Competitive Advantage and Software Applications

An important distinction in resource-based view is that if a resource should provide organisations with sustained competitive advantage there are different attributes for the resources that have to be fulfilled. According to Hedman and Kalling (2002), there is numerous resource attributes described in the resource- based view literature that give a firm its competitive advantage. Barney (Barney, 1991, 2002) as well as Cheon et al. (1995) and Hedman and Kalling (2002) identify the following four attributes as relevant: Valuable, rare, costly to imitate, and efficiently organised. These attributes constitute the base in the VRIO framework described in Table 4-1. The intention of the VRIO framework, where VRIO stands for value, rareness, imitability and organisation, is to identify what resources that provide sustained competitive advantage and what resources that do not provide sustained competitive advantage.

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Table 4-1 The VRIO framework (Barney, 2002, p. 173)

Is a resource or capability… Valuable? Rare? Costly to

Imitate? Exploited by Organisation? Competitive Implications Economic Performance No --- --- Competitive Disadvantage Below Normal Yes No --- Competitive Parity Normal

Yes Yes No Temporary

Competitive Advantage

Above Normal

Yes Yes Yes

No Yes Sustained Competitive Advantage Above Normal

The VRIO framework aims at identifying resources with potential for having sustained competitive advantage by answering the questions, is a resource or capability…If all answers are answered affirmative, the specific resource has the potential to deliver sustained competitive advantage to the organisation. However, to do that, it has to be efficient and effectively organised. Barney (2002) describes this as exploiting the resource. If the organisation is a first- mower in the sense that it is the first organisation that uses this type of resource in that specific way, it can quite easily receive competitive advantage, but, it can be temporary. How long time the competitive advantage lasts is a question of how hard it is for others to imitate the usage of that resource. This means that the question of how resources are exploited by the organisation is the main factor when it comes to if the competitive advantage becomes sustainable or not. When it comes to sourcing decision and hosting of software applications, my conclusion is that exploited by organisation could be seen as how hosting of software applications are organised, and could be seen as having effective governance and/or control over software applications usage.

According to Barney (1991) a resource is valuable if it enables the organisation to implement strategies that improve its efficiency and effectiveness. The statement that Barney (1991) gives is contradictory. He says that a resource must be valuable if it should be called resource. The first question, if a resource is valuable, seems to be meaningless if the basic assumption is that the resource

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69 has to be valuable if it should be a resource. In Barney and Wright (1998) it is said that value is created by either decreasing the costs for producing the products or the services, or having the possibility of increasing the price for its products or services. This is very much in line with the basic thoughts about the value-chain as described by Porter (1985).

Rareness is defined as scarcity of resources according to Barney (2002). It is not enough with rareness for a specific resource to deliver competitive advantage. According to Peteraf and Barney (2003), the cost of using that specific resource could be so high that the costs exceed the potential benefits. It could also be that the specific resource could be used in another context that provides that organisation with a higher net benefit. This is described by Peteraf and Barney as that the resource has a higher opportunity cost of employing between different contexts. This means that how rare a valuable resource needs to be in order to provide the organisation with competitive advantage varies between situations (Barney, 2002). Important to remember when it comes to rareness is that if a specific resource is not rare, it cannot provide the organisation with sustained competitive advantage. But, it can provide the organisation with competitive disadvantage if the organisation chooses not to use that specific resource if the organisation’s competitors use that resource. Software application usage is probably one occasion where this could happen. Web-sites for organisations could exemplify this, having a web- site does not always gives a competitive advantage but, it can do, on the other hand not having a web-site could provide the organisation with disadvantage since, more or less, all organisations have a web-site.

If a resource is found valuable and rare, it is not evident that it provides sustainable competitive advantage. According to the VRIO framework, the resource could be said to deliver temporarily competitive advantage. To deliver sustained competitive advantage, the resource needs to have the attribute of being difficult to imitate. There are two different ways for an organisation to imitate resources: duplication or substitution (Barney, 2002). In my view the evolution of ICT has made software applications easier to imitate, by both duplication as well as substitution, but at the moment a major hindrance in the possibility to imitate is probably the cost of implementation.

According to Barney (2002), the relationship between resources, capabilities and competitive advantage is not fully understood because of three reasons. First, managers take resources, capabilities and competitive advantage for

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granted. Second, managers may have different perceptions about what resources and capabilities provide competitive advantage. Third, it may be that it is not a specific resource or capability that provides the organisation with the competitive advantage. Instead it could be unspecified resources that give the competitive advantage. The difficulties with identifying the resources and/or capabilities that give an organisation its competitive advantage is something that also Porter (1991) emphasises, and he says that causality is something that needs to be more focussed. The discussion about causal ambiguity could certainly be compared to both the productivity paradox about software applications as well as the difficulties with evaluating software applications and the benefits of usage of these resources in organisations (Brynjolfsson, 1993; Oz, 2005; Ross, Beath, & Goodhue, 1995).

From this discussion about resource, capabilities, competencies, core competencies and competitive advantage the description of these concepts and how they relates to each other are shown in Figure 4-3. The main assumption drawn from this is that sourcing decisions involves at least two different types of resources: human resources and physical resources. Software applications are then defined as a physical resource. Regarding capability of software applications this is described as either technical capability or theoretical/practical capability. The latter is then described as ability that the human resources have on how to use and manage the software. The competence an organisation or specific users have regarding software applications is then described as a combination of the two types of capability. From this it is suggested that core competence is competence that create unique value and if this is “correctly” managed and used it can provide the organisation with competitive advantage.

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Figure 4-3 Description of the relations between concepts involved in sourcing decisions

It can be suggested that competence, core competence and competitive advantage has a close relationship to the strategy of the organisation. According to Porter (1991) there is also a close relation between conditions resulting from the history of the organisation and managerial choices, and why organisations might achieve favourable positions compared to its competitors. Porter states that the history is often a result from earlier choices made in the organisation, and success in organisations are dependent on that new positions are created or that new values are found independent on whatever starting position the organisation has. This can be related to Mintzberg’s and Quinn’s (1996) description of emergent strategies, and in my view this relates to how hosting is organised and therefore will the next section discuss strategy and sourcing decisions in relation to the resource-based view.