresponding business environment seeks to maximize its competitive

advantage in order to effectively compete and remain viable. A stage four or five firm is likely to

be operating globally within a sophisticated competitive environment. As such, the firm will

likely utilize all IRA enablers and advanced innovative strategies, such as open innovation

(Chesbrough, 2003), the Blue Ocean strategy (Kim & Mauborgne, 2004), or choose one of

Rothaermel and Hess‘s (2010) approaches (e.g., recruiting superior human capital, internal

research and development spending, strategic alliances, or acquisitions) to sustain its competitive

advantage in a service-intensive or knowledge economy. On the other hand, a stage one firm

may only need the enabler of innovation in resources and capabilities as its primary competitive

advantage strategy to successfully compete in a natural resource based environment.

Accelerated rate of technological advances and resources depletion. Over the past 20

years, technology innovations and globalization have accelerated and fundamentally changed the

way people communicate, work, and enjoy leisure time. In 1990, the average American

household owned 10 consumer electronics devices. By 2007, the number had increased to 25.

Internet access, which was largely unavailable in 1990, was acquired by 68 percent of American

households in 2007 (CEA, 2008). Meanwhile, both China and India have emerged as economic

superpowers. The increase in personal income in both countries, which make up about one third

of the world‘s population, has increased the demand for many goods including electronics,

automobiles, and fuel. These great phenomena come at a cost; the increased demand for

81
resources and market failures (Dean & McMullen, 2007) lead to environmental degradation,

result in the depletion of natural resources, and create sustainability development issues for many

industries while simultaneously presenting opportunities for entrepreneurial innovators (Cohen

& Winn, 2007) to find solutions for these challenges.

This situation underscores some of the management challenges and complexities arising

from this trend and the need for an institutional environment capable of dealing with such

complexity in a systemic and structured fashion. The institutional renewal and adaptation

framework may help firms anticipate rapid technological changes and facilitate changes that

allow firms to participate in paradigm shifts instead of being their victim.

Focus on short-term financial goals. Corporate and investment communities focus on

immediate gratification. Revenues and profits are managed, forecasted, and reported quarterly.

Companies are either rewarded or punished in the form of stock price movements and financial

analysts‘ recommendations, based on their performance during the preceding three-month period

and their guidance for the following three-month period. Given this investment dynamic,

management attention is likely to be focused on how to meet such short-term expectations and be

perceived as successful based on this criterion. Initiatives such as IRA, which is concerned

primarily with building and sustaining competitive advantage over the long haul and during

periods of paradigm shifts and structural economic changes, require the sponsorship of top

management and the commitment of the entire institution on an ongoing basis. Such high-level

commitments normally require resources and substantial costs. However, the price may appear

very reasonable and worthwhile if the outcome for the firm is becoming Google instead of

becoming Netscape, Hewlett-Packard instead of Digital Equipment Corporation, Toyota instead

82
of Rover or Chrysler, Cisco or Microsoft instead of Novell, or Apple instead of Texas

Instruments or Dell. Since the investment always comes first and unknown potential outcomes

may not be acceptable as justification, investing in an IRA type of initiative is subject to the

individual entity‘s investment philosophy, the importance it places on its long-term viability, and

the amount it is willing to spend to ensure SCA.

As discussed in Chapter 3, firms have numerous ways to assess financial performance,

including fundamental measures such as revenue, net income, total assets, liabilities, shareholder

equity; valuation measures such as share price, market capitalization, price/earnings (PE) ratio,

yield; and growth and profitability measures such as revenue growth, earning per share (EPS),

market share growth, profit margins, and EPS growth. As defined in this study, competitive

advantage implies outperforming others in financial terms, hence, growing profitably at a faster

rate than others (than its industry). Furthermore, SCA implies outperforming others over the long

term. The financial measures mentioned herein focus on short-term performance, fluctuate

widely, or have ―anticipatory‖ components (such as the forward-looking financial community

sentiments). Such methods are not suitable for measuring a company‘s ability to sustain its

competitive advantage and successfully endure fundamental industry changes, economic

structural changes, or paradigm shifts. The CAI has been introduced to close this gap.

Implications for Management Practice

The study provides evidence that each of the high performance enablers listed below is a

key contributor to competitive advantage, institutional renewal, and/or institutional adaptation as

summarized in Table 11 (see Chapter 3).

83
 Innovation in resources, capabilities, and markets
Social legitimacy
Flexibility of cultural values
Organizational learning and competency building
Management, organizational, and strategy capabilities to reconfigure, sense, absorb,
and integrate
Global aptness and cultural intelligence

The combined influences of these high performance enablers constitute the IRA framework.

There are several key implications from this research in regards to how firms/enterprises

are managed to achieve superior performance and sustain competitive advantage through a long-

term strategic tool such as the framework presented in this study. IRA is enacted and transacted

by people within the firm. Focusing on the development of the human capital is the key to being

proficient in the key enablers and, consequently, being effective in self-renewing, adaptation, and

being able to access key tools for achieving SCA, especially during the higher complexity

environments previously explored in the trends section in this chapter. These enablers are

institutional core competencies attained by developing employee skills and thus collective

organizational learning. Employees‘ skills are maintained and expanded through adequate

training. Firms in England, France, and Germany invest about .25% of their GNP in employee

training and development programs whereas American firms invest only .05% of the GNP on

skill development (Hitt et al., 1998). Recruiting, staffing, and retaining people with the right skill

sets as well as management staff with the right vision and understanding of the strategic

importance of achieving SCA in highly volatile and frequently changing business environments

is critical as well.

Another key management implication is the firm‘s strategic thinking, planning, and

management within the mindset of self-renewal and adaptation. Although an effective portfolio

84
of current core competencies, current product lines, market position, and employees‘ skills are

essential to achieve the firm‘s foreseeable objectives, sensing changes in the external

environment and creating a corresponding awareness of the possible fundamental changes to the

existing industry and the competitive landscape are necessary. Changes might emanate from

external influences such as regulation, sustainable business development mandates, and

technological advancements that may result in paradigm shifts that affect the firm‘s current

products, services, and business philosophies. Examples of such changes include carbon

footprint restrictions, use of renewable energy, recycling laws and regulations, the influence of e-

books on the printing industry, the influence of Orbitz and other firms of similar nature on the

travel reservation industry, and the influence of the iPod on the portable music players‘ industry.

The leadership must have the vision that is capable of contemplating such possibilities and

possess the tools, such as the framework provided in this study, to deal with changes. Dealing

with business environment changes, whether incremental or fundamental, must not be limited to

mitigating potential vulnerabilities; with the renewal and adaptation competencies, firms must be

able to anticipate changes, identify key opportunities presented by the changes, and take the lead

to cease such opportunities by creating blue oceans or paradigm shifts.

The high performance enablers entail business continuity elements, without which the

competitive advantage ceases, thereby limiting the firm‘s business continuity. The combined

influences of the high performance enablers constitute the IRA framework as confirmed by the

findings of this study. The framework is dynamic because it is made up of evolving elements.

The dynamic nature of the IRA framework enables the firm to renew itself and adapt to its

changing business environment. The study argues that IRA plays a role with respect economic

structural changes and industry paradigm shifts, which heavily affects the long-term viability of

85
the firm; similar to the role a traditional business continuity plan plays to mitigate modern-day

vulnerabilities and disruptions. Thus, IRA expands the horizon of business continuity planning to

encompass the firm‘s long-term viability and sustainability of competitive advantage in the face

of fundamental shifts in business environments, structural economic changes, or industrial

paradigm shifts—a different class of strategic business vulnerabilities. Figure 8 projects the IRA

framework within the context of the firm‘s strategic business evolution.

Based on its business objectives, the firm seeks to acquire the necessary competitive

Business
objectives

Institutional
renewal & Sources of
adaptation competitive
advantage

fundamental shifts
in business
environments, Business
structural
economic changes, continuity plans
or industrial
paradigm shifts

Figure 8. IRA and the strategic business evolution of the firm

86
advantage resources in order to compete and survive. The concept of SCA used in this context

refers to an organization‘s continuous ability to develop and acquire the required combination of

attributes that enables it to outperform its competitors on a long-term basis and remain in

existence. A firm‘s traditional business continuity plan mitigates risks to these valuable attributes

that may arise from a disruption or vulnerability (Sheffi, 2005) and support business operations

during the disruptions. However, when structural economic changes, fundamental industry

changes, or paradigm shifts take place, the nature of risks and vulnerabilities change as well and

may render traditional business continuity risk mitigation plans—which do not take into account

such fundamental changes—of little or no use. Through an ongoing role of IRA and other firm

attributes, these changes in risks/vulnerabilities are sensed and detected. Through the IRA

framework, the firm may readjust to incorporate the new evolving elements affecting its business

environment and enact necessary changes to focus its resources and capabilities accordingly.

Areas for Further Research

Chapter introduced the CAI, a measurement metric defined and coined by the author to

measure sustainable competitive advantage. This study suggests that the commonly used

financial measurement metrics are not suitable for measuring SCA and argues the merits behind

CAI as an effective metric. CAI is introduced, at this point, as a theoretical model to close this

gap. However, it is beyond the scope of this study to conduct a study to empirically validate the

CAI model. This study calls for future research to empirically validate the CAI model.

Furthermore, while the propositions presented in this study have been confirmed by the empirical

studies examined in Chapter 2, primary data validation of the premise of this study is also

87
encouraged using a multi case study methodology. A detailed outlined of the suggested

methodology is shown in Appendix 1.

Additional research could uncover the generalizability of the IRA framework, whether it

might be more accurate in depicting the behavior of a specific industry over another, and how it

might be used more effectively for firms operating within multiple industries (weighted average

CAI) and in new industries with no historical data to calculate CAI. In addition, further research

on the IRA implementation methodologies/schemes within specific firms and industries is

another broad area of research in organizational/institutional behavior.

Summary

Sustained competitive advantage determines a firm‘s ability to generate returns on capital

for its shareholders, create long-term value, and remain a viable business entity. A firm‘s

competitive advantage can be sustained over time, partially shifted to rivals, or completely

eroded. Successful attempts to imitate and/or substitute a firm‘s valuable resources by its rivals,

and economic structural changes/industrial paradigm shifts are primary causes for competitive

advantage shifts and erosions, as illustrated by Table 1 in Chapter 1.

This study has presented a framework for firms, business segments, and national

industries to achieve SCA to secure long-term financial performance through the IRA

framework, which promotes organizational learning, development, and sustainability. The

framework and its context are shown in Figures 5 and 6. IRA is the outcome of a deliberate and

systemic application and integration of a combination of high performance enablers—namely,

innovation in resources; capabilities and markets; social legitimacy; flexibility of cultural values;

organizational learning and competency building management, organizational, and strategy

88
capabilities to reconfigure, sense, absorb, and integrate; and global aptness and cultural

intelligence. The enablers have been identified through a synthesis of the prevailing theories on

the subject and have been confirmed through multiple empirical studies as key contributors to

competitive advantage, organizational renewal, and/or organizational adaptation, thus, validating

the propositions of the study. Furthermore, the conceptual framework encompasses a dynamic

dimension to allow for the integration of future advancement in management theory and a

feedback loop that links the CAI metric to IRA enablers.

In this study, a methodology for measuring SCA has been defined and developed. The

CAI is a metric for measuring SCA based on either revenue growth or market share growth. The

metric has clearly defined parameters, conditions, and constraints as discussed and illustrated in

Chapter 3. This metric, when properly utilized, can numerically describe the health of a business

segment, firm, or a national industry, thereby enabling the entity to chart its strategic path in a

manner consistent with its sustainable competitive position revealed by its attained CAI value.

The CAI measurement metric is a theoretical model whose empirical validation is beyond the

scope of this study and should be considered in future research.

89
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 Appendices

Appendix A – Primary data validation methodology

Research Approach Rationale

As detailed in the four main chapters, the propositions, hypothesis, and the conceptual

framework of this study have all been have been confirmed by secondary data from several

scholarly empirical studies as shown in Tables 2, 7, 8, 9, and 11. Future research may consider

conducting a longitudinal empirical research study to obtain primary data and further validate the

findings of this study using the methodology established by the study's author and outlined

herein.

Throughout my career, I worked for several technology firms and observed the

performance of many others. Table 1 is an interpretation of the performance over time of several

companies. Sustained competitive advantage is a phenomenon observed over a long period of

time that extends many years or even decades. As discussed above, sustained competitive

advantage is defined as sustained growth at a rate higher than that of the industry for at least

seven years. Sustained competitive advantage involves change of management philosophies and

practices as firms and industries evolve over time, therefore, longitudinal study is necessary

while cross-sectional study will be inadequate. The research "onion" graph shown below outlines

the epistemological perspectives of this approach.

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Figure 1. The research "Onion". Adapted from Sanders et al., 2007, p. 132

Data
C&A
Longitudinal

Multi-method
Methods

Multi-case Study

Inductive & Abductive,

Interpretivism epistemology, Objectivism

Ontology, Pragmatism, Subjectivism Axiology

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 In order for a quantitative method to yield a credible outcome, a survey and interviews

involving large number of current as well as previous senior executives of major global firms

would be necessary. This approach has many constraints including accessibility to top tier

management personnel and time horizon limitations. If conducted, a survey approach will likely

yield results that represent the perceptions of the survey participants rather than the underlying

management practices that concern sustained competitive advantage. While quantitative

techniques might be used to capture and compile data from different documented sources, the

primary research will be based on multiple-case study design.

―Why?" and ―how?‖ are prominent question in this research. That is, how firms get to be

good, how they sometimes stay that way, why and how they improve, and why they sometimes

decline? Yin (2002, p. 1) posits that case studies are the preferred strategy when "how" or "why"

questions are being posed, when the investigator has little control over events, and when the

focus is on a contemporary phenomenon within some real-life context. "The case study strategy

has considerable ability to generate answers to question ―why?‖ as well as ―what?‖ and ―how?‖

questions, although the two latter questions tend to be more the concern of the survey strategy

(Sanders et al., 2007, p. 139). A triangulation of multiple sources of data obtained through

observations, interviews, documentary analysis, and questionnaires is required to attain credible

results. Robson (2002, p. 178) defines case study as ―a strategy for doing research which

involves an empirical investigation of a particular contemporary phenomenon within its real life

context using multiple sources of evidence.‖ Analyzing why and how firms such as Toyota,

Hewlett-Packard (printers) and BMW have sustained competitive advantage while DEC, GM,

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Sun, Novell, and Netscape have seen their competitive advantage diminish, might render key

leads to support a conclusion to the research questions at hand.

Research Design

According to the sustained competitive advantage criteria defined by this document and

the company information presented in Table 1, it is possible to determine those firms that have

achieved sustained competitive advantage by comparing their growth rate to that of their

respective industries for a period of several years (seven years is selected). The higher the

competitive advantage index (CAI) the stronger the firm's sustained competitive advantage.

Observing company performance over the past few years one observes that Toyota,

Hewlett-Packard (printers business), and BMW have strong sustained competitive advantage

while DEC, GM, Netscape, IBM PC GROUP, and Novell have lost their competitive advantage

to rivals. The case study research is about "how" and "why" this has taken place. It is about

further confirmation using primary data that the strategies that constitute (IRA), in fact, have

contributed to this phenomenon. Therefore, the multi-case strategy seeks to:

(1) Establish a causal relationship between (IRA) strategies and the predicted

strong performance results at both Toyota and Hewlett-Packard - a literal

replication.

(2) Establish a theoretical replication to the outcome in (1) by predicting

contrasting results from GM and Novell to those of Toyota and Hewlett-

Packard.

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 (3) Through interviews, solicit input about the relationship between (IRA)

strategies and sustained competitive advantage from top tier management

personnel of few reasonably accessible firms. This data will supplement the

multi-case data and facilitate further triangulation.

The author proposes Toyota and Hewlett-Packard (printers business) for the first multi-

case study because both firms have performed well over a long period (sustained their

competitive advantage) despite competitive pressures, changes in market dynamics, and

technological shifts in their respective industries; long performance history that allows

measuring competitive advantage for a period of 7-10 years; and because of the notion that both

firms might have embedded strategies and institutionalized mechanisms for maintaining their

competitive advantage – a premise that makes both firms suitable for this type of study. GM

steadily lost global market share to its competitors, has not responded well to changing trends of

the auto industry and the changes in consumer preferences over time, and appears unable to deal

with the management and labor issues that hold it back. Likewise, Novell was the premier

technology provider of networking products. The company's inability to correctly assess the

trends of the computing environment, modify its path, and adapt accordingly, allowed companies

such as Microsoft and Cisco to dominate the emerging computer networking industry and render

Novell a small niche player. GM and Novell are proposed to provide contrasting results of what

the study predicts at Toyota and Hewlett-Packard regarding the influence of (IRA) strategies

therefore lending further confirmation support to the propositions of this study.

Yin (2002, p. 47) posits that the ability to conduct 6 or 10 case studies, arranged

effectively within a multiple-case design, is analogous to the ability to conduct 6 to 10

100
experiments on related topics; a few cases (2 or 3) would be literal replication, whereas a few

other cases (4 to 6) might be designed to pursue two different patterns of theoretical replications.

If all cases turn out as predicted, these 6 to 10 cases, in the aggregate, would have provided

compelling support for the initial set of propositions.

Yin (2002, p. 47) posits that each case must be carefully selected so that it either (a)

predicts similar results (a literal replication) or (b) predicts contrasting results but for predictable

reasons (a theoretical replication). In this study, Toyota and Hewlett-Packard are predicted to

show similar results - a strong ability to have sustained competitive advantage (a literal

replication of strong performance). On the other hand, GM and Novell are predicted to show

similar results - a weak ability to have sustained competitive advantage (a literal replication of

weak performance). Therefore, within each of the two groups of case studies, literal replication

will be illustrated. Across the two groups (contrasting results), a theoretical replication will be

illustrated. The replication logic is analogous to that used in multiple experiments (Hansen &

Barlow, 1976, cited in Yin, 2002, p. 47) and must be distinguished from the sampling logic

commonly used in surveys (Yin, 2002, p. 48)

The case study methodology depicted in figure 2.5 (Yin 2007, p. 50) provides the following

steps, which will guide this study:

1. Develop theory
2. Select cases and design data collection protocol
3. Conduct first case study, write individual case report, and simultaneously or sequentially
do the same for the other cases.
4. Draw cross-case conclusions

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 5. Modify theory
6. Develop policy implications
7. Write cross-case report

Data Sources

The primary data sources for case studies may be grouped into the following major

categories (Yin, 2002, Creswell, 2009): (1) observations, (2) interviews, (3) documentations, (4)

archival records, (5) audio-visual material, and (6) physical artifacts. Because of the type of

firms involved in this multi-case study, the constraints imposed by the 7-year period required to

establish sustained competitive advantage, the accessibility issues associated with top tier leaders

of multinational firms, and the organizational and institutional scope of this study; researcher

should plan to utilize the data sources that are feasible and most relevant to achieve the

objectives of this study as shown below:

1. Formal scholarly studies (scholarly articles and dissertations) about Toyota, Hewlett-

Packard, GM, and Novell. Studies of most interest will include information on corporate

strategy, corporate culture, the evolution of the institutions over time, competitive

strategies, and specific institutional / corporate initiative targeting long-term performance

and sustainability. This data source is likely to address innovation, knowledge-based

content, organizational learning, management development, cultural intelligence,

flexibility of cultural values, social complexities, and possibly internal causal ambiguity –

strategies that address continuous institutional renewal and adaptation (IRA) as defined in

this document.

2. Mass media archives about the firms in the multi-case study or the business environments

in which they operated during the specific 7-year study period. Topics of particular

102
 interest include: technology innovations, shifts in business practices that affect the firms,

changes in consumer purchasing preferences in the automobile and information

technology industries, disruptive technologies or paradigm shifts that impact these firms

(hybrid automobiles versus traditional, distributed network PC computing versus

centralized mainframe-based computing, mobile communication, etc.), and how the

subject firms coped with the impact of such developments on their core businesses.

3. 10-K reports and other filings at the U.S. Securities and Exchange Commission. 10-K

reports are official documents that provide a look at the firm from the perspective of its

own executives and senior officers. The reports frequently outline risks, competitive

landscape, key initiatives, and financial position. The researcher should plan to carefully

code and analyze the relevant information of these reports for, at least, the 7-years period

in which sustained competitive advantage is being examined.

4. Written requests to the few selected firms, targeted for interviews, seeking to obtain

relevant internal documents, which are no longer deemed sensitive information. The

written requests should be directed to senior individuals believed to have the authority for

releasing such documents. Information with direct relevance to the study subject should

be requested. The information should be coded and used in the evidence and for

triangulation purposes. Generally, firms are reluctant to release any classified information

even after it is no longer viewed as sensitive. Further, firms have no structured

methodology for retrieving classified information and making it available to outsiders

without significant scrutiny. Therefore, minimal response and benefit are expected from

this initiative. However, since the study involves a contiguous 7-year period, certain

103
 strategies could be contemplated in retrospect from information obtained from all the

other sources.

5. Identify introductions of new products and services of the firms in item 4 above during

the study's period. Compare and contrast the offerings with those of key competitors and

within the context of relevant emerging technologies. This information coded

appropriately, will reveal much about the firm's internal ability to anticipate, renew, and

adapt to new market conditions – an indication that is directly applicable to the topic of

this study.

6. Interviews. As indicated above, the purpose is to solicit input about the relationship

between (IRA) strategies and sustained competitive advantage from top tier management

personnel of the few identified firms (identified for interviews). This data will

supplement the multi-case data and facilitate further triangulation.

7. Observations. Primarily external observations though the seven other sources of data

should be planned, unless a significant development emerges through the initiative

described in the fourth data source identified above.

8. A/V documentaries about the firms' businesses, their employees, and their evolutions.

Such documentaries are normally produced for new employee orientations, marketing

purposes, or public relations objectives. Due to the promotional nature of this type of

information, only data deemed valid and reliable through data triangulation will be used.

Proposed Data Analysis Model

As outlined above, different types of data from multiple sources may be sought as

primary data for this study. The data evaluation and analysis should be performed within

the context of this study, that is, to explore the relationship between the continuous

104
institutional renewal and adaptation (IRA) strategies, outlined in Figure 4, and

subsequently expressed as propositions in Chapter 3, and sustained competitive

advantage. The broad variation of the data sources and the multiple proposition elements

dictates the use of a well-structured data analysis method to maintain focus. The figure

below outlines the methodology devised specifically for this purpose utilizing the

theories of qualitative data analysis.

105
 Interpret the meaning of themes,
descriptions, patterns, and synthesis in the
context of research question and hypotheses

Cross-case synthesis
Validate the
accuracy of
the Identify Identify rival
information patterns explanation patterns
and maintain
high quality
analysis: Interrelate themes/description

1. Attend to all
Themes Descriptions
the evidence.
2. Address all
major rival
interpretations. Code the data with a scheme that emphasizes
3. Address the on the theoretical propositions and causal
most relationships
significant
aspects of the
case Read through all data
4. Use own
prior expert
knowledge. Organizing and preparing data for analysis

Raw data from the above identified data

collection sources

General analytical strategy: relying on

theoretical propositions

The above is a graphical representation of the proposed data analysis method of

this multi-case qualitative research. Certain format and content elements adapted from

Creswell (2009, p. 185). Emphasis added to incorporate data analysis techniques from

Yin (2002) and comprehensive methodology architecture from the author.

106
Steps of the data analysis methodology:

1. Yin's (2002, p. 111), "relying on theoretical propositions" general analytical strategy

is adopted for this multi-case study. The theoretical propositions are detailed in

Chapter 3.

2. Data characteristics:

Scholarly studies, 10-K reports, and other formal fillings with the SEC, tend

to be well supported and offer higher level of credibility and reliability. The

evaluation of this data will be more objective and will have less value-laden

axiology (Alexander, DMGT 830, module 10 lecture)

The evaluation of new products and services will take a more interpretivist

approach with a more value-laden axiology (Alexander, DMGT 830, module

10 lecture)

The data obtained through interviews should be coded and classified as expert

"opinions" on the subject. The emerging themes from interviews' data should

be triangulated with findings from other data sources to form valid patterns,

rival explanation patterns, or conclusions.

Mass media, information obtained from firms directly, observations, and firm-

produced documentaries should be carefully evaluated and triangulated to

produce common themes. As previously indicated, these themes will be

triangulated with other findings to form valid patterns or rival explanation

patterns.

107
3. The data should be organize in a database (computerized and manual) to facilitate the

process of interrelating the information as suggested by Yin's (2002, p. 106) chain of

evidence shown below.

Case Study Report

Case Study Database

Citations to Specific Evidentiary (Data) Sources

In the Case Study Database

Case Study Protocol

(linking questions to protocol topics)

Case Study Questions

Maintaining a chain of evidence (adapted from Yin, 2002, p. 106)

4. Read all the data. Read again with contextual emphasis.

5. Create a meaningful coding scheme that represent the context of the study

(encompass the IRA strategies and possible cause-effect relationships). Apply the

coding scheme to all evidentiary sources.

6. Identify common themes and key descriptions.

7. Interrelate the themes and explanations and generate meaningful feeds for the next

step. Example theme: Flexibility of cultural values leads to external focus and help

identify threats of "substitutions" for the firm's products and services.

108
8. Use the conclusions from the previous step to identify any emerging patterns and

rival explanation pattern. Example pattern: The competitive advantage Index (CAI)

increases as innovation and knowledge-content initiatives are emphasized and

institutionalized (should be graphical represented). Example of rival explanation

pattern: Our outsourcing initiative in India has failed because the firm was unable to

deal with the cultural issues involved (lack of cultural intelligence).

9. Synthesize the findings of each case with the findings of the other cases involved in

this study. Further, cross synthesize the findings of this multi-case study with other

studies. Other studies must relate to the context of this study and may be either

quantitative or qualitative. Example: A study of the impact of innovation on the

financial performance of a firm. Another example: A study of the impact of cultural

aptness of a firm on the outcome of its Foreign Direct Investment (FDI) initiatives.

10. Interpret and report the findings of the research within the context of the study's

propositions and research questions. Example: Based on the emerging patterns, the

study found that institutionalized innovation, organizational learning, and

management development, directly influence the firms Competitive Advantage Index

(CAI) and lead to sustained competitive advantage. Another example: The study

found no conclusive evidence to support that the notions of social complexity and

knowledge-based content lead to sustained competitive advantage.

11. Based on the findings; modify theory, develop policy implications, and complete the

study report.

109
 Performing to the comprehensive and well-structure methodology outlined above will

yield themes and patterns from the triangulation of the different data sources. The themes and

patterns, by definition, will address the context of this study because the data-coding scheme, in

the first place, is devised to reflect the elements of the research question and associated

hypotheses. The themes and patterns are anticipated to provide further conclusive evidence to

those already confirmed to affirm the impact of certain IRA strategies on sustained competitive

advantage. Further, it is also anticipated that the outcome may be inconclusive regarding the

influence of some of the proposed IRA strategies as we have already found that social

legitimacy, while a source of competitive advantage, no relationship with institutional renewal

and adaptation could be established (see Table 11).

The author anticipates that the outcome of the primary data empirical research will affirm

the findings of this study shown in Tables 2, 7, 8, 9, and 11. Findings that show the critical role

institutional renewal and adaptation (IRA) play in supporting a firm's ability to have sustained

competitive advantage. Additional research on how to institutionalize IRA strategies as an

embedded mechanism for sustained competitive advantage would extend the theoretical and

practical implications of this research.

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Appendix B – Expert Panel Reviews

Reviewers

The following expert reviewers have reviewed this document:

1. Dr. James M. Knox is the President and CEO of TriSoft and CyberSearch, Austin, TX.

He has a PhD in Electrical Engineering from the University of Texas and over 20 years

experience in design, development and management of technology. His academic

experience includes an electrical engineering faculty teaching position at the University

of Texas. Dr Knox has extensive list of publications.

2. Dr. Hossam Zaki is a Vice President of Pricing Science at Zilliant. He has a PhD in

Operations Research and over 18 years experience in designing and deploying science-

based technology for pricing and revenue optimization across a variety of industries. His

academic experience is based on over 10 years of teaching graduate and undergraduate

level courses in Optimization and Operations Research at the University of Illinois

Urbana-Champaign and at Southern Methodist University.

3. Dr. Abdur Siddiqi is the President and CEO of Clonetex Systems, Inc. The company is a

biotech research entity. He has a PhD in Biochemistry from Karolinska Institute in

Stockholm, Sweden, and over 15 years experience in research and management. His

academic experience included postdoctoral fellowship at Vanderbilt University, research

fellow at the National Jewish Medical & Research center, and a faculty position at the

University of Texas Health Services. Dr. Siddiqi has over 20 publications.

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 The three experts complement each other's expertise as executive practitioners in

technology, management, global environments, and innovation as well as having strong

academic background. With their set of skills, the experts have been able to provide valuable

feedback on the contents (knowledge of the subject matter) of the concept paper while projecting

strong academic perspectives. I have interacted with the three individuals. I observed that while

it is clear that they are subject matter experts in their respective fields, they also demonstrate

high level of intellectual curiosity in fields of knowledge other than those of their own expertise.

The experts are highly professional and they have provided valuable objective feedback.

Expert Reviews Highlights

Consensus on the importance of the topic and its value to the practice of

management. One of the reviewers commented that the ideas presented have

potential, which can only be realized by the validation of the concepts presented

against real-world data. While the comment is warranted, validation is beyond the

scope of this paper. The other two reviewers considered the topic as one of the

most important questions in corporate management.

Concern that sustainable competitive advantage can be beyond the control of the

institution and may be imposed by external factors such as governmental

intervention, laws, protective actions, and incentives. This is certainly true. This

issue has been adequately addressed in the limitations and constraints section of

the document as well as in the implications section. The study highlights the

112
 conditions that facilitate the application of the conceptual model and identified

conditions, which may render it of no value.

It was noted that the prevailing literature presents a large number of possibly

conflicting qualitative and quantitative determinants by which competitive

advantage may be achieved and determined. It is the intent of this study to explore

the seminal work in this important management topic. The literature review

section classified the prevailing views into six main bodies of work and produced

a synthesis of the material in section 2.7, which was used as the basis to frame the

issue and develop the conceptual model. While one may find some conflicting

determinants, each school of thought had its own merits and provided substantive

views on the subject. The diversity of resources highly influenced the authors

thought process and concept development.

Evaluation Forms

Evaluation Form
Institutional Renewal & Adaptation (IRA) and Sustainable Competitive Advantage (SCA)
By: Bashir Alfadda

Please rate each of the following questions on a scale of 1 to 5, with 1 being low, and 5 being
high. In addition, for each question we request that you prepare a written response.

Q. Ratin
Question Comments
No. g

The concepts proposed have considerable potential

value to the practice of management. As a concept
Contribution to the
1 3 paper, the ideas presented have potential which can
practice of management?
only be realized by the validation of these concepts
against real-world data. The rating for this element is
therefore not an indication of any problems with the

113

Originality of topic or
2 4
approach?
3 Quality of the references?
4 Validity of assumptions?
concept paper, but rather with the lack of the
necessarily large and detailed support which would
expectedly follow.
The idea of breaking, or at least substantially delaying,
what has been suggested is the natural life-cycle of
seemingly all businesses (and to a degree all business
models) is not new. The concept paper presented does
not specifically show new or novel ways in which this
can be done. What it does address, however, is a
manner in which such ways can be measured –
presumably in a timely fashion sufficient to allow for
the adaptation and adoption (or abandonment) of
methods for which the chosen metrics and algorithms
predict favorable or unfavorable outcomes.
5 Good
Inherent in the assumptions is that the forces which
determine the competitive advantage of an organization
are within the control of that organization. This is, of
course, not always true. As an example, witness
industries effectively wiped out (or supported) by new
government regulation. The sudden surge (and perhaps
equally swift demise) of corn crops specifically aimed
at the production of Ethanol gasoline (E85) is a prime
example.
Substantial rebates on solar panel installations likewise
4
have caused a surge in businesses that would otherwise
not be competitive, and are now (with the reduction or
elimination of such rebates) placing many of these
companies with the prospect of failure. To some
degree, the US and international patent system must
likewise be considered as an ―outside‖ factor, limiting
what the author refers to as ―imitability‖ by other
companies for a period of years.
However, many companies operate within a microcosm
with other companies marketing (somewhat) similar
products and services. To this extent, for example, a
114
 solar power company can compare and control its
competitive advantage with respect to other solar power
companies – ignoring to some degree competition with
nuclear or coal powered suppliers. Given such a
carefully selected ―universe‖ for comparison of
sustained competitive advantage, the assumptions of the
concept should prove valid.

Note that such a limitation does not detract from the

importance of such research. Neither does it imply that
the research does not have merit in the determination of
successful renewal and adaptation in a larger context –
rather that such a context may include factors which
overwhelm the proposed metric.

Well presented. I would have liked more detail in the

Rigor (theory, analysis, with example – both positive and negative.
5 5
argument)? This is, unfortunately, one of the limitations of a
concept paper.

Thoroughness of
6 presentation? 5 Well prepared and presented.

Again, within the limitations of this paper, the validity

Validity of
is not expected to be either well supported or analyzed.
7 conclusions/propositions 4
This, instead, falls into that famous motto of ―leave the
?
reader wanting more.‖

The quality of writing was excellent. My only critique

here would be a little more prose and/or graphic to tie
together the many elements presented.

The reader is presented with a large number of often

8 Writing quality?
5 conflicting qualitative and quantitative determinants by
which competitive advantage may be achieved and
determined. This is especially true in section 2, the
literature review. As a result, it is not always entirely
clear which of these determinants the author has
adopted for testing and evaluation, and which of these
are mentioned strictly for comparison and

115
 completeness.

Evaluation by: [James M. Knox, PhD]

Please see that attached pages for additional comments.

116
Institutional Renewal & Adaptation (IRA) and Sustainable Competitive Advantage (SCA)
By: Bashir Alfadda

These are additional notes concerning the above referenced concept paper. While not fitting into
the more quantitative ―evaluation form,‖ I offer them for whatever value Mr. Alfadda may wish
to place on them.

First off, I wish to thank Mr. Alfadda for the opportunity to review this paper. I found it
interesting and potentially of significant value to the business community. As a concept paper, I
had to keep reminding myself that it is not expected to be a complete body of work covering a
highly complex subject, and to refrain from the constant mental questioning of ―Yes, but what
about…?‖

The idea Mr. Alfadda puts forth is that one can quantitatively determine Sustainable Competitive
Advantage (SCA) through the use of a Competitive Advantage Index (CAI). Further, if one can
measure CAI, then one can determine the improvement or loss of CAI and therefore SCA.
Lastly, Mr. Alfadda purports, one can utilize Institutional Renewal and Adaptation (IRA) to
affect SCA – obviously with the goal of maintaining a high CAI and therefore maintaining a
large SCA.

What Mr. Alfadda is proposing, therefore, is no less than an attempt to break (or at least
substantially postpone) the very idea of a business ―life-cycle.‖ Whether presented as the
―Riddle of the Sphinx‖ or as a biological imperative, it appears that every complex organism
goes through a similar life-cycle of birth, rapid growth and acquisition, maturity, and eventual
decline and death. It is true of dogs, it is true of people, and it is true of businesses and even
nations.

Birth – This is an intrinsic part of the life cycle. A company which is never started, never
succeeds.

Growth – This is the period when successful organisms, be they people or businesses or
governments, seem to have an almost inherent and automatic SCA. Indeed, this would seem to
be a fairly obvious conclusion – many businesses are started because they have an idea which is
new and offers a competitive advantage. [In Mr. Alfadda‘s language, they have a product which
is hard to imitate or to substitute for.]

Maturity – Successful companies (and people), it would seem, must inevitably transition to a
mature phase in order to sustain themselves. Behavior which is acceptable in an adolescent is
not tolerated in an adult. Likewise, risk-taking that is considered almost mandatory in a new
startup company (especially a ―high-tech‖ company in today‘s market environment) is not

117
acceptable to a board of directors or shareholders of a large established company. Those
shareholders want predictability and a quarterly dividend check, not a high risk promise of what
tomorrow might bring.

Decline and Death – We have all seen large companies (and nations) succumb to the inability to
adapt to changes in the environment. If there are any buggy whip manufacturers left in the
United States, they are certainly not Fortune 100 companies. More specifically, the same can be
said of US manufacturers of television sets, DVD players, and most high-end consumer
electronics. Virtually all computer electronics is now made ―off-shore,‖ with even Dell
announcing almost complete elimination of all but the assembly process in the US.

Kodak once effectively owned the US camera and film business. The name ―Kodak‖ was
synonymous with the very work ―camera.‖ Today, they are at best a runner-up in the
digital camera market.

Sony invented the Walkman portable music player. Today they compete poorly with the
other MP3 player manufacturers, sustained largely by the enormous Sony music portfolio
and the Sony name.

Xerox owned the patent on xerography, and hence on the technology that made the world
―give up carbon paper.‖ [IBM rejected an offer of that same patent for $40,000., saying
that carbon paper was here to stay.]

Newspapers across the country, those that are still left, as struggling to find a new
business model as advertising revenue shrink and costs increase – a seemingly failing
task against the scope and immediacy of the internet.

Mr. Alfadda asks, therefore, can IRA somehow allow a mature business to maintain some of the
flexibility and innovativeness seen in a younger startup company, while not losing the necessary
maturity it has achieved? In other words, can we interrupt the natural life-cycle in an orderly and
predictable manner, using CAI to predict the success of various renewal strategies? On page 10
Mr. Alfadda quotes Hoopes, et al. as saying sustainable competitive advantage can be attained if
the resources available at the firm‘s disposal are neither perfectly imitable nor substitutable
without great effort. I would argue that this is a necessary, but not sufficient condition. Many
firms have failed with these same advantages – because they failed to implement the correct
strategic programs to take advantage of them.

Clearly successful IRA strategies can postpone substantially the decline and demise of
businesses (and even nations). Apple Computer was one of the first successful manufacturers
and marketers of the ―home computer‖ (before IBM tried to claim the market term ―Personal

118
Computer‖ or PC for their own). Almost wiped out with the success of IBM clones in the PC
trade, Apple managed to re-invent themselves (renew) and adapt to changing markets. Today
their stock is still performing strongly and their market share growing.

As a nation, Japan lost much of their world power in World War II. Although one might argue
that their IRA was by force, the result was the same. Today they are a world economic power,
and the old legend ―Made in Japan‖ is not a stigmata but rather a badge of honor.

The concept of Mr. Alfadda‘s paper, therefore, is not whether such renewal and adaptation can
happen – clearly it can – but rather, can we create an evaluation methodology which allows us to
―test‖ such IRA early enough to validate the success; i.e. without ―betting the farm‖ on
something we hope will work. To this extent, I would say much will depend on how early in the
process such evaluation methodology can be successfully applied. To the CAI calculations of
page 31 and 32, can the first and second derivatives be useful? Can we work with ―the rate of
the rate of change‖ of the CAI to predict the success of our adaptations?

I am reminded of President Roosevelt‘s initiatives during the Great Depression. He was quoted
as saying ―Try something, and if that doesn‘t work, try something else.‖ Some things worked,
some didn‘t (it was the WPA which created the word ―boondoggle). My understanding of the
goal of Mr. Alfadda‘s work is to establish a methodology to enable one to determine the success
(or lack thereof) of an IRA ―try,‖ ideally long before it becomes a boondoggle.

Lastly, I would suggest another possible source of useful data might be the academic community
of colleges and universities. The very concept of ―tenured faculty‖ would seem to fly in the face
of IRA – virtually assuring an early decline and demise. Yet, somehow, most such institutions
have managed to maintain an environment of academic youth and vitality – many such
organizations remain at the forefront of research and creative thinking when the very model
would seem to predict the rapid formation of hidebound and inflexible thinking. The same
methodologies which Mr. Alfadda proposes to utilize to determine the success of business IRA

119
potentially could, with perhaps some small modification, be validated as well against the long-
term success of academic institutions.

James M. Knox

Evaluation Form
Institutional Renewal & Adaptation (IRA) and Sustainable Competitive Advantage (SCA)
By: Bashir Alfadda

Please rate each of the following questions on a scale of 1 to 5, with 1 being low, and 5 being high.
In addition, for each question we request that you prepare a written response.

Q. Question Ratin Comments

120
No. g

This study addresses one of the most important

Contribution to the questions in corporate management as to how to
1 4
practice of management? enhance the firm‘s ability to build and sustain
competitive advantage

The author intends to create a theoretical framework

Originality of topic or linking the construct of Institutional Renewal &
2 4
approach? Adaptation (IRA) to the firm‘s ability to build and
sustain competitive advantage.

3 Quality of the references? 4 The author cited over 44 references of the top caliber

The assumptions seem to be reasonable and well

4 Validity of assumptions? 4
thought out

Rigor (theory, The logical construction of the concept paper is solid

5 4
argument)? and rigorous

Thoroughness of
The presentation presents the topic with appropriate
6 presentation? 4
level of thoroughness

Validity of The author identifies cases where his proposed theory is

7 conclusions/propositions 4 valid and applicable (Table 1) and where it is not
? (3.5.3)

The author was successful in making his ideas clear and

8 Writing quality?
easy to follow

121
Evaluation by: [name of expert] Hossam Zaki, PhD

Evaluation Form
Institutional Renewal & Adaptation (IRA) and Sustainable Competitive Advantage (SCA)
By: Bashir Alfadda

Please rate each of the following questions on a scale of 1 to 5, with 1 being low, and 5 being high.
In addition, for each question we request that you prepare a written response.

Q. Ratin
Question Comments
No. g
The concept paper exhibits great advancement to the
1 4 practice of management. Contribution comes from the
Contribution to the streaming of existing ideas and funneling it to the level

122
 practice of management? that can be measured. The quantitative component of
this concept paper is the major contribution.

The originality of topic in concept paper is not new but

Originality of topic or
2 5 its approach to address the problem takes it to the level
approach?
of novelty.

References are chosen very carefully coinciding to the

3 Quality of the references? 5
concept paper.

Validity of assumptions is illustrated well with data

4 Validity of assumptions? 4
presented in the concept paper.

Rigor (theory, Within the limitations of this concept paper, arguments

5 5
argument)? are very strong with supporting data.

Thoroughness of
The presentation of concept paper is carefully planned
6 presentation? 5
and put forward within the limits of this study.

Validity of
Unfortunately, validation of presented concept is
7 conclusions/propositions 4
beyond the scope of this presented study.
?

This concept paper is well written with clarity

8 Writing quality? 5
supported by neat flow diagrams.

123
Evaluation by: [Abdur R Siddiqi, Ph.D.]

124