Product Success Is Not A Reliable Indicator Of A Company's Strength

1997 words - 8 pages

There has been a debate among several academic scholars on the main sources of company strength, particularly when the powerful forces of globalization have introduced several micro and macro-environmental factors for assessing organizational performance (Ginter and Duncan, 1990; Nayak, 2011). One of the key areas of this debate relates to whether the best route to corporate strength is through product success (market-centric), or through the internal activities of companies. A second vital point that has driven this debate is whether other factors such as, resource capabilities, competitive advantage, market trends, product innovation, product value, consumer base and customer loyalty can be referred to as reliable sources of company strength (Tidd and Bessant, 2009). What this paper seeks to achieve is to clearly reveal existing theoretical positions on whether or not product success and/or any of the above factors can be held as sources of company strength.

It is important to note that two major strategic management theories drive this debate; and their evaluation provides a far-reaching context for this discourse. The argument for a dominant product performance-based approach within the active market context is influenced by the established Rationalist Approach (Market-Based View). This theory relies heavily on extensive market survey, survey-based strategy development, market participation decision, and execution of the decided course of action. It relies on the assumption that corporate managers have the necessary skills and capacity to accurately analyse the market and develop plans commensurate to the demands of the market (Tallman, 1991). This falls into the category of industrial organizational economics, as it employs an external market orientation to address the issue of differential market value. This perspective typically stresses privileged end-product market positions as a basis for above-normal future returns and thus higher current firm value. In this theoretical circle, competitive advantage is due to barriers to competition arising from the structure of the market (Barney and Hesterly, 2008; Teece and Pisano, 1994).
Potter’s ‘five forces analysis’ which was a theoretical shift from the then-popular SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis, is based on the Structure-Conduct-Performance paradigm in industrial organizational economics (Hamel and Prahalad, 1994). The thrust of this postulation centers on the determination of the competitive intensity and by extension, attractiveness of the market. In his view, an unattractive industry is one approaching perfect competition, in which available profits for all firms are driven to normal profit. Porter’s theoretical construct is a profit management and market influencing strategy. The focus here is on the optimization of product profitability through market manipulation. In underscoring the ideal locale of his theory, Porter (1985) stated that the...

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