The power of competitive advantage made applicable for managers: “The Strength Scan”

made applicable for managers:

“The Strength Scan”

Maartje Vos

S1879553

Master of Science Business Administration Small Business & Entrepreneurship

University of Groningen Faculty of Economics and Business

Aquamarijnstraat 459 9743 PL Groningen

j.m.vos.1@student.rug.nl

06 - 208 684 11

Supervisor RuG: Dhr. M. Olthaar Msc Co-assessor RuG: dr. C.H.M. Lutz Supervisor Case Company: Dhr. A. van der Poel

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Abstract

The Resource Based View (RBV) states that valuable and rare resources can generate a competitive advantage. When these resources are both inimitable and non-substitutable this competitive advantage is sustainable (Barney, 1991). Managers differ in their way of measurement with scholars concerning the competitive advantage of their firm, because managers have access to other sources of information than scholars have and want to know which specific resources generate a competitive advantage. In the current study a managerial template (the Strength Scan) has been developed and tested in a single case study. Results show that the managerial template is sufficient for managers of an SME to measure the competitive advantage of their firm.

Keywords: Resource Based View (RBV) – Competitive advantage – Resources – Managerial template – Managers

Acknowledgement

During this Master Thesis project I have learned a lot, gained a bunch of new experiences and challenged myself. On one hand it was time-consuming, challenging and difficult, but on the other hand I have had a lot of fun, travelled a lot and got to know a lot of interesting people. I would like to thank some people for their support during my Master Thesis project.

First of all, I would like to thank my supervisor, Matthias Olthaar MSc for his guidance, support and wisdom. Furthermore, my thanks goes to my other supervisor, Anton van der Poel, for all the conversations, knowledge and experiences during the past months. I would like to thank my co-assessor, Dr. Clements Lutz, for helping me at the start of the project and at the end, with my oral examination. Furthermore, I want to thank the case study firm for the possibility to let me learn during my internship there.

I would not have learned this much without the help of Hannah, my sister who always knew a solution or answer to all my questions; Klaas, who was always there during good times and the bad; Anne, a creative mind and helping hand; and last but certainly not least, the support of my parents and my colleagues, who made me laugh, learn and enjoy this period.

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Table of content

1. Introduction... 4

2. What is the Resource Based View? ... 5

3. What needs to be measured? ... 6

3.1. Competitive advantage ... 7

3.2. Resources and capabilities ... 8

3.3. Value ... 9

3.4. Rareness ... 10

4. How should we measure this? ... 11

4.1. Methodological issues of the RBV ... 12

4.2. Managerial template ... 14

Step 1 – Survey among customers ... 14

Step 2 – Focus group discussions with employees ... 16

Step 3 – Inform employees and formulate follow-up ... 17

5. Methodology ... 17

5.1. Type of research ... 17

5.2. Data collection ... 18

5.3. Case study ... 19

5.4. Data analysis ... 19

5.5. Controllability, reliability and validity ... 19

6. Results ... 20

Step 1 – Survey among customers ... 20

Step 2 – Focus group discussions with employees ... 23

Step 3 – Inform employees and formulate follow-up ... 26

7. Discussion and conclusion ... 27

7.1. Conclusion ... 29

7.2. Future research ... 30

8. Limitations ... 30

References ... 31

Appendices ... 35

Appendix A – Customer Survey ... 35

Appendix B – Code Book ... 39

Appendix C – Word Cloud Customer Survey ... 40

4 “Whenever you see a successful business, someone once made a courageous decision.”

Peter F. Drucker1

1. Introduction

Successful businesses do not originate without a cause. This is expressed by Drucker above, as well as by Rouse and Daellenbach (1999), who state that success or “competitive advantage should not be left to chance” (p. 491). Scholars developed theories in order to study the competitive advantage of firms (Porter, 1980; Barney, 1991; Rangone, 1999). One of these theories is the Resource Based View (further RBV) named by Barney (1991), which explains how firms can achieve a sustained competitive advantage by means of valuable, rare, inimitable and non-substitutable resources.

Firms are interested in their competitive advantage and scholars have done much research into how this advantage can be achieved (Porter, 1980; Barney, 1991). The RBV has a high academic and managerial value, and is clear and easy to understand for both scholars and managers (Priem and Butler, 2001a). However, managers find it still hard to measure their competitive advantage in practice (Amit and Schoemaker, 1993; Brahma and Chakraborty, 2011). In the current literature this gap has not yet been filled and the current study aims to fill this gap.

The RBV is an often cited and used theory in the management literature and scholars know how to measure the competitive advantage of a firm. Both managers and scholars understand the logic of the RBV, but managers are not the same as scholars, for the following two reasons. First, managers do not have access to the same sources of information as scholars do. Scholars are able to question several firms about their competitive advantage and how this is generated. This is not possible for managers, because competitive firms will not be eager to share this information with the manager of the firm (Amit and Schoemaker, 1993; Rouse and Daellenbach, 1999; Armstrong and Shimizu, 2007). Second, managers have a different question than scholars concerning the competitive advantage of a firm. Managers are interested in which specific resources contribute to the competitive advantage of their firm (Rouse and Daellenbach, 1999), while scholars are more interested in the characteristics of resources and capabilities that generate a competitive advantage (Newbert, 2008; Ainuddin et al., 2007).

5 Because of those differences, managers are not able to measure the competitive advantage of their firm in the same way as scholars are able to measure the competitive advantage of firms. The goal of the current study is to develop a managerial template in order to help managers measure the competitive advantage of their firm. The managerial template, the Strength Scan, is focused on the input of the customers of the firm and different steps guide the manager through the whole process. The managerial template is tested at a single case study firm.

From a theoretical perspective, this current study contributes to the refinement of the management literature (Eisenhardt, 1989). Because the managerial template will be tested in practice, this will generate new insights for the management literature and future research. From a managerial point of view, this research sheds more light on the way managers can measure the competitive advantage of their firm.

First, the RBV will be explained and the necessary elements to measure the competitive advantage of a firm will be discussed in the next chapter. How these elements should be measured is elaborated on in the following chapter. In the methodology chapter, the way of operating of the current study is explained and the results are shown in the chapter afterwards. Furthermore, the results are discussed in the discussion and conclusion chapter, which is followed by the limitations.

2. What is the Resource Based View?

6 Figure 1. Resource Based View by Barney (1991, p. 112)

The RBV has two assumptions: 1) resources and capabilities of the firm are heterogeneously distributed among firms and, 2) resources are sticky, they are imperfectly immobile (Barney, 1991). The RBV states that valuable and rare resources can generate a competitive advantage. When these resources are both inimitable and non-substitutable, this competitive advantage is sustainable (VRIN) (Barney, 1991).

3. What needs to be measured?

The logic of the RBV is easy to follow, it is clear and useful to both managers and scholars (Priem and Butler, 2001b; Arend and Lévesque, 2010). Barney (1991) conceptualized the RBV, but did not test it at the time. Scholars have tested the RBV in multiple ways and it can be concluded that the RBV can be supported (Ainuddin et al., 2007; Armstrong and Shimizu, 2007; Sirmon et al., 2008; Newbert, 2008; Arend and Lévesque, 2010). Not all scholars research and interpret the RBV equally. Rouse and Daellenbach (1999) investigate which specific resources generate a competitive advantage, while Newbert (2008) and Ainuddin et al. (2007) have tested whether the conceptualized characteristics (VRIN) of resources have the potential to generate a competitive advantage.

7 scholars, like customers and internal financial documents. Scholars have access to multiple firms within an industry and their way of operating (Amit and Schoemaker, 1993). Scholars are able to measure an advantage among competitors, but this is difficult to managers because managers of other firms are not willing to share this information freely with another manager. Both managers and scholars need the same variables to measure a potential competitive advantage: competitive advantage of the firm and, value and rareness of firm resources and capabilities. In the current study a managerial template will be developed in order to guide managers in how they can measure the competitive advantage of their firm.

3.1. Competitive advantage

The RBV states that when resources are both inimitable and non-substitutable, next to being valuable and rare, they can generate a sustained competitive advantage (Barney, 1991). For a firm to generate a sustained competitive advantage, the performance of the firm needs to be consistently above-average (Rouse and Daellenbach, 1999). Armstrong and Shimizu (2007) state “that firms are increasingly finding it difficult to sustain strategic advantage over competitors and that sustained competitive advantage is more a function of creating a series of competitive advantages over time” (p. 961). This suggests that firms find it difficult to generate a competitive advantage that is sustainable over a long period of time and if they are able to generate a sustainable competitive advantage, they are just one of the few firms which are able to do so (Duncan, et al., 1998). This line of reasoning is supported by Sirmon et al. (2007) and, Arend and Lévesque (2010). Based on these authors, only competitive advantage will be taken into account and sustainable competitive advantage will be outside the scope of the current study. Similar to Newbert (2008), the concepts of inimitability and non-substitutability will be outside the scope of the current study.

Peteraf and Barney (2003) state that competitive advantage should not be defined in terms of profitability per se, but it concerns more the competitive edge a firm generates. This edge is an indicator for a firm to beat its rivals in terms of their own interest (Peteraf and Barney, 2003). This edge can be measured in different ways, like measuring performance, market share or customer loyalty. In this sense, Armstrong and Shimizu (2007) include in their definition of competitive advantage satisfying the needs of the customer (p. 961) and Ainuddin et al. (2007) take performance of the firm as a measure of competitive advantage.

8 how loyal they are to the firm and managers can use this information to search for specific resources and capabilities that underlie their loyalty. From the point of view of the firm, when customers can indicate how loyal they are to the firm and on which this is based, customers can provide the firm with valuable information about the competitive advantage of the firm. Furthermore, when customers indicate whether they want to continue the relationship with the firm and value the firm above competitors, this gives the firm an advantage over its competitors. According to Osterwalder (2005) the value proposition of the firm “gives an overall view of a company’s bundle of products and services” (p. 10). This is what the customers perceive of the firm and what can be measured in order to assess the competitive advantage of the firm (Osterwalder, 2005). Furthermore, customer loyalty is a form of competitive advantage too (Narver and Slater, 1994; Chen and Xie, 2007) and is defined as a specific desire to continue a relationship with a service provider (Czepiel and Gilmore, 1987). Competitive advantage is when a firm has a greater customer loyalty than its competitors.

To build customer loyalty, businesses have to guarantee a long term commitment to their customers. This includes that firms should understand their customers’ expectations and how they change, motivate employees to view customer satisfaction as a primary objective, monitor customer satisfaction frequently and stay in touch with customers after the sale (Narver and Slater, 1994). Quality must be defined by the customer. Therefore, achieving high quality requires continuously monitoring what customers want (Narver and Slater, 1994).

Newbert (2008) states that competitive advantage is context-specific and that some resources and capabilities generate a competitive advantage in a certain context, while in another context these resources may not fit and will not generate a competitive advantage at all. When customers can make this competitive context more clear to the firm, the firm can look for specific resources and capabilities that make this competitive advantage possible (Rouse and Daellenbach, 1999, 2002). Rouse and Daellenbach (1999) state that “sources of advantage buried in organizational effects can only be uncovered, and an integrated understanding can only be achieved, by doing research actually in organizations” (p. 490).

3.2. Resources and capabilities

9 firm’s resources” (p. 35). Furthermore, capabilities are difficult to trade (Amit and Schoemaker, 1993). Sirmon et al. (2008) define capabilities as follows: “Integrated and bundled resources that are firm-specific, which are configured and deployed to a particular market context” (p. 922). This complements to resources which are “stocks of available factors that are owned or controlled by the firm” (Amit and Schoemaker, 1993, p. 35). The main difference between resources and capabilities is that resources can be traded and bought on markets. Capabilities cannot, because they are a bundle of resources developed within the firm and therefore firm specific.

Newbert (2008, p. 748) states that “the key to attaining a competitive advantage is not simply the exploitation of a valuable resource or a valuable capability, but rather the exploitation of a valuable resource-capability combination”. This bundling means that resources and capabilities should both be valuable and rare simultaneously in order to attain a competitive advantage (Barney, 1991; Amit and Schoemaker, 1993; Newbert, 2008; Brahma and Chakraborty, 2011). Teece et al. (1997) make a distinction between resources and dynamic capabilities, in which they define the latter as “the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments” (p. 516). In this case, Teece et al. (1997) define capabilities differently than Amit and Schoemaker (1993), however resources and capabilities are strongly connected and intertwined. Dynamic capabilities are a complement to resources and capabilities, because resources and capabilities can explain a competitive advantage at a certain moment in time, while dynamic capabilities help to explain a series of competitive advantage over time or sustained competitive advantage (Teece et al., 1997). In the current study, competitive advantage will be measured at a single moment in time and the influence of the environment on both the resources and capabilities will be outside the scope of the current study. Therefore dynamic capabilities will be outside the scope of the current study. In the current study, the definitions of Amit and Schoemaker (1993) will be used, for both resources and capabilities.

3.3. Value

10 and rareness. Barney (2001a) rejects that the definitions should be redefined by stating that in the way Priem and Butler (2001a) restate multiple definitions, everything can be made tautological. Bowman and Ambrosini (2000) are in line with Priem and Butler (2001a,b) when they suggest that both the RBV should be combined with market perspectives and that superior resources are exogenously valued by customers. Bowman and Ambrosini (2000) redefine the value concept in order to solve the tautology issue. Just like these authors, Peteraf and Barney (2003) link competitive advantage to the demand side (customers for example) and by means of this they determine the concept of value exogenously to the firm.

Priem and Butler (2001a) suggest that value is generated exogenously to a firm and is determined by the market environment, like the value proposition the consumers experience (Osterwalder et al., 2005). Barney (2001a) supports this argumentation of Priem and Butler (2001a). When customers can indicate whether they are loyal to the firm, this gives the firm a competitive advantage (Barney, 1991). The firm with more valuable resources holds the advantage, relative to its competitors (Sirmon et al., 2008). The concept of value is about “the strength relative to competitors that matter, not absolute strength” (Sirmon et al., 2008, p. 921). This value is possessed by firms, but perceived by customers, by means of the value proposition the firm generates (Osterwalder et al., 2005).

3.4. Rareness

When a resource is implemented in a value-creating strategy not simultaneously implemented by a large number of other firms, the resources becomes rare (Newbert, 2008; Ainuddin et al., 2007; Arend and Lévesque, 2010). But what constitutes a large number of other firms? As long as the number of this particular resource is less than the number of firms needed to generate perfect competition, then is in the industry, then it has the potential to generate a competitive advantage (Barney, 1991). Still, rarity is difficult to measure and the debate how to tackle this is unsolved since (Barney, 2001a).

Scholars search for various ways to measure rareness. Like Newbert (2008), Ainuddin et al. (2007) measure rarity in a subjective way. To measure rarity in an objective way is very difficult and almost impossible. In the current study, rarity is operationalized by means of subjective judgement like Newbert (2008) and Ainuddin et al. (2007) use in their study.

11 which have a high or low performance and based on this selection, the authors look for resources and capabilities that cause a high performing firm to perform like this, while a low performing firm cannot. They search for specific resources and capabilities that cause this difference. Then, Rouse and Daellenbach (1999) perform a study inside organizations, in order to discover valuable and rare resources. This is in contrast to Newbert (2008) and Ainuddin et al. (2007), who look for characteristics (VRIN) of resources and capabilities that are valuable and rare, and test if these generate a competitive advantage. In the current study, the method of Rouse and Daellenbach (1999) will be used, to unpack the process and search for valuable and rare resources and capabilities within a firm, because this comes close to what managers want: disentangle the competitive advantage of their firm (Rouse and Daellenbach, 2002).

4. How should we measure this?

Now the multiple elements that need to be measured are known, the following question arises: ‘How should we measure this?’. The aim of the current study is at managers who want to measure the competitive advantage of their firm. Because the RBV is about the advantage over competitors (Armstrong and Shimizu, 2007, p. 967), the competitor can give valuable data to researchers about the competitive advantage of a firm. Since the competitor will not be eager to share this information with a manager of a competitive firm, managers need to tap other sources to gather the information they need. A manager has access to the customers of the firm and can ask them about the competitive advantage of the firm: the value proposition the customers encounter (Osterwalder et al., 2005).

12 Another distinction between managers and scholars is what both do with the results that are found. For managers, these results will help them to prioritize resources and allocate investments in order to develop a competitive advantage (Armstrong and Shimizu, 2007). On the other hand, for scholars, the results make the conditions more clear which particular resources and capabilities result in a competitive advantage. This provides the RBV with more boundaries, which is a key component of a good theory (Armstrong and Shimizu, 2007). In the current study, the managerial template will give managers more guidance in measuring the competitive advantage of their firm.

4.1. Methodological issues of the RBV

Theory is neither always applicable in practice nor can easily be tested by scholars or managers. Some methodological issues can arise, which make it hard to test a certain theory. This also holds true for the RBV, which encounters multiple methodological issues when researchers want to test it. Brahma and Chakraborty (2011) summarize the following methodological issues:

1. Unobservable constructs, like capabilities and competencies of a firm, are difficult to measure.

2. Most of the time, when the RBV is measured, proxy measures are used. These measures are amenable for low validity (Hoskisson et al., 1999).

3. A common method is to collect primary data, but this may bring greater respondent bias (Newbert, 2007).

4. Data can be collected from a single firm or industry to gather information about particular resources in certain markets or multiple industries can be used. This provides greater generalizability.

5. Large homogenous samples (Lockett et al., 2001) in which a competitive advantage is hard to discover.

13 organization and should be uncovered by means of a detailed, field-based comparison of firms that are carefully selected. Rouse and Daellenbach (1999) search for low and high performing firms in an industry and they search for specific resources and capabilities that cause these differences.

Newbert (2008) performs an industry/sector level study, while Rangone (1999) takes a single firm as level for his study. Rangone (1999) does not apply the framework of Rouse and Daellenbach (1999), he uses a single time-period and uses firms from multiple industries for his study. Rangone (1999) treats every case study differently and both discovery and evaluation occur inside organizations, which Rouse and Daellenbach (2002) promote. The study of Newbert (2008) does not follow the framework of Rouse and Daellenbach (2002) either and a multi-industry sample of 117 firms is used. Furthermore, Newbert (2008) uses a single time-period in his study. Next to Newbert, Armstrong and Shimizu (2007) state that scholars should make more use of qualitative approaches, in applying the RBV, because environments can change quickly.

Qualitative and quantitative research methodologies have both advantages and disadvantages when performing a study. Qualitative research generates rich data in which the ‘why’ and ‘how’ become accessible (Dobrovolny and Fuentes, 2008). Furthermore, qualitative research is time dependent and results are difficult to generalize. On the other hand, with quantitative research results may apply to a greater population and is less time consuming. Disadvantages of quantitative research are that the research question may be answered, but that underlying questions may be not and a certain number of respondents is needed to make the research valid (Dobrovolny and Fuentes, 2008). A survey can be used in both qualitative and quantitative research and will be used in the current study.

14 discussions) are that a representative sample should answer the survey and with the focus group discussions, people can feel uncomfortable in the group, which could influence their response (Quible, 1998). By means of these methods, the key factors that generate a competitive advantage can be disentangled for the case they firm, which will serve as an example for future research.

4.2. Managerial template

Scholars have tested multiple methods to make the RBV more applicable for managers (Newbert, 2007, 2008; Rangone, 1999; Arend and Lévesque, 2010). Because of the differences between managers and scholars, and the methodological issues, a perfect model for managers to apply the RBV has not yet been developed. Based on the previous discussion, in the current study a managerial template is suggested, for managers to take into account when they want to assess the competitive advantage of their firm. Every step includes its own activities and processes. By means of the managerial template, managers are able to measure the competitive advantage of their firm over and over again. When the steps are carefully followed and the template is used multiple times over the years, results over different time periods can be compared and discussed.

In the current study, the competitive advantage will be the starting point, this approach is close to the work of Rouse and Daellenbach (1999, 2002). The goal of the managerial template is twofold. First, the competitive advantage of a case study firm will be studied, by means of sending a survey to the customers of the firm, based on customer loyalty. Second, it will be tested which resources and capabilities generate this competitive advantage. The managerial template is called the ‘Strength Scan’, because the strengths of the firm will be uncovered.

The steps of the Strength Scan include: 1. Survey among customers

2. Focus group discussions with employees 3. Inform employees and formulate follow-up

Step 1 – Survey among customers

15 Questions in the survey relating to the value proposition of the firm include: What do you consider to be the main strength of Firm-X?; Why have you chosen for the product(s)/service(s) of Firm-X?; How would you rate your experience of the product(s)/service(s) of Firm-X?. In the template, competitive advantage is defined by customer loyalty, because this concerns data that managers have access to. Questions concerning the loyalty of the customer to the firm should be included. Examples of these questions are (Narver and Slater, 1994; McMullan, 2005; Chen and Xie, 2007): I am planning to keep doing business with (the firm) for the coming... And why?; Would you agree with this statement: “I am loyal to (the firm)”?; Would you agree with this statement: “I value (the firm) above competitors”. Answers to the survey can be given based on a multiple choice scale stating ‘Yes’ or ‘No’, or via a 5-point Likert scale. Based on these answers customers can indicate how they perceive the competitive advantage of the firm and the customer loyalty can be assessed.

The manager is not able to ask the competitor how they are able to produce their products and services, because the competitive firm will not be eager to share this information with the manager (Amit and Schoemaker, 1993). However, customers are able to say something about a competitive firm if they know the competition or make use of the products/services of the competition. Questions can be asked how they value the products or services of the competitor for example. Questions about competitive firms could be: Do you make use of the products/services of the competition?; Do you know people from your network who are customer of a competitive firm?; Could you indicate why they have become a customer of that competitive firm and not of (the firm)?; Would you switch to an alternative firm if you had the possibility? (McMullan, 2005).

By means of the answers to the survey the competitive advantage of the firm can be assessed. When customers indicate that they are loyal to the firm and not to the competition, the firm possesses an advantage over competitors. Another possibility is that customers indicate that they are not loyal to the firm, in this case the managerial template is still of value. In the survey, customers can be asked to indicate under what circumstances they would switch to a competitor and what can be improved? This could give the manager valuable information how to improve the firm and how to make the customers loyal to the firm. The survey can be found in Appendix A.

16 descriptive statistics and answers to the open questions should indicate whether or not the firm has a competitive advantage based on customer loyalty and serve as input for the focus group discussions.

Step 2 – Focus group discussions with employees

To open up the black box and to uncover the resources and capabilities that generate a competitive advantage, focus group discussions will be used (Rouse and Daellenbach, 1999). The focus group discussions will be held with several employees of the firm, colleagues of the manager. Employees have a better knowledge of the valuable and rare resources within the firm that could generate a competitive advantage, than customers do. By means of focus group discussions qualitative data will be discussed, feedback will be gathered and answers of the survey will be diagnosed, all in order to disentangle the resources and capabilities that generate a competitive advantage (Quible, 1998; Ryan et al., 2014). During these focus group discussions participants will be asked about their opinion and what resources and capabilities they think cause the firm to generate a competitive advantage. Two focus group discussions will be organized, in order to verify the answers of the employees (Quible, 1998).

First of all, the manager should ask the participants of the focus group discussions the following question: Customers are loyal to your firm based on the following reasons. (…) What resources and capabilities are present in your firm that can generate this effect? Participants will write down their answers on a piece of paper, so they have to think for themselves and they will not be influenced by the responses of other participants. The answers of the participants will be discussed during the focus group discussions. The resources and capabilities that will come forward are important to the firm and are valuable.

17 At the end of both meetings it should be clear to the manager how the firm is able to generate a competitive advantage and what resources and capabilities are valuable, rare or both within the firm. A consensus about these resources should be reached, by means of the discussion. Based on this the manager is able to “get at the elements of interest by following the value generation trail backwards to its source. Unpack the process” (Rouse and Daellenbach, 2002, p. 966).

Step 3 – Inform employees and formulate follow-up

Following the focus group discussions the manager is able to draw up a list of resources and capabilities that are valuable, rare or both within the firm. Furthermore, conclusions can be drawn and verified by means of a member check (Aken et al., 2008). Because the study is about the (whole) firm, the whole firm should be informed about the results of the study. This can be done in multiple ways, like a newsletter, presentation or e-mail to all employees and managers within the firm. Furthermore, the manager should make recommendations for the firm to improve its competitive advantage, based on the results of the study. These recommendations should focus on customer loyalty, the competitive advantage of the firm, and how this can be improved within the market (Narver and Slater, 1994).

Because a lot of information has become known to the manager, which is not only about the customer loyalty and the competitive advantage of the firm, the manager can make an advisory to inform the management team about the other results. In this advisory both strengths and weaknesses of the firm, based on the answers of the customer survey, can be elaborated on and recommendations can be given. Moreover, the customers of the firm could be informed about general findings of the study, by means of a newsletter. Managers should be aware of the fact that customers can also be customer of a competitor, so not all results or confidential information should be given away freely.

5. Methodology

5.1. Type of research

18 performance, in order to investigate the advantage among firms. These authors suggest that factors inside the firm are a primary source of competitive advantage and therefore analysis should be done within organizations. Because most of the time managers are manager of a single firm, in the current study the managerial template will be tested by means of a single case study firm: Firm-X. Yin (2009) defines a case study as “an empirical inquiry that investigates a contemporary phenomenon within its real-life context” (p. 18). By means of the managerial template the specific resources and capabilities that have the potential to generate a competitive advantage are uncovered.

5.2. Data collection

The customer survey was developed based on literature and sent to all customers of the firm (865 customers). Because the firm serves multiple markets, no market was excluded from the data collection process in order to gather as much data as possible. The survey mainly focused on the value proposition of the firm and the competitive advantage in the eyes of the customer. The survey is displayed in Appendix A. The survey contains both open ended and multiple choice questions, to gather a rich dataset. Respondents were given 3 weeks to complete the survey and after a week and a half, a reminder was sent, in order to increase the response rate. Also, prizes were given away in order to make it more attractive for respondents to complete the survey.

Furthermore, two focus group discussions were organized among the employees of the case study firm, this in order to gather insights, experiences and opinions from the participants to verify and complement the qualitative findings of the survey (Cooper and Schindler, 2008; Van Aken, et al., 2008; Quible, 1998). These two discussions took 2 hours each and participants were selected based on their department, years of employment and knowledge of the firm. The focus groups included 7 and 6 employees respectively and were audio recorded. The minutes of these meetings are displayed in Appendix D (Quible, 1998; Ryan et al., 2014). The focus group discussions are derived on the answers of the customer survey. A couple of theses were developed, graphically displayed and discussed during the focus group discussions.

19

5.3. Case study

The managerial template is tested at a case study firm (further Firm-X) in the Netherlands, founded in 1996. Firm-X is active in the IT-sector and employs close to 60 people. This SME serves the B2B niche market with agriculture software, contract work software and accounting software for example, with each their own department. Firm-X operates on five markets, ranging from 4 competitors (oligopoly) to a vast amount competitors respectively. Moreover, Firm-X develops websites for firms and individual customers and serves about 865 customers. Firm-X offers a product/service bundle with software, hardware and Internet marketing for other SME’s all over the country. They are active in both the Netherlands and abroad. Their customers mainly constitute of SME’s in all kinds of segments in the market, of different sizes. Furthermore, they try to keep up with the market by means of constant innovations and close customer contact.

5.4. Data analysis

In order to filter out the most important data from the survey, different techniques were used to analyze the data. These techniques are recursive abstraction (Polkinghorne and Arnold, 2014), see Appendix B for the codebook, and a word cloud is made to see which concepts occurred most frequent (Oesper et al., 2011). The word cloud is displayed in Appendix C. Both the answers of the survey and the word cloud were used as input for the focus group discussions.

From the data gathered at the focus group discussions, minutes were made and by means of recursive abstraction and coding, the data were analyzed (Quible, 1998). Moreover, all the data were analyzed by means of intensive reading and connections between the answers of the survey and the focus group discussions were made.

5.5. Controllability, reliability and validity

By means of a detailed description of how the current study was conducted the controllability of the study increases. Other important topics that came forward at the open ended questions are shown in Appendix B in the codebook, and the word cloud is displayed in Appendix C. This makes the survey able for verification.

20 reliability of the results of the focus group discussions, because shortcomings or biases of a single method will be compensated by other methods (Aken et al., 2008).

The validity of the research is sufficient, in order to derive reliable results from the data. The RBV is covered in the data collection process, because the survey is based on RBV literature. During the data analysis all available data were used, to cover for the validity of the research. These sources included; observations, conversations, field notes, meetings, customer contact, survey and interviews. The external validity of the research is not high, because only one case study was used to test the managerial template.

6. Results

The managerial template has been tested at Firm-X and every step of the managerial template has been taken into account. Below each step will be elaborated on and a summary table (Table 1) is displayed on page 22.

Step 1 – Survey among customers

The survey to the customers was sent to 865 respondents and 118 respondents started the survey, a response rate of 13.6%. This is a representative sample of the population. Not all 118 respondents completed the survey, 76 customers did, a response rate of 8.8%. The answers of the uncompleted surveys were used too as data for the current study. Results show that customers have been a customer of the firm for 9 years on average.

The goal of the survey was to ask the customers of the firm if they could indicate whether they were loyal to Firm-X. Results show that customers are indeed loyal to Firm-X and they are not planning to leave. Sixty percent of the customers agrees or totally agrees to the hypotheses I am loyal to Firm-X. The other 40% of the customers is not particularly loyal to the firm, of which 2% state not to be loyal at all to the firm. Nine percent of the customers does not agree or totally disagrees to the hypothesis I value Firm-X above the competitor. Furthermore, 81.6% of the customers is not willing to switch even when they had the possibility to do so. These answers indicate that the customers of Firm-X are loyal to Firm-X and Firm-X has an advantage over its competitors, based on customer loyalty.

21 experience of the workforce as the main strength of the firm and they graded these with a 4 and a 4.13 respectively (5-point Likert-scale). These two elements were also the main reasons why customers choose Firm-X above competitors.

It also became clear that 50% of the customers use the software of Firm-X multiple times a day, the software is firm-specific and customers indicate that this is a hindrance for them to switch to another firm. Customers would be willing to switch if the prices of the services and products would increase, when the available support would decline and if the quality of the products and services of Firm-X would decline. This indicates that customers value these elements of Firm-X.

Of the customers 54.8% indicate that they perceive Firm-X to be a leader concerning bringing innovations to the market. Customers who perceive Firm-X to be a follower do not mind this, because they do not need to be the first to have the latest innovations and rather wait for the innovation to have proven itself. Of the customers 47.3% were not able to judge the speed of bringing innovations to the market of the competition and 5% of the answers are missing values. The other 47.7% could indicate that Firm-X has a higher speed of bringing innovations to the market than the competition. Also, 25% of the customers make use of the products and/or services of the competition and they value the product specifications and the supply of a complete product of the competition as best (3.66 and 3.63 respectively (5-point Likert-scale)).

Of the customers 24.1% indicate that the prices of the products and services are high in comparison to the competition and they would like to see these prices being lower. On the other hand, 45% of the customers indicate that Firm-X asks a high price, but that they do not mind paying this, because the quality of the products and services is high. Customers indicate that the communication towards the customer about updates and changes in the software could be improved. Seventy-one percent of the customers judge the products and services of Firm-X not to be unique. Of the customers 65.8% know other people in their network who are customers of the competition of Firm-X. These customers indicate that those acquaintances have become a customer of the competition, because a) their prices were lower, b) they knew the people at the firm, or c) the software would fit better with their business.

Table 1. Summary table

Variable Data

Response rate - Survey was sent to 865 customers

22 - 76 customers completed the survey  8.8%

- 96% of the respondents is Dutch (#=114) - 3% of the respondents is German (#=3) - 1% of the respondents is Danish (#=1) Years bound to the firm

(n=105)

Customers have been a customer of the firm for 9 years on average

Loyalty to the firm (n=102)

- 60% states to be loyal to the firm - 38% is not particularly loyal to the firm - 2% is completely not loyal to the firm Value Firm-X above

competitors (n=77)

- 46.8% values Firm-X above competitors - 44.2% is neutral

- 9% does not value Firm-X above competitors Willingness to switch

(n=76)

- 81.6% is not willing to switch to a competitive firm, even if they had the possibilities

- 18.4% is willing to switch to a competitive firm, if they had the possibilities

What customers value about Firm-X (Multiple answers possible) (n=79)

1) Available support (52.4%)

2) Knowledge and experience of the workforce (45.7%)

3) High quality of the service(s) & High quality of the product(s) (26.7%)

Usage of the product(s) / service (s) of Firm-X (n=102)

- Multiple times a day (50.5%) - Once a day (8.6%)

- Multiple times a week (13.3%) - Once a week (1%)

- Multiple times a month (6.7%) - Once a month (2.9%)

- Less than once a month (8.6%) - My usage is seasonal (5.7%) How customers

perceive Firm-X (n=93)

- 54.8% perceives Firm-X to be a leader - 45.2% perceives Firm-X to be a follower Speed of new offerings

(n=93)

- 47.3% is not able to judge this speed - 47.7% is able to judge this speed

o 9.6% perceives the competitor’s speed of new offerings to be much lower than the one of Firm-X

o 30.5% does not perceive a difference

o 7.6% perceives the competitor’s speed of new offerings to be much higher than the one of Firm-X

Usage of the product(s) / service(s) of the competition (n=79)

- 25.3% makes use of the product(s)/service(s) of the competition - 74.7% does not make use of the product(s)/service(s) of the

competition Improvements

(Multiple answers possible) (N=79)

- 5.7%  Better quality product(s) - 6.7%  Better quality service(s) - 7.6%  Improved innovativeness - 4.8%  Improved communication - 18.1%  Lower price

- 3.8%  More updates

- 21%  Other, namely: No improvements needed or customer is unknown to all the products and services of Firm-X

Price / Quality ratio (n=79)

23 - Low price / High quality (7.6%)

- Low price / Low quality (0%)

- Other (39.2%): Customers indicate to perceive the price as right, they do not have the knowledge to judge this ratio or they do not mind the high price, because the quality is high

Uniqueness of

product(s) / service (s) of Firm-X (n=76)

- 71.1% perceives the product(s) / service(s) not to be unique - 28.9% perceives the product(s) / service(s) to be unique

Know customers of the competition (n=76)

- 34.2% does not know people in their network who are customer at the competition of Firm-X

- 65.8% know people in their network who are customer at the competition of Firm-X

Step 2 – Focus group discussions with employees

The goal of the two focus group discussions is to uncover the resources and capabilities that underlie at the competitive advantage of the firm. Based on the answers of the customer survey, six topics, with related theses, were composed. The six topics included a) the loyalty of the customers, b) the strength of the firm, c) the support the firm delivers, d) the different grades customers gave to different activities of the firm, e) the speed of bringing innovations to the market, and f) the grade customers gave to the firm as a whole, in comparison to competitors. The theses were developed in order to give guidance to the discussions. During the second focus group discussion the manager discovered saturation among the results (Quible, 1998; Ryan et al., 2014). The minutes of the two focus group discussions are shown in Appendix C.

The employees of the firm, who participated in the focus group discussions, stated that Firm-X is able to generate this competitive advantage, loyal customers, because of certain resources and capabilities. The resources and capabilities include: (Quotes of participants of the focus group discussions are written in italic font and are placed between inverted commas.)

 The culture of Firm-X: Firm-X has generated a culture that is distinctive for the firm. Elements of this culture include:

o No-nonsense mentality: At the firm it is common to be who you are, to sell what you have and “What you see is what you get”. All employees are aware of this and signal this to customers and other employees. By means of this, they reinforce the culture of the firm.

24 perfectionists, we want to deliver perfect products, not those that are just good enough”.

o Own responsibility: Employees receive a lot of own responsibility in their work. There are no fixed guidelines when to come to work or strict job prescriptions, as long as they do their job and it should be done well. Employees have their own responsibility in customer contact as well and they are free to organize their own work. Employees state that “The employees have their own responsibility concerning their customers, and therefore they are willing to run the extra mile for the customer”.

o History: The culture within the firm has developed like this over the years and is not bound by rules or obligations. The management team acts as an example for the rest of the firm and signals to other employees how to behave within the firm. Firm-X is three times winner of the ‘Financieel Dagblad Gazelle Award’, for being the fastest growing company in the north of the Netherlands over the past three years, based on the financial statements of the Chamber of Commerce. This could not have been made possible without the input of the employees and support of the customers.

 The experience of the employees: Most employees are known to the field Firm-X plays a role in and have worked or currently work in the same field as well. Employees state that “Employees are selected based on their experience and knowledge in the work field”. This contributes to the experience of the workforce and their knowledge of the daily practice, problems and customer groups they daily encounter at Firm-X. Because of this, employees know how to adequately solve and respond to questions and problems, all in order to help the customer.

 The knowledge of the employees: With their knowledge about the software, employees are able to answer the questions of customers and solve problems quickly. Employees are up to date about recent market developments, know how to deal with the products Firm-X develops and have knowledge about the daily practice of the customers.

 Small teams of employees: At Firm-X working teams are small, three to six employees, and therefore lines of communication are short. Furthermore, this enables the employees to solve problems and respond to customer questions quickly. Employees state that “The team spirit makes sure that the firm is able to solve problems quickly”.

 Customer-focused employees: The employees of the firm are customer-focused and this is shown by means of the following elements:

25 business of the customer and almost all customers are known by face by the employees they have contact with. The employee knows what questions the customer can have about his business and because the customer and the situation are known, problems can be solved quickly.

o Run the extra mile: This is characteristic for all employees of Firm-X, all employees are willing to help the customer and they are willing to run the extra mile, sometimes even without making an invoice of the activities they perform for the customer. Employees state that “This enthusiasm of the workforce is noticed by the customer”.

 The products are of high quality: The products of the firm are close to the daily practice of the customer and are up to date, according to the market. Employees state that “The products of Firm-X are of high quality and firm specific, which makes switching to a competitive firm complicated for a customer”.

The resources that can be labelled valuable are those resources that give the firm a strength relative to its competitors. The resources and capabilities that are valuable within the firm are mentioned above, but not all resources and capabilities are rare. Those resources and capabilities that competitors do not have and find difficult to acquire are: the culture of Firm-X with all its facets, the experience of the employees and the attitude of the employees, to run the extra mile for the customers. Those resources and capabilities are both valuable and rare within Firm-X, when those resources and capabilities are combined a competitive advantage can be generated.

The resources and capabilities above contribute to the competitive advantage of the firm: that customers are loyal to the firm and are willing to stay. Employees state that not all customers are the same and customers value aspects of the firm differently. This could be a cause that not all customers are loyal to the firm.

Firm-X is active in specific sectors and develops products for multiple markets. In each market, they encounter different competitors and their competitive advantage is different in each market. The results suggest that in each market, their customers state that they are loyal to the firm and are not planning to leave within short notice.

26 capabilities. Moreover, during a member check the results were discussed and both managers agreed upon the results and conclusions of the study.

Step 3 – Inform employees and formulate follow-up

After the two focus group discussions a presentation was given in order to inform the employees and other managers of the management team about the results of the study. Furthermore, an advisory was sent to all employees and the management team in order to inform them about the results of the study. Moreover, recommendations were given to Firm-X, how the firm can maintain and/or improve their competitive advantage in the future:

 Guard the treasure

Results show that the firm has an advantage over its competitors based on customer loyalty and customers are willing to stay with Firm-X. Advice is to maintain the resources and capabilities that generate this competitive advantage and for those valuable and rare resources that are available at the market, purchase them. This will strengthen the resource base at the firm, which ultimately will improve the competitive advantage of the firm. Firm-X would be wise to gather more employees with relevant work experience and employees who are perfectionists, who are willing to run the extra mile, are customer friendly and want to get things done. Furthermore, the firm should keep the quality of the products and services as high as possible and develop new products that share the same quality levels as those that are already produced by the firm, in order to maintain a high standard.

Finally, the firm wants its customers to be loyal to them as long as possible. One way to keep customers loyal is to maintain contact with them and invest in relation management, this in order to stay aware of their needs, collect ideas and continue the relationship with the customer. The firm should not only wait until customers make contact with the firm for questions for example, but employees should also make pro-active contact with current customers, by means of phone calls, visits and newsletters for example.

 Turn around the bad

27 are important contributors to the competitive advantage of the firm, but not all employees will fit in with the culture and share the same mentality as the rest of the firm. The manager could guide those employees and evaluate their performance regularly, Also a training program could be started in order for them to learn how the firm operates and how they can contribute to the competitive advantage of the firm in an effective way.

 Keep monitoring

Competitive advantage is time specific and time goes by. When by means of the managerial template the manager understands how the firm generates a competitive advantage at one moment in time, the manager is recommended to monitor this competitive advantage once in a while. How long this “while” should be, can be determined by the manager and could be different for every firm and SBU. For Firm-X it is recommended to keep monitoring the competitive advantage of the firm and its markets several times a year. Especially for fast changing markets, a competitive advantage can be overruled by a competitor quickly, like with the developments of websites and firm-specific software.

7. Discussion and conclusion

The current study was conducted in order to develop a managerial template, which managers can use to measure the competitive advantage of their firm, by means of the help of their customers who the managers are able to contact. The current study shows that indeed managers are able to contact their customers, ask them questions about the value proposition of the firm, and receive valuable information about the competitive advantage of the firm. Managers are not able to receive valuable information from the competitors of the firm, because these competitors do not want to share their information with the competition (Amit & Schoemaker, 1993). Furthermore, firms never ask their competitors for trade secrets and product innovations, because this could also give away information about the firm too, which is certainly not preferred. A managerial implication is that information about the competitive advantage of a firm can be gathered by means of customer input and managers can use this information to uncover the sources of this advantage over their competitors.

28 to be unable to say something about the resources and capabilities that generate a competitive advantage. This is in agreement with Osterwalder et al. (2005), who state this in their study. Customers experience the value proposition of the firm, so they can make a judgment about it, but not about how this value proposition has been developed (Osterwalder et al., 2005).

Some theoretical and managerial implications that follow from this study concern the managerial template, the so called Strength Scan. From a theoretical perspective, a literature gap has been filled and scholars can use the managerial template as an example for other fields of research. Furthermore, the managerial template has made the RBV more applicable to managers, who are now more able to use and measure the different constructs of the RBV in daily practice. The knowledge gained from the managerial template can be put into practice by the manager and recommendations can be implemented. Another theoretical implication is that the managerial template has been developed from the point of view of the manager, in order for the manager to use the template. Other authors have been developing steps in order to measure the RBV, but those originated from the point of view of a scholar (Rangone, 1999; Newbert, 2008).

In the current study, the method of Rouse and Daellenbach (1999) has been followed: Research has been done in an organization to “unpack the process” and search for specific resources and capabilities that are both valuable and rare. The managerial template has been tested by means of a case study firm, Firm-X. The results of the study suggest that the customers of Firm-X are loyal to the firm, which indicates that Firm-X has an advantage over its competitors based on customer loyalty (Narver and Slater, 1994). The results of the study are a guide for managers of SME firms, to learn how to measure their competitive advantage. Managers can beneficially use this knowledge and can use the managerial template for their firm. When other firms do not know about the managerial template or do not use it, the manager who does use it has an advantage over the other firms. Moreover, by means of a survey the firm could learn more about how customers perceive the firm and how they judge certain attributes of the firm. Managers can use this information to adapt their business operations, strategy and business plans, all in order improve the way of operating of the firm. Especially when the manager receives new and important information how to improve the firm, this is very useful for the firm.

29 competitive advantage of the firm. A certain SBU could use different resources and capabilities than another SBU, which could influence the competitive advantage of the firm as a whole. By means of the managerial template, these differences can be uncovered.

Finally, when all the steps of the managerial template have been followed and managers are aware of the valuable and rare resources and capabilities within the firm and how these can generate a competitive advantage, this may influence the way in which managers make decisions to alter their resource and capability stock in the firm. For example, when a manager is aware that the firm is able to generate a competitive advantage based on a certain trait of employees, the manager can search for recruits that possess these traits. Thereby the manager is able to strengthen the resource and capability base that generates the competitive advantage of the firm.

By means of the managerial template the managers is able the measure the competitive advantage of the firm in terms of customer loyalty. When a competitive advantage is observed, this does not mean that another firm is not able to have the same competitive advantage in this case. When the market is small and all customers state to be loyal to the firm they currently do business with, all firms have loyal customers and in this term; they all have a competitive advantage. However, the way in which this competitive advantage is generated can be different for every firm and each firm possesses its own resources and capabilities in order to generate this competitive advantage. In the current study, it was not possible to send a survey to the customers of the competition, in order to test their loyalty to a competitive firm, because these customers could not be contacted.

7.1.

Conclusion

30

7.2.

Future research

Future research should focus on dynamic capabilities and the influence of dynamic capabilities on the results of the managerial template and the competitive advantage of the firm (Teece et al., 1997). The study should focus on the difference between the ex-ante and ex-post knowledge of managers about the competitive advantage, resources and capabilities of the firm in a changing environment (Amit & Schoemaker, 1993). This study should complement the literature about the RBV, dynamic capabilities and the applicability for managers.

Furthermore, future research should show if there are advantage differences between the firms that do use the managerial template, with those firms that do not use the managerial template.

8. Limitations

Multiple limitations exist and a major limitation is that customers of a competitive firm and potential customers could not be asked to fill in the survey. In this way it was not possible to compare the case study firm with another firm, concerning customer loyalty.

Another limitation is that the focus group consisted of employees and managers from the whole firm. Power distances could influence the answers of the discussants, which ultimately could influence the results of the study. Another factor is that the results of the study give information about the competitive advantage at that specific moment, and this information can outdate quickly.

31

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