Swot Analysis from a Resource-Based View

Author(s): E. K. Valentin
Reviewed work(s):
Source: Journal of Marketing Theory and Practice, Vol. 9, No. 2 (Spring, 2001), pp. 54-69
Published by: M.E. Sharpe, Inc.
Stable URL: http://www.jstor.org/stable/40470032 .
Accessed: 17/11/2011 06:23

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .
http://www.jstor.org/page/info/about/policies/terms.jsp

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of
content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms
of scholarship. For more information about JSTOR, please contact support@jstor.org.

M.E. Sharpe, Inc. is collaborating with JSTOR to digitize, preserve and extend access to Journal of Marketing
Theory and Practice.

http://www.jstor.org
 SWOT ANALYSIS FROM A
RESOURCE-BASED VIEW

E. K. Valentin
Weber StateUniversity

An approachto SWOT analysisis delineatedandillustrated

thatmitigates
shortcomings fostered
byprevailing SWOT analysis
conventions.SWOT analysis- theidentification
andassessment ofstrengths,
weaknesses, - is intended
andthreats
opportunities,
to yieldstrategicinsights.However,typicalproceduralguidelinesconsistlargelyof catchallquestionsdevoid of explicit
theoretical
underpinnings.Too often,
theyproduceshallowmisleadingresults.As showninthisarticle,
morepenetratingstrategic
can
insights be gainedbyfollowingSWOT derived
analysisguidelines from contemporary strategic
management theory,
especially
theresource-based viewofthefirm.

INTRODUCTION FIGURE 1
CONCEPTUAL STRUCTURE OF THE SWOT FRAMEWORK

Business strategyis equated widely with craftingand

maintaining fitbetweena commercial
a profitable venture and
its environment. SWOT analysis,which inquires into
strengths,weaknesses, opportunities,andthreats
(S WOTs), is InternalFactors ExternalFactors
thetraditional meansof searchingforinsightsintoways of
realizingthedesiredalignment (e.g., Ansoff1965; Andrews FavorableFactors Strengths Opportunities
1987; Porter 1991;Mintzberg, Ahlstrand, andLampel 1998).
Unfavorable
Factors Weaknesses Threats
This articleproceedswitha briefcritiqueof conventional
SWOT analysis. Thereafter, it providesthe conceptual
foundations of a betterapproach: resource-based SWOT
analysis. It also delineatesand illustrates
therecommended whichare intendedto facilitate thesearchforSWOTs and
approach.Executiveswhomakestrategic theirstrategic
decisions,students implications.Conventional SWOT checklists
whose assignments requireanalyzing cases or developingareexemplified byThompsonandStrickland's (1998,p. 107)
businessplans,and educatorswho teach strategicdecision rendition.It includesthe likes of "powerfulstrategy" and
makingwill findresource-based SWOT analysisespecially "attractivecustomer base"amongpotential andnotes
strengths
useful. that"Likelyentryof potentnew competitors" and "Vulner-
abilityto industrydrivingforces" are potentialthreats.
A BRIEF CRITIQUE OF Unfortunately, casuallyentertaining amorphouspossibilities
CONVENTIONAL SWOT ANALYSIS seldom reveals which factorsare pivotal and which are
peripheral.Nor does itshedmuchlighton thesustainability
PrevailingexpositionsofSWOT analysismakethetechnique of advantagesandthepersistence of disadvantages.Needed
lookmuch too easy: Simplyfillinthequadrants ofFigure1, are reliable guidelines for assessingwhethera strategy is
theysuggest,bylistingfavorableandunfavorable internal
and powerful, a customer base is attractive,
competitive influxis
externalparticulars.Then ponderhow strengths may be imminent, and so forth(Schoemaker1990).
leveragedtorealizeopportunitiesandhowweaknesses, which
exacerbatethreatsorimpedeprogress, maybe overcome(e.g., Kotier(2000, p. 78) providesa checklistfor evaluating
Hoferand Schendel 1978; Schnaars1998; Thompsonand strengths and weaknessesin termsof variousperformance
Strickland1998;McDonald 1999;Kotier2000). dimensions, whichareexemplified bymarket share.Deeming
market-share a
leadershipstrength seems logicalonthesurface
Whilesomeexpositions proceed as ifstrategically
significant because frontrunners must be doing somethingright,and
SWOTs wereapparent at a glance,mostincludechecklists, empiricalstudieshaverevealedcorrelations betweenmarket
shareand profitability(e.g., Buzzell,Gale, and Sultan1975;

54 JournalofMarketing
THEORY AND PRACTICE
Jacobsonand Aaker 1985). However,doing so diverts Firmsas HeterogeneousBundlesofResources
fromcausal detailsthatdetermine
attention whether market-
shareleadershipis relevantandsustainable. Froma resource-basedvieweveryfirmis a uniquebundleof
thatdetermines
resources whichexternalcircumstancesafford
For instance,even thoughIBM dominatedthe personal opportunities and whichpose threats.Further,comparative
computer (PC) industry in theearly1980s,itspositionwas advantagesand disadvantages
in resourcesaretantamountto
to
vulnerable.IBM rose the top largelybecause its name strengths andweaknesses, thatengender
respectively, costand
reducedperceivedriskata timewhencustomers
greatly found differentiation
advantagesor disadvantagesin competitive
buyinga PC dicey.As clonesgainedcredibility,thepowerof productmarkets (Day andWensley1988;Porter1980,1991;
theIBM namewaned,as did marketshareand profitability. Hunt2000). Criticalresourcesmayincludethetangibleand
Whatever sizeadvantages IBM enjoyed(e.g.,scaleeconomies intangibletypesnotedin Table 1 (Huntand Morgan1995;
in advertisingand purchasingpower) were offsetby Teece, Pisano,and Shuen 1997; Srivastava,Shervani,and
encumbrances (e.g.,overheadandbureaucracy). Faheyl998).

Market-share leadershipand firstto marketare amongthe TABLE 1

TYPES OF TANGIBLE ANDINTANGIBLERESOURCES
correlatesof profitabilitythat compriseaccomplishments
whoseimplications arecomplex,indefinite,
andfarfromself-
evident.Atbest,references to theirstrategic are financial- e.g.,cash and access to financialmarketsphysical- e.g.,
significance
oblique allusionsto moredirectdeterminantsof profitability, facilities,equipment, andrawmaterials
configurations,
- e.g.,expertise,
suchas scaleeconomies, whichmayormaynotoperatewithin intellectual formulas,and discoveries
- and
thepertinent context.At worst,theyare self-congratulatory legal e.g.,patents,trademarks, contractsthatprotectintellectual
capital
irrelevancies. human- e.g.,employees'individualexpertiseand skills
organizational -e.g., culture,customs,sharedvisionsandvalues,routines,
An extensivereview of popular textbookssuggeststhat and workingrelationships
informational - e.g.,customerand competitor intelligence
deficient expositions of SWOT analysisabound. Moreover, relational-e.g.,strategic alliances;relations
withcustomers, and
vendors,
flawsare akinto thosefoundin Thompsonand Strickland's otherstakeholders, whichoftenare affected powerand
by bargaining
(1998) best-selling management
strategic textand Kotier's switching costs
standard-bearer. Ratherthan reputational - e.g.,brandnamesthatreduceperceivedriskor have sym
(2000) marketing management
a sense of direction
for into bolic value
provide delving deeply strategic
issues, conventionalSWOT checklistsseeminglybeckon
analysts tolimittheirworktojudgingoffhandedly whichlisted Resourcesare buildingblocks of capabilities(Amit and
itemscharacterize a businessand whichdo not. Theyare Schoemaker1993;Hunt2000), butrigiddistinctions between
ladenwithcatchallquestionsthatlack coherenttheoretical resourcesand capabilitiesneednotbe drawn(Conner1991;
underpinnings, slightcontextual
complexities, prompt analysts Barney1997,p. 144). Onlya hierarchy needbe envisioned
to meanderhaphazardly fromone issueto another, and leave whereinrelativelycomplexhigh-level arecreated
capabilities
indoubthowlistedissuesareto be examined.Consequently, by combining low-level resourcesand capabilities(R&Cs).
traditionalSWOT analyses often yield only shallow Forinstance, FederalExpressis capableofproviding reliable
extemporaneous inventories
thatare as likelyto detractfrom economicalnext-day small-parceldeliveryservicesbecause it
criticalissues,themes, andthrustsas illuminatethem(Hill and has requisitecommunications and air transportsystems. It
Westbrook 1997;McDonald 1999). fashionedthesehigh-level R&Cs, orassets,frominnumerable
tangibleand intangiblelow-levelR&Cs, including communi-
CONCEPTUAL UNDERPINNINGS OF cationsequipment, aircraft,
people,expertise,teamwork, and
RESOURCE-BASED SWOT ANALYSIS vision.
strategic

Resource-basedSWOT analysisalleviatesshortcomings of R&Cs maybe relativelymobileorimmobile assets,depending

traditional
SWOT analysisnotby eliminating but
checklists, on how readily they can be exchangedor redeployed.
by focusingon systemiccausal issues that affordmore Immobile R&Cs oftenare highlyspecialized or deeply
perceptive,reliable,andactionableinsights.Itis groundedin embedded.The mostspecializedR&Cs can engendervalue
contemporary strategicmanagement and marketing theory, thatexceedstheircostonlyintheirpresentuse (Lippmanand
the
especially resource-basedview of the firm (e.g.,Wernerfelt Rumelt 1992). Deeply embeddedR&Cs are maximally
1984; Conner 1991; Amitand Schoemaker1993; Peteraf productiveonlywithincomplexasset constellations; unlike
1993; Hunt2000). However,italso drawsnotablyfromtwo standardizedplug-inmodules,theycannotbe uprootedand
complementary frameworks, s ( 1979, 1980) well-known
Porter' movedintact(Dierickxand Cool 1989).
competitiveforces paradigm and Brandenburgerand
Nalebuffsvaluenet(1995, 1996). R&Cs also maybe relatively
mobileor immobileintermsof
theirlegal and economicbonds to an organization.For

Spring2001 55
example,professional playersarehighlymobileif(1)
football of its priceand independent of the performance and price
theyare free to signwith anybidderfortheirservices(i.e., attributesof competingofferings.However, to be salable,a
theyhave legalmobility) (2) severalorganizations
and seem product's CV mustexceed itsprice,whichmust cover costsin
of
capable deriving approximatelymaximum from
productivity thelongrun. ProducingoutputswhoseCV-costdifferentials
them(i.e.,theyhaveeconomicmobility). arepositiveis necessary,
butusuallyis noisufficient toensure
because
profitability competitivepressurestypically forcethe
R&Cs thatarenotboundto a firmand whosevalue in-useis pricesandrevenuesa product canfetchsubstantially belowthe
transparenttendto gravitatetowardorganizations thatcan CV level. Hence,tobe viable,outputs usuallymustalso boast
derive approximately maximumvalue in-use fromthem. competitive CV/costratios(Gale 1994).
Maximumvaluein-useequalsthediscounted earnings anasset
yieldswhen used mostproductively (Barney1986). A firm Typically, CV evaluations are made along several
can affordto outbidotherwell-informed rationalcontenders performance, orbenefit,
dimensions.Theimportance ofthese
and stillprofitfroman assetacquisitionif it can derivethe dimensions andtheimportance ofpricecan varydramatically
mostvaluefromtheasset. Generally, a purchasable assetis a overtime,acrosssituations, and amongcustomersegments
sourceofsubstantialprofit
premiums onlyifthebuyercanuse (Dickson 1982; Dickson and Ginter1987; Gale 1994; Hunt
itmuchmoreproductively thananyoneelse,possessessuperior 2000).
insightintoitstruevalue in-use,or is lucky(Barney1986;
Teece,Pisano,and Shuen1997). Costs

Because firmsareheterogeneous andR&Cs arenotperfectly Productcosts,whichare examinedfurther in latersections,

mobile, environmental circumstancesthat afford some depend on (1) internalefficiencyin convertinginputsto
contestants opportunities may threatenothers. Moreover, outputs,(2) costs incurredin developingor acquiringthe
firmsdifferintheirabilitiesandresolvetoshapeenvironments processing neededtotransform
capabilities inputsintooutputs,
to theiradvantage(HamelandPrahald1993). and (3) deliveredpricespaid forinputs.Internalefficiency
maydependonthelikesofproduction technology andvolume;
LimitingDeterminantsofProfitability thecostsofprocessing capabilitiesmaydependonwhether the
capabilitiesweredevelopedinternally or purchasedfroman
Firmsgeneraterevenueby usingR&Cs to makeproductsor external vendorwhois ina strong bargaining position;andthe
otherwise addvalueandthenexchanging productsformoney. deliveredpriceof inputsis aptto dependon thebargaining
To earnprofits, products offered forsale mustfetchpricesand powerof suppliers(Porter1980; Barney1997).
revenuesthatexceed cost. A product, in theintended broad
sense,is a complement of outputsthatincludesall aspectsof FurtherDeterminantsof Profitability
a purchaseand the attendant purchasingprocess,such as
goods, services, warrantees,brand names, information, Theresource-based viewdepictsa product' s profit
potential as
delivery arrangements, andshopping convenience.Customers' the sum of two components: a normalprofit,which is
product choicesgenerally reflect
theiraimstorealizedesirable tantamount tothereturn efficientfirmsearninperfectly com-
consequences and avoid undesirable consequences(Peterand petitive markets, andeconomicrent, whichis a profitpremium
Olson 1996). The maximumprofita productcan possibly thatstemsfromscarcity.Pertinent rentscanbe categorized as
yieldis thedifference betweenitscustomer value(CV) andits monopolyorRicardianrents(Peteraf1993).
cost.
MonopolyRents
Customer Value (CV)
Monopolyrentsstemfromshortages ofcompeting sellersand
CV has been definedin diverseways(Zeithaml1988; Gale deliberately created of
shortages outputs(Teece, Pisano,and
1994). FollowingHuntandMorgan(1995), itis equatedhere Shuen 1997). A firmacting independently can exact
with the worththat customersas individuals,as market monopolyrentsif its outputsengenderpositiveCV-cost
segments,or as a mass place on the consequencesthey differentials and it faces so littlecompetitionthatit has
attribute to a product.It stemsfromperceivedor expected substantial controlover the pricesthatprevailin the focal
performance in satisfyingcustomers'functional and psychic productmarketor product-market segment. Ratherthan
needs(Sheth,Newman,andGross1991) andmaydependon dictateprices,itmayrestrict outputquantities and counton
user networksor on the availabilityand quality of demandto drivepricesupward.Nintendo, forexample,was
complements.A telephone, forexample,conveyslittleCV, able to chargeveryhighpricesand earnsubstantial profit
unlessa networkof telephoneusersexists,and a computer premiums by usingdifferentiation to dominatea segmentof
conveyslittleCV without complementary software. thevideogamemarket anddeliberately limiting thesupplyof
cartridges(Brandenburger andNalebuff1995). Sometimes, a
Fromthepresent vantagepoint,a product'sCV is independent group of firmscan exact monopolyrentsby colluding.

56 JournalofMarketing
THEORY AND PRACTICE
Membersof oil cartels,forinstance,colluderoutinely and because,ineffect,
theyshiftbargaining
powerfromsellersto
explicitlyto fix prices or limit oil production. Explicit buyers.
collusionusually is illegal in the U.S.A.; however,tacit
collusion,whichengenders undeclaredaccords,is legal and Substitutescan be foundforalmostany product,but the
widespread inAmerican oligopolies(SchererandRoss 1990; performance or pricegap betweenthereferent and thebest
Baye2000). replacement maybe vast. Further,A maybe a poorsubstitute
forB, eventhoughB is an excellentsubstitute forA. Mar-
RicardianRents garine,forexample,is a muchbetter substitute
foraxlegrease
thanaxlegreaseis formargarine. Also,notall look-alikesare
Unlikemonopolyrents,Ricardianrentsstemfromoutput acceptablesubstitutes. For instance,numerousairlinesoffer
shortagesthataretraceabletonaturalpermanent ortemporary seeminglyidenticalfrequent-flyer programs, whichtie free
ofR&Cs (Peteraf1993). To earnRicardianrents,a
scarcities tripsto miles flown. But since Delta does not accept
firm'soutputsmustpromiseCV thatexceeds theircosts. American'smilage credits,American'screditsare not a
Further,theymustnotbe readilyimitableorreplaceablewith satisfactory substituteforDelta's. Ratherthanerodeprofit
becauseat leastone oftheR&Cs neededto make margins,as genuinesubstitutes
substitutes tend to do, frequentflier
imitationsor substitutesis scarceand notreadilyimitableor programscreateswitchingcoststhatshiftsome bargaining
replaceablewithsubstitutes.For example,officespace in powerfrompassengers tocarriers.
Consequently, carriers
may
ManhattangarnersRicardianrentsbecause it is scarce; increaseprices graduallywithoutincitingmass customer
moreover, it is scarcelargelybecause land in Manhattanis defections(Brandenburger andNalebuff1995,1996).
scarce,inimitable, andresistantto substitution.
RESOURCE-BASED VIS--VIS
Appropriable Value CONVENTIONAL SWOT ANALYSIS

Froma resourcebasedview,creating CV is necessary,butnot Froma resource-based viewstrategicimplicationsdetermine

sufficientto garnerprofits. For example,were a firmto strategicsignificance. Therefore,identifying significant
inventeda cure forcancer,it would createimmenseCV. SWOTs and deriving their strategicimplicationsare
Nevertheless, itsfinancialrewardwouldnotbe secureifan interactive,ratherthansequential,tasks. Further, strengths
essentialingredient had to be acquiredfromone particular and weaknessescommonlydefineand aredefinedbyoppor-
sourceor ifitsinvention couldbe imitated legallywithease. tunitiesand threats.Hence, the importanceand status
When scarce ingredients, skills,or otherfactorsmustbe (favorableor unfavorable)of manyfactorsthatcomprisea
purchased,suppliersmay raise their prices and, thus, business' internaland externaldomains are contextually
appropriate mostofthevaluecreated.Andwhena productis determined andfarfromapparent atfirst
glance(Moore1999).
highlysusceptible toimitation orsubstitution,incumbentsface In view of thesecomplexities, whichare slightedby typical
two profitsuppressingoptions: discouragepoachersby SWOT guidelines, resource-basedSWOT analysisundertakes
pricingtheproduct so lowthatprofit margins areunattractive, categorizingparticularsas SWOTs only afterthe focal
or sufferthe consequencesof intensified competitionas business' defensive and offensivecontextshave been
imitatorsorsubstitutors enterthefray(Porter1980). scrutinizedcarefully.Defensiveandoffensive analysesafford
insightsintotheprospects andmeansofachieving twogeneric
Additional Observations AboutImitation and Substitution strategicobjectives: (1) hangontoclaimedproduct-market
turfandtheprofit potentialitaffords;
and(2) claimadditional
In one sense,whether a highdegreeof productinstability is profitable turf.
good or bad dependson whetherthe focal companyis a
pacesettertryingto protectan advantageor a challenger Defensiveanalysisprobesthevulnerability ofextantventures
strivingto makeinroads.Butinanothersense,a highdegree andeconomicrentsbyexamining suchas technological
forces,
of productimitability is categorically
undesirable because it advancesand imitability, thatmayaffecta product'sCV-cost
tendsto depresscollectiveprofit premiums. differentialand a business'competitive position. Potential
effects
on CV areassessedlargelybyapplying buyerbehavior
Often,it is betterto focus broadlyon the imitability of theoryand insightsfromstudiesof technologydiffusion.
orsystems
strategies - including themeanswhereby products Potential effects on costs are examined within both
arepromoted anddistributed -thannarrowly ontheimitability noncompetitive and competitive contexts.Noncompetitive
of goods or services. However,regardlessof whether cost analysiscenterson the impactof such forcesas scale,
strategies,systems,or productsare scrutinized, imitability scope, and experience,whichcan affectcost even in the
affectsprofitpotentialand thesustainability of competitive absenceofcompetition. Competitivecostanalysis,incontrast,
advantages. Althoughimitatorsmay help build markets probes the sustainabilityof the focal business' or its
(Brandenburger and Nalebuff1995, 1996), imitations and competitors' costadvantagesmainlybyassessingimitability.
substitutes usuallypose threatsto profitability eventually Competitive defensiveanalysisalso delvesintothesustain-

Spring2001 57
abilityofthefocalbusiness'and itscompetitors' differentia- criteriaand desiredbenefitsare obvious;butat othertimes,
tionadvantages.Examining forcesthataffecta product'sCV- marketing researchis requiredto understandbuyerbehavior.
cost differential
and competitive position from a defensive R&C profilesare annotatedlistingsofthe R&Cs fromwhich
perspective facilitatesidentifyingand assessing threats, outputs, benefits,
CV, andcostsderive. Tables
(Referto 1and
conceivingcountermeasures, discovering weaknesses that 5.)
exacerbatethreats,and recognizingstrengths thatmitigate
threats. AnalyzingNoncompetitiveForces thatAffectCV

Offensive analysisprobesapparentpioneering and poaching AlthoughtheforcesdepictedinFigure2 mayaltercompetitive

opportunities.Assessingpioneeringopportunities entails positions,theyarenoncompetitive to theextentthattheyare
the of
evaluating prospect securingvirginproduct-market turf of
capable affecting profitseven when a productor business
by creating CV that exceeds cost; assessing poaching faces no competition. As shown, several of these
opportunitiesrequiresidentifyingincumbents' vulnerabilities. noncompetitive forcesaffectprofits
via CV.
Examining forces
that affecta product'sCV-cost differential
and competitive position from an offensive vantagepoint Changesin CustomerPerceptions
facilitates
identifying
promising expansionpaths.
Customers'perceptions ofproductperformance andbenefits,
Arguably, thefollowing
discussions
ofdefensive
andoffensive whichunderlie CV, maybe shapedbypersonalexperience and
analysiscomprisean annotated
checklist.However,vis--vis manyotherfactors, including advertisingand word-of-mouth
conventionalSWOT checklists,the proposedapproachto communications. Suchperceptions maybecomemoreorless
SWOT analysis promotesmore focused, rigorous,and accuratein an objectivesense and moreor less favorable
thorough probing. (Hunt 2000). Trouble looms when perceptionsbecome
increasinglyaccurateand less favorable. A product'sCV
DEFENSIVE ANALYSIS seems especiallyvulnerableto perceptualcorrection when
customers overestimate performanceand objective
Defensiveanalysiscenterson examiningR&Cs forstrengths performance information is becomingreadilyavailable.
and weaknessthat affectan enterprise'svulnerability to
variousexternalforcescapableofundermining profitabilityor Spontaneousand Socially Induced Changesin Needs and
competitive position.Ideally,defensiveanalysesofthriving Preferences
afford
enterprises actionableinsightsintowaysofmaintaining
or enhancing profitpotential.However,theyalso are useful Customerneedsand preferences thataffecta product'sCV
andactionableiftheyrevealthatprofits aredestined toevapo- maychangespontaneously or inresponseto governmental or
rate. Useful defensiveanalysesof foundering businesses othersocietalagents. Accordingly, wine coolersmayhave
affordinsightsintotheprospect ofstaying afloat.Ideally,they become popular shortlyaftertheirintroduction not only
pointto waysof overcoming competitive disadvantages and becausetheywereadvertised heavily,butalso because,fora
turningthebusinessaround. However,theymayrevealthat time,itwas "cool" to drinkcoolers. Later,demandforwine
demiseis inevitable. coolersmayhave wanedsimplybecausepeopletiredof the
taste;or,theproductmayhave fallenpreyto boredomand
Defensiveanalysisbeginswithdepictingthefocalbusiness' eagernessamongcustomers to trysomething newer. It also
internalcontext. Next,noncompetitive forces,whichmay mayhavedeclinedinresponsetohigheralcoholtaxes,stricter
affectCV, cost, and profitability even in the absence of drunk-driving laws, pleas fromMothersAgainst Drunk
competition,are identified
and assessed. Thereafter,attention Driving(MADD), or healthwarnings.Social changesthat
is directedtowardcompetitiveforcesthatmay affectthe affectCV and demandoftenare foreseeable;nevertheless,
ofrivalry
intensity andcontestants'
advantages, disadvantages, theirtimingandultimate impactmaybe highlyuncertain.
andprofits.
TechnologicallyInducedChangesin CustomerNeeds and
DepictingtheInternalContext Preferences

Depictinga business'internal
context
requires CV
constructing Technologicaldevelopmentsmayaffect needsandpreferences
and R&C profilesakin to thoseshownin Tables 4 and 5, or Several
directly indirectly. types of technological
which appear in a later sectionentitled"An Illustrative and their diverse
developments noncompetitiveand
Resource-based SWOT Analysis."CV profiles enumeratethe competitiveeffects
arenotedin Table 2.
benefitsthatoutputsconveyor lack in view of each market
segments'buyingcriteria.Further,
theyidentifyenhancements
thatwould augmentCV foreach identified customerand
situationalsegment(Dickson 1982). Sometimesbuying

58 JournalofMarketing
THEORY AND PRACTICE
 FIGURE 2
PERVASIVE NONCOMPETITIVE FORCES THAT AFFECT PROFITABILITY

I
! Suboptimization w 1 r-
I. 1 Forces
Spontaneous
"Chan^irTHH |
. - , , ; Customer|K !ProducTl
; Performance/ Customers' ^~
t "
PmHiir V I Product <- Value(CV) Benefjt$ <-i
Perceptions, Societal
Forces I

'' "' ' ~

'Av ' Product
<-
n
,
r 1 Cost ' I Resources
&
^
Power I
Bargaining ^j^68 fComplements
K
ofComplementers ^ n [ (K&Cs? I
|
I Bargaining I
Effects
^etwork
Powerof I
I Suppliers .mmmia^m^mmmj

II spelei
Factors 1 'ASS*!
bgeneiice
I 1
I
'ISS

TABLE 2
POTENTIAL EFFECTS OF TECHNOLOGICAL DEVELOPMENTS

Technologicaladvancesmeritparticular scrutiny.Theymay. . .
engenderdirectsubstitutes forend-products - e.g.,digitalwatcheshavenearlyreplacedmechanicalwatches
reduceneeds- e.g.,PCs and wordprocessingvirtually eliminated theneedforcorrection fluid
catalyzesocietalchangesthataffectlifestylesand shoppingpatterns- e.g., in-homeelectricity, householdrefrigerators,and affordableautomobiles
combinedto rendersupermarkets feasibleandbettersuitedthancornergrocery storesto meetconsumers'needs
producecomplements thatchangetheperformance ofthereferent - e.g.,numeroussoftware improvementshaveenhancedPC performance
engendercomplements thatimposehigherperformance standardson thereferent - e.g.,new software
oftenrequiresmorepowerful hardware
spawnenvironments thatliftconstraints - e.g.,transportationandcommunications systemsexpandedgeographic market bounds,thereby, putting further
scale economieswithinreach
altercoststructures - e.g.,theWindowsoperating systemmagnified applicationssoftware developmentcostsandrisks;electric-arc
technology lowered
theminimum efficientscale (MES) in thesteelindustry; and as an advertisingmedium,televisionincreasedMES in thebeerbusiness
createsubstitutesforindustrial processesandproductsthatenabletheiruserstoenhanceCV,reducecosts,orcompetemoreeffectively - e.g.,electric-arc
furnaces enabledpoacherstochallengemuchlargerincumbents committed toolderprocesses;newmediaaremakingpinpoint targetmarketing increasingly
feasible;andadvancesin roboticsand modularconstruction facilitatemasscustomization, whichenablesfirmsto enhanceCV andreducecostswithout
havingto makehighlystandardized "one-size-fits-all"products

Complements Networks

In general,complements may changeor limitthe referent The CV conveyedby telephonesand fax machines,for
product'sCV byalteringperformance criteria,
reducing needs, usernetworks
example,was minimaluntilsubstantial emerge
changing combined costs,performingpoorly,orbeingunavail- (Arthur1996;ClarkandChatterjee1999).
able or scarce. For example,miniaturization in computers
alteredcriteria
forevaluatingdisk drives: It diminishedthe TechnologicalProductImprovements
CV of physicallylargediskdrivesand enhancedtheCV of
smalldrives(Christensen 1997). Further,theneedforcorrec- Technologicaldevelopmentsmay affectCV by changing
tionfluidnearlyvanishedas PCs displacedtypewriters;
theCV customer However,as showninFigure2, they
requirements.
conveyedby fuelguzzling automobilestendsto varyinversely also mayaffectCV byimproving
productperformance.
withgasolineprices;earlyBetamaxvideotapesweretooshort,
whichlimited theCV ofBetamaxrecorders (Rosenbloomand ForcesThat AffectCost
AnalyzingNoncompetitive
Cusumano1987); and sales of Apple's Macintoshcomputer
languisheduntil ample complementary softwarebecame Some of thenoncompetitive factorsshownin Figure2 can
available(Cringely1993). affectprofitability
via cost.

Spring2001 59
ProductImprovements constitutes
mismanagement. For instance,Schlitzwas once
beer.Butinthemid-1970s,misguided
America'sfavorite cost
Productimprovements may increaseor decreasecosts. For intended
cutting to enhance profitsaffectedproductquality
instance,hardwoodfurniture costs moreto make thanthe andmarketing effectiveness
adverselyand,thus,madeSchlitz
variety.However,qualityimprovements
particleboard often easypreyforcompetitors(Neher1982; Aaker1991). More
reducecustomerdefectionsand overallcosts by reducing recently, "Chainsaw"Al Dunlap'smyopiccostcutting nearly
reworkandreplacement costs(Crosby1980; Gale 1994). destroyedtheSunbeamCorporation (Byrne1999).

Scale, Scope,andExperienceEffects Since calculatedrisksmustbe taken,not all disappointing

resultsareattributable
to bad management.Moreover,some
Scale effectsaffordeconomiesto theextentthattheaverage seeminglyunprofitable venturescreatevaluableoptionsor
deliveredcost per unitof a particular productdeclinesas stepping stones(Barwise,March,andWensley1989;Amram
outputvolumeincreases(Baye 2000). Scope effects reduce andKulatilaka1999). Forinstance, Iomega'sBernoullibox,
incremental costsandaveragecostsbyspreading fixedorsunk a mass-storage deviceforPCs, barelysucceeded.Butitgave
costs acrossmultipleproducts(Goldharand Jelinek1983; Iomega the optionto continueworkingon mass-storage
Goold and Campbell1998; Baye 2000). Experienceeffects devicesand pavedtheway foritsimmensely successfulZip
areequatedmostly withcostsavingsderivedfromlearning-by- andJazdrives.
doing. However,experiencealso may enhance product
quality. Each unitof production affordsan opportunityto The PowerofComplementors
learnandgainexperience(Day andMontgomery 1983).
TheCV createdbyadvancesinoneproduct oftenis contingent
ProcessInnovations on advancesin another.For instance,whenIntelintroduced
its revolutionary80386 microprocessorin 1985, the
Just-in-time(JIT) inventorymanagement, forexample,may company'smain complementor, Microsoft(MS), had not
directlyreduce inventory carryingcosts. Otherprocess developedan operating systemscapableof usingthatchip's
innovations may reduce manufacturing,packaging, mostsignificant enhancements. The lackofsuchan operating
distribution,or promotioncosts. However, process systemlimited thenewchip'sCV andsales(Botticelli, Collis,
technologies thathavethepotential
toreducecostsareunlikely and Pisano 1997). Intelmighthavebenefitted fromoffering
to do so significantly when theymustbe acquiredfrom orconcedingfinancialincentives thatwouldhavespurred MS
externaldeveloperswho have the bargainingpower to to expeditedevelopingtheneededsoftware.
appropriatemostof thesavings.In a similarvein,newtech-
that
nologies augment CV maybe pricedso highthattheiruse Whentwo productsare complements, the CV theyafford
does notimproveprofitability. jointlyincludesa synergeticdifferentialequaltotheamountby
whichtheCV theyaffordas a systemexceedsthesumofthe
ComplexIndirect Effects CV theyaffordindependently. How thatdifferential is split
betweena pairofcomplementary products is apttodependon
RailroadsandtheInternet exemplify thatreduced scarcity: If one halfof the dyad is readilyavailablefrom
technologies
some manufacturing costs indirectly. They did so by numeroussourceswhile the otherhalf is scarce,thenthe
expanding thegeographic domainsfirms can serve,whichput provider ofthescarcecomponent is ina positionto setprices
furtherscale economieswithinthereachesof somefirms. highenoughto appropriate mostofthesynergetic differential
(Brandenburger andNalebuff1995, 1996; Brandenburger and
Bargaining Powerof Suppliers Stuart1996).

A product'sCV-costdifferential maybe vulnerable

because, AnalyzingFundamentalCompetitiveForces
sooneror later,somecriticalresourcesareusedup (e.g.,raw
expire(e.g., patentsand mostcontracts),
materials), or leave
Manyfactorsthatcan affecta product'sCV-costdifferential
theorganization (e.g.,people). Effective maybe
replacements also canaffectitsrelativeCV/costratio- i.e.,itsCV/costratio
more expensiveor unavailable,which may cause CV to vis--vistheCV/costratiosof competing offerings.Indeed,
deteriorate
and/or coststo rise. factorsthatcan affect innoncompetitive
profitability contexts
mayaffect profitabilityevenmoreincompetitive markets.For
AnalyzingAdditionalNoncompetitive Forces instance,railwayscreatedmassmarkets, whichextended new
opportunities to realize cost-reducingscale economies.
Suboptimization However,sincecompetingfirmsgenerallywerenotequally
able or willingto seize theseopportunities, railwaysaltered
No firmcan hopeto squeeze everypennyof profitpotential cost structures,profitmargins,and competitivepositions
fromitsR&Cs (Ghemawat1991). However,severesubopti- amongcontestants.
whichdrivesactualprofits
mization, farbelowpotential
levels,
60 JournalofMarketing THEORY AND PRACTICE
Defensivecompetitiveanalysisrequireslookingatotherfirms R&C Exploitation
as potential contemplating
aggressors, howtheymightattack,
andpondering whethertheirattackscanbe repelled.Itcenters Sometimes,imitationis readilypossible,yet predictably
on assessingdisadvantages(i.e., rivals' advantages),which unprofitable.For thatreason,few companieshave dared
rendera business vulnerable,and the sustainability of challengeMicrosofthead-on in the marketfor computer
advantages,whichaffordvaryingdegreesofprotection from operatingsystems, and Kmartelectedto bypassmanysmall
poachers. Whether anycontestant can sustainan advantage townsalreadyservedbyWal-Mart.Pooreconomicprospects
dependslargelyon theextentto whichunderlying R&Cs, or usuallyare a deterrent
to imitation;
however,somepoachers
satisfactory are identifiable,accessible, and
substitutes, aretoo imperceptiveor recklessto be deterred.Beforethey
exploitable. fail,theymaydecimateincumbents' profits.

R&C Identification AnalyzingDynamicCompetitiveForces

Manysuccessformulas are complexand ambiguous;hence, Thestrategic landscapechangescontinually inwaysthatfavor

aspiringimitators often find tracingpacesetters'profit some contestants at the expense of others. In particular,
premiums R&Cs
tospecific anderror
difficult prone(Lippman societalvalues change,laws change,firmsand customers
and Rumelt1982). Ratherthanstem froma fewtransparent learn,marketsgrow,and technologicaladvancescreatenew
elements,such as patentsor enviable supply contracts, andcoststructures.
possibilities Whetherthefocalenterprise
competitiveadvantagesandprofitpremiums commonly flow is a prosperingincumbent or a hungry defensive
challenger,
frommyriadsuccess cofactorsthat,like the pieces of an analysismust the
probe potential effects
of variousdynamic
mosaic,mustbe assembledveryskillfully
intricate to yield forceson competitive position. The followingparagraphs
exceptionalresults.Often,theyare rewards forperforming delineateseveralimportant considerations.
numerous nearly imperceptibletasks unusually well
(Mclnerney andWhite2000). and ExpansionCosts
Maintenance

R&C Access Some resourceadvantagesmaybe lostwhendepletedassets

mustbe replaced.Or theymaybe lostwhentheamountofa
A product'scompetitive vulnerabilityis reducedbytheextent particular resourcemustbe increased tosupport growth,which
to which prospectivechallengerslack expeditiousand oftenis a defensiveimperative rather thanan offensiveoption
economicalaccess to R&Cs neededto make imitations or (Teece,Pisano,andShuen1997). Theneededresourcesmay
substitutesthataffordsatisfactory or betterCV and can be be unavailableormaybe availableonlyatpricesno lowerthan
offeredatcompetitive prices(Ghemawat1986). New entrants, thosepaid bycompetitors.
forexample,oftenincurcompetitive disadvantages because
theycannotsporta prestigious brandnameanddo notpossess DiminishingComparativeScale, Scope, and Experience
thedistribution and communications capabilitiesneededto Advantages
reach customers effectivelyand efficiently. These
disadvantages limittheirsalesvolumeandprecludethemfrom Scale, scope, and experienceeffectscommonlyenhance
quickly replicatingthe scale and experienceeconomies efficiency. However, incrementalscale effectsusually
enjoyedbyincumbents. diminishas volume increases and eventuallybecome
negligible.Market-share leaders,therefore,mayretaintheir
Latecomersoftenfindthatpathdependency - i.e.,theeffect shares,yet lose advantagesas marketsgrow and volume
thata firm'spasthason itsfuture - makescatching up quickly increases. Scale economies usually operate at various
impossibleor verycostly(Dierickxand Cool 1989; Peteraf systemiclevels, such as the local, regional,national,and
1993). Hence,despitehavinglearnedmanylessonsfromWal- globallevels.Accordingly, smallfirms thatareefficient
atthe
Mart,Kmartstill cannotmatchWal-Mart'sperformance locallevelmaybecomerelatively inefficientwhencompetitors
becauseittakestimetoperfect requisite systemsandoperating go nationalor global.
routines,developcomparable vendorandemployeebonds,and
turnan image liabilityinto an asset. While some path Scope effectsalso tend to have limits. For instance,on
dependencies favorincumbents, othersdo not. For instance, average,itmaybe cheaperto selltwoproductlinesthanone.
past successes and organizationalculture often render Butitmaynotbe significantly cheapertosell 11 productlines
executives blind to needed changes (Valentin 1994; than 10; and effectivenesswill suffer when sales
Christensen1997). Furthermore, challengerssometimes representatives are giventoo manylinesto sell. However,
possess scarceR&Cs that abound with unrealized potentialfor will
effectiveness notdiminishfromsharingknowledgeor a
gaining immediate for
advantages.IBM, example, entered the brandname.
PC market late,butsoondominated itlargelybycapitalizing
onitsreputation,financial and
strength, corporate connections. Incrementalgains fromexperiencediminishbecause the
learningopportunity presentedby each incremental unitof
Spring2001 61
outputdiminishes. At some point,incremental learning Advancesin Peripheral
Technologies
becomesnegligible,
andexperience gapsamongfirms become
Experiencegaps
insignificant. also tendto narrowovertime As notedin Table 2, technological developments can affect
becauseknowledgegainedfromexperiencetendsto diffuse productsand businesses For
circuitously. instance, advances
amongfirms(Day andMontgomery 1983). in one productmay altertheperformance criteriawhereby
complements arejudged. Furthermore, numerous technologi-
MarketGrowth cal advances sometimescoalesce to create environments
whereinsimpleextensionsof conventional technologiescan
While marketsare too small to sustainmore than one thrive.Forexample,in-home electric
electricity, refrigeration,
contestant, prospectivechallengersmay be deterredfrom and automobiles combined to alter grocery shopping
entering them. However,as small marketsgrow,theyare preferences, whichprecipitated theriseof supermarkets and
likelyto attract newentrants.Mass merchandisers operating the demiseof corner grocery stores.
in smallgrowingheterogeneous markets sometimesare easy
preyformorefocusedtargetmarketers (Dicksonand Ginter OFFENSIVE ANALYSIS
1987).
Offensiveanalysishas two phases: (1) search,and (2)
Differential TechnologicalPotential evaluation.SearchprobeswaysofusingR&Cs topioneernew
productmarketsor wrestmarketshare fromincumbents.
Somenewtechnologies andthesubstitutes theyspawnexhibit Evaluation entailsscrutinizingapparent revealed
opportunities
such superiorperformance/cost attributesthattheyquickly duringthe searchphase. Offensiveanalysisis precarious
displacematurereferents.Thus,digitalconsumerwatches becausedetermining wherestretching R&Cs endsandwishful
supplantedtheirmechanicalpredecessors almostovernight. thinking beginsis difficult(Hamel and Prahalad1993).
However,manyproducts basedonnewtechnologies havelittle
appeal initially and,thus,maybe dismissedprematurely by Search
market leadersusingoldertechnologies.Myopicincumbents
frequently overlookthatembryonic technologiesoftenhave Opportunities may be spottedvia outside-inor inside-out
much more potentialfor improvement than theirmature analysis(Day 1992). Bothapproachesaremoreintuitive than
counterparts and,therefore, willeventually engendersuperior algorithmic; and bothapproachesoftenidentify expansion
performance/cost ratios. Today's printednewspaper,for opportunities thatcall forreplicatingprovenbusinessmodels
instance, is stillthemostcost-effective mediumformanytypes innew settings.Unfortunately, repeatingprevioussuccesses
of local advertising.Butdramatic technologicalchangesare in new environments oftenis moredifficult thananticipated
onthehorizon- changesthatthreaten theexistenceofprinted becausemanyfirmsdo notfullyunderstand thecontextsof
newspapersbecause theythreatenthe printednewspaper's pasttriumphs (Collis and Montgomery 1995; Teece,Pisano,
relativecost-effectiveness as an advertising medium. and Shuen1997).

AdvancesinProcessTechnologies The outside-inapproachreflectsconventionalmarketing

wisdomembodiedin themaxim"Findneeds,thenfillthem"
New process technologiescommonlyaffectentrenched (Valentin1996). It beginswitha searchformarketvoids-
incumbents andchallengersdifferentlyand,therefore,tendto i.e., customersor needs not satisfiedby extantofferings.
altercompetitivepositions.Inthesteelindustry,
forexample, Subsequently,attentionturnstoward identifying and, if
electric-arctechnologyhas loweredminimum efficient scale necessary,obtainingR&Cs required tofillseemingly attractive
(MES), thepointatwhichfurther capacityincreasesno longer voids.
reduceaveragecost significantly (Schererand Ross 1990).
Moreover,it has attractedsprypoacherswho continueto The inside-outapproachfollows more directlyfromthe
nibbleawayat themarketsharesof incumbents wed to older resource-based view (Grant1991; Teece,Pisano,and Shuen
technology.Theelectric-arc furnace couldproduceonlylow- 1997). It proceedswithinventorying seeminglydistinctive
gradesteelat first;consequently, incumbentsmisjudgedits R&Cs andthenrequiresscouring theexternal environment for
potential(Christensen1997). situationsamenableto leveragingR&Cs advantageously,
andprofitably
synergetically, (Moore 1999). Froman inside-
In the beer industry,new canningand bottlingtechniques outperspective, existwherever a firm'sR&Cs
opportunities
introduced afterWorldWarII raisedfixedpackagingcosts, canbe deployedtorealize
advantagesinemerging
significant
butloweredaveragecostsinlarge-scale (Ghemawat orestablished
operations product marketswithout insurmount-
incurring
1987). Moreover,televisiongave thebeerindustry itsmost able disadvantages. Further,inside-outanalysis probes
effectiveadvertisingmedium. Both advancesraisedMES, creatingmarkets forproductsthatcan be madewiththecom-
advantagedlarge financially strongbrewers,and spawned pany's R&Cs. Sony,forexample,createda marketforits
consolidation. Walkmanaftermarketing researchersfailedto locate one
(Morita1986).
62 JournalofMarketing THEORY AND PRACTICE
Resource-based analysisalso probesintodevel- TABLE 3
opportunity
SYNOPSIS OF RESOURCE-BASED SWOT ANALYSIS
oping scarce R&Cs thatmay be leveraged in the future.
DefensiveAssessment
Honda, for instance, developed extraordinarycore
competencies in designingand producinggasolineengines
Centralobjective: Identify
combinationsof internal
particulars
(used originallyin small electricity
generators),which it andexternalforcesthatrenderthefocalbusiness'profitability
or
graduallyparleyed into strongworldwide positions in competitivepositionvulnerable. The internaland external
motorcycles and automobiles(Hamel and Prahalad 1989; elementsof such adverse combinationsare weaknessesand
PrahaladandHamel 1990). respectively.Internalfactorsthatmitigatethreatsare
threats,
defensivestrengths.
Marketers longderidedtheinside-out approach,deemingit
production-oriented. Fortunately,astuteexecutiveshave Facilitating
analyses:
learnedthatfirmssometimesare well-advisedto lead rather
- Customer valueprofiling entails( 1) enumerating
thanfollowthemarket, especiallywhentheirproductsaretoo keybenefits
boldto be appreciated that outputsconvey or lack in view of each marketsegments'
immediately bycustomers (Workman
buying criteria,
(2) identifying enhancements that would
1993a, 1993b; Moore 1999). They also have learnedthat CV foreach identified
augment customer andsituational
seg-
andinside-out
outside-in analysisafford
complementary view-
ment,and (3) identifying threats to CV fromchangingneeds
points,not rightand wrongperspectives(Johanssonand andtechnologies.Referto Figure2 forforcesthatcan affect
Nonaka1996). CV andto Table 4 foran illustrative customervalueprofile.
- Resourcesand capabilities
profilingentailsconstructingan
Evaluation annotated listoftheR&Cs fromwhichoutputs, benefits,
CV,
andcostsderive.Annotations shouldaddressinstrumentality
Pursuingopportunitiesmay entailpioneeringvirginturfor in creating and instability.RefertoTable 1 for
CV, scarcity,
poachingin marketsalreadystakedoutby othercontestants. an enumeration of R&C categoriesand to Table 5 foran
Evaluatinga pioneeringventure entailsassessingtheprospect illustrativeR&C profile. Also, referto Figure 2 for
of creatingCV thatexceeds cost and, then,analyzingthe noncompetitive forcesthatcanaffect
costandprofitabilityand
venture'svulnerability
to future to thesectionsentitled"AnalyzingFundamental Competitive
challengerswho mayattack
Forces" and "AnalyzingDynamicCompetitive Forces" for
withimitationsor substitutes.
Evaluatinga poachingventure details.
requiresassessingincumbents'vulnerabilities.
Offensive
Assessment
then,defensive
Procedurally, andoffensive analysishavemuch
incommon.However,whiledefensiveanalysisis appliedto Centralobjective: Identifypromising
pioneeringor poaching
extantbusinesses,offensiveanalysisis focusedon contem- opportunities.R&Cs thatfacilitate are
realizingopportunities
platedventures.Moreoverwhen appliedto contemplated strengths,whileinternal
obstaclesto realizingopportunities
are
venturesthatentailpoaching,it is aimed largelytoward weaknesses.
locating competitors'weaknesses and plotting fitting
Facilitating
offensives. analyses:
- Searchforpioneeringopportunities
AN ILLUSTRATIVE RESOURCE-BASED by lookingforunserved
SWOT ANALYSIS needs,forover-orunder-served
customer groups,andforways
of leveragingR&Cs. Assess the viabilityof a pioneering
ventureby estimatingthe CV-cost differential and then
The following resource-based
SWOT analysisillustrates
the assessingtheventure'svulnerability.
advocatedapproachand attendant
conceptsof defensiveand - Identifypoaching opportunitiesby assessingincumbents'
offensive whichweredevelopedinthepreceding
assessment, vulnerabilities.
sectionsandaresummarized inTable 3.
to resellers, such as CompUSA. He chose people who
Scenario
possessed both excellent computerand sales skills and lived
withinthe areas theywould cover.
In 1987,Alan Hall was CEO of NetLine,a smallstruggling
software company. He attributedNetLine'stroublesnotto In threemonths,NetLine's
reps visitedmorethan3,000 stores
productperformance, but to promotionand distribution
throughoutthe U.S.A., spending about 90 minutes at each
he foundthatmanufacturers'
problems.Specifically, repsand outlet demonstratingproductsto sales personnel,answering
resellersseldom gave NetLine's goods the attentionthey questions, and offeringmarketingadvice. Alan Hall was so
neededto succeed. Moreover,advertising, telemarketing, encouragedbytheway resellersrespondedto NetLine' s troops
tradeshowexhibits, and demonstrations
sentto resellerson that, in the fall of 1987, he founded
TempReps (TR), an
CD-ROMshad littleeffect.WhatNetLineneeded,Mr. Hall
independent company dedicated to marketing clients'
surmised,was itsownmissionarysalesforce.Accordingly,he computerproducts.
Early clientsincludednumerousstartups
trained25 temporary to
employees market NetLine'sproducts
Spring2001 63
 TABLE4
TEMPREPSCUSTOMERVALUEPROFILE

Benefits:
TR promotesclients'computerproductseffectively to computerstoresby demonstrating themto sales personnel,answeringquestions,and offering
marketing means ofpromoting
advice. Alternate computer suchas advertising,
products, tendto be less effective.
TR's reputationforexcellencereducesclients'perceivedrisk.
HiringTR in lieu ofhiringand training
temporary personnelaffords
clientsflexibility,
convenience,and economy.
To satisfyclients,TR mustrefrainfromdemonstrating competingproductsduringa campaign.

Threatsto CVfromchangingneedsand technologies:

Increasingly,
"new"softwarepackageswillbe upgradesoffamiliar
programs.Vendorsand software developersare aptto deemdemonstrations ofsuch
productsunnecessary.
Dominantsoftwareproductsareemerging.Thistrendimpliesdiminishingrivalryand diminishing
demandfordemonstrating software.
Directsales mayreducethenumberof storesthatstockcomputerhardwareand software, whichwould diminishopportunities forprovidingin-store
demonstrations.

Table 5
Tempreps' Resources & Capabilities (R&Cs) Profile

Financial - The businessis notcapitalintensive;therefore, financialresourcesdo notpose formidable entrybarriers.

Physical:
- TR's effectiveandefficient CV delivery technology (e.g.,well-trained repslivingintheterritoriestheycover)is vital,butan unlikelysourceofadvantage
becauseitcan be imitated easily.
- Scale differencesareunlikelysourcesofadvantagesor disadvantages becauseall legitimatecontenders mustcovertheUSA.
- TR's physicalcapacityis limitedtothepointthatnotall prospective customerscan be served.Sincecompeting productscannotbe demonstrated during
a campaign,addingmoreslotswillnothelpTR servemorecustomers.Inevitably, evenupstarts withoutestablishedreputations willhaveopportunities
topoachandbuildsatisfactory reputations by servingcustomers thatTR mustturndown.
Legal and Intellectual:
- TR's businessmodelis ingenious.Butitalso is simpleand transparent. Moreover,itcannotbe copyrighted and containsno exceedinglyscarce
ingredients. Therefore, itis readilyimitableand an unlikelysourceofsustainableadvantageorprofit premiums.
- Otherintellectualcapitalincludessalesanddemonstration techniques, whichcannotbe copyrighted orpatented.Restrictions intended toprevent former
TR employeesfromcompeting againstTR seemineffective.
Human:
- CEO Alan Hall's future value lies in his managerialand leadershipskills,whichwillbe neededto runTR. Such skillsareimportant, butseemonly
moderately scarce. UnlikeAlan Hall, imitators neednotinventa newbusinessmodel;theycan easilycopyTR's. To challengeTR, theydo notneed
a CEO as innovative orvisionary as Mr.Hall. A persistent poacherwithentrepreneurial drive,peopleskills,and a keeneyeon costsandthebalancesheet
suffices.However,takingthebusinessbeyonditscurrent boundswillrequireMr.Hall's rareinnovativemindand entrepreneurial zeal.
- Well-qualified representatives arevital,butonlymoderately scarceand,therefore, are unlikelysourcesofcompetitive advantage.
- Employeesaremobileand,thus,couldstartorjoin competing companies,unlessenforceable employment agreementspreventthemfromdoingso.
Prospectiveclientsmayperceivelittleriskin hiringa TR competitor staffed
by former TR employees.
Organizationalresources- TR's routinesandworkingrelationships seemcritical,buttheyalso seemstraightforward. Noteverychallenger willbe able
todevelopthem,butsomeshouldbe expectedtosucceedwithina fewmonths ofentering thebusiness. Experienceeffects seemminimalafter a briefstartup
period.
Informational resources- Muchpertinent information is equallyavailabletoall contestants.However,contestants maynotbe equallyadeptatconverting
accessibleinformation (especiallyinformation gainedfromservingclients)intoactionableknowledge.In viewofMr. Hall's talents,TR maysucceedin
usinginformation to tailorservicesto clients'needsand thereby stayaheadofcompetitors.
Relational
- TR hasdevelopedexcellentrelationships withclientsandcomputer stores.TR enjoysan advantageoverprospective imitators
becausedevelopinggood
relationshipstakestimeand computer storescan accommodateonlya limitednumberofdemonstrations. As theinnovator and first-mover, TR seized
opportunitiestobondwithmakersandresellersofcomputer products.TR deliveredwhatitpromisedand,thus,establishedan excellentreputation and
a client-accessadvantage.
- TR's excellentclientrelationships wouldevaporateifTR weretodemonstrate competing products duringa campaign.Someclientswouldstrongly prefer
thatTR notdemonstrate competitors' productsat anytime;theyaremostaptto developtheirowndemonstration capabilities.
- Clients'switching costsare low.
Reputational- TR's clientscannotriskineffective arewillingtopaypremium
marketing and,therefore, pricestoreducerisk,butonlyifnecessary.They
arelikelytochoosea TR competitor onlyif(a) thatcompetitor has developeda reputation forexcellenceor (b) TR has no slotsavailable,whichis bound
tohappen.Aftercompetitors narrowthereputation gap,whichsomeareboundtodo, TR willhavedifficulty itself.Pricecompetition
distinguishing will
intensify,andprofit marginswilldiminish.Doingmanylittlethingsa littlebetterthancompetitors (e.g.,via superiorexecutionandapplyingknowledge
gainedfromservingclients)willbe thekeyto retaining primeclientsand slowingprofiterosion.

64 JournalofMarketing
THEORY AND PRACTICE
 TABLE 6
EXCERPTS FROM AN ILLUSTRATIVE SWOT ANALYSIS REPORT

TempRepsSWOT Analysis

TempReps(TR) demonstrates computersoftware and hardwarein retailstores,suchas CompUSA,forclientsthatincludeMicrosoft,Lotus,Corel ... It

. . . The followinganalysisaddressesTR's strengths
pioneeredthisindustry and weaknessesand theopportunities
and threats
foundin itsenvironment.
Strengths
TR's reputation, whichis itsmainstrength and mainsourceof competitiveadvantage,createsvalue forclientsby reducingperceivedrisk. However,the
reputation gapbetweencompetitors andTR is destinedtonarrowdramatically
becausea fewcompetitors areboundtogainaccesstoclientsanddemonstrate
theireffectiveness. . . Alan Hall's geniusand energymaybe keysto slowingtheerosionofadvantagesand to maintaining thelead in advancingsolutions
to clients'problems. . . Hall's corpsofrepresentatives and efficiently,
operatesveryeffectively butcan be replicatedeasily. Consequently,...
Weaknesses
TR's pivotalweaknessis thatitcannotserveall clientswho desireitsservices. If TR wereto representall prospectiveclients,it wouldhave to represent
competing products at thesametime,whichfewclientswouldtolerate. . . leavesa windowofopportunity openforpoachers. . . FormerTR employeeswho
understand thebusinessandhaveaccess to TR's clientsarelikelysourcesofcompetition.Clauses in theirTR employment contractsmayslow themdown,
but. . . Otherlikelysourcesofcompetition...
Opportunities
TR maybe able toleverageitsreputation
andknowledgebypromoting tocorporateand institutional
information
systemsdirectors,entering newgeographic
areas(e.g.,Europe,Asia,SouthAmerica),orapplyingtheTR concepttodifferent
products(e.g.,electronic
entertainment
products). . . Reconnaissance visits
toseveralcountriesaroundtheworldwouldshedlighton theextenttowhichculture, andotherfactorslimitoverseasopportunities
infrastructure, . . . Finding
products thatneeddemonstratingas muchas computer
productsmaybe difficult;
nevertheless,mostmakersofinnovative electronicconsumer products could
benefitfromTR's services. . .
Threats
Themostimmediate stemsfromTR's pivotalweakness,notbeingable toserveall clientswhoseekitsservices.Consequently,
threat arebound
competitors
toemergeandnarrowthereputation gap. The questionis notwhether,
butwhen,muchmoreintensivepricecompetition willemergeandwhatcan be done
it ... Further
to forestall threats
stemfromdirectretailing...
Strategic Implications
. . . cementrelationships
withclients... tryto leveragetheTR conceptby applyingitto ... realizethatin-person
in-store
software
demonstrations
willnot
be neededindefinitely;hence,at somepoint,abandoningthisparticularbusiness(and reinvesting elsewhere)maybe moreadvisablethantrying
tomaintain
it. . .

and severalnotables,such as Ashton-Tate,Lotus, and Hewlett-
Packard. TR operated as follows: The company organized
fournationalcampaignsperyearand offeredfourproductslots
percampaign. Thus, TR could representas manyas fouror as
few as one clientper campaign,dependingon whetherclients
boughtmultipleslots. Clients generallyinsistedthatTR not
representcompetingproductsduringa campaign.
(Moore 1999); therefore,Tables 4 and 6 understatetheeffects
thate-commercewould have on "bricks-and-mortar" retailers
and, in turn,on TR. Tables 4 and 5, respectively,comprise
CV and R&C profiles constructedat the beginning of the
SWOT analysis process. They are worksheetsthat point
mainly to critical strengths,weaknesses, and threats. To a
lesser degree,theyalso allude to opportunities.

Each campaign began with tutorials conducted near TR's
headquartersin Utah - clients were the teachers,TR's reps
were the students. Aftermasteringclients' products,reps
returnedto theirterritoriesand visited resellers forthe next
two months. Since reps lived in theirterritories,
travelingand
lodging expenses were minimized. Even large clients often
found contractingwith TR cheaper than hiring additional
permanentor temporarysales personnel. Generally, both
clientsand resellerswere verypleased withTR's work.
Analysis
Tables and figuresshown in thissection stem froma handout
used to introducemarketingstrategystudentsto resource-
based SWOT analysis. The handout was developed in the
early 1990s and reflectsparticularsas they appeared at the
time. Prognosticators
had notanticipatedtheInternet'simpact
Reputationappeared to be TR's main strengthand principal
source of competitiveadvantage. But theTR conceptseemed
highly imitable, and the reputationgap between TR and
challengers seemed destined to narrow along with profit
premiums. Further, TR's long-term prospects seemed
threatenednot only by competition,but also by trendsthat
mightdiminishtheneed forextensivein-storedemonstrations.
Excerpts fromthe TR SWOT analysis reportare shown in
Table 6. Noted opportunitieswere derivedby ponderinghow
R&Cs mightbe leveraged;theywere evaluated by considering
theprospectsofgainingand sustainingcompetitiveadvantages
and the severityof disadvantages.
The initial search for opportunities consisted mostly of
brainstormingand, thus,was akin to conventionalinside-out
searches. In thiscase, offensiveanalysis benefittedmuch less
thandefensiveanalysis fromapplyingresource-basedcriteria.

Spring2001 65
However,the very analysis that forewarnedTR of its performance (e.g.,Senge1990; Teece,Pisano,and
differences
could have been conductedby poachersand
vulnerabilities Shuen1997;Moore1999). A conventional SWOT analysisof
usedto wrestmarketsharefromTR. TR, for example, could easily have underestimated TR's
vulnerabilityand overvalued accomplishments (e.g., market
Epilogue leadership)andhighlyimitablecapabilities
(e.g.,TR's service
deliverysystem).
By and large,TR's fortunesmaterializedalong the lines
foreseenin theearly1990s: Competitorsemergedfromthe Potentially,the guide to SWOT analysisadvancedin this
ranksof former and
employees gained footholds becauseTR article engenders better performancethan prevalent
couldserveonlya limited
number ofclients.Thereafter,
profitconventions becauseitis enrichedbytheory, the
particularly
marginseroded.However,underAlan Hall's leadership, TR resource-based view of the firm,and, thus,promotesmore
evolvedintoMarketStar,a prosperinginternational
provider thorough,systemic,and purposiveinquiry. Accordingly,
of integrated solutionsservingclientswho prefer
marketing resultspotentially
shedmorelightona business'vulnerability,
outsourcingsome or all of their marketingactivities. actionsthatmitigatevulnerability,andopportunitiesto claim
MarketStar's menuincludesmerchandising, onlinecustomer additionalfertileproduct-market turf. Simple classroom
andmarket
service,planning, research. experiments, whicheducators andcorporate trainers
caneasily
replicate,have affirmed thatstudentswho conductSWOT
MANAGERIAL IMPLICATIONS analysesfromtheadvocatedresource-based viewconsistently
producemoreperceptive, focused,tenable,andconcisereports
"[Competition," HamelandPrahalad(1993,p. 77) observed, thanstudents whoconductSWOT analysesextemporaneously
"is notjustproductversusproduct,companyversuscompany orbyreferring to conventionalchecklists.If,indeed,greater
... It is mind-set
versusmind-set, managerialframeversus strategicinsightleads to betterperformance, then the
managerial frame."Like themes, whichpervadethebusiness advocated approach will prove superior not only in
suggestthatsubtleinsights
literature, oftenunderlieimmense classrooms,butalso in practice.

REFERENCES

Aaker,David A. (1991), ManagingBrandEquity,New Paul R. Marsh,& RobinWensley(1989),

Barwise,Patrick,
York: FreePress. "MustFinanceand Strategy Clash?"Harvard
BusinessReview,67(September-October):
2-7.
Amit,Raphael& Paul J.H. Schoemaker
(1993), "Strategic
AssetsandOrganizational
Rent,"Strategic Baye,Michael(2000), ManagerialEconomics.Boston,
Management 33-46.
Journal,14(January): MA: McGraw-Hill.

Amram,Martha& NalinKulatilaka(1999), "Disciplined Peter,David Collis,& GaryPisano(1997), "Intel

Botticelli,
Decisions: AligningStrategywiththeFinancial Corporation:1968-1997,"HBS-9-797-137,
Markets,"Harvard BusinessReview,77(January- Boston,MA: HarvardBusinessSchoolPublishing.
February):95-104.
AdamM. & BarryJ.Nalebuff
Brandenburger, (1995), "The
Andrews,KennethR. (1987), TheConceptofCorporate RightGame:Use GameTheoryto Shape Strategy,"
Homewood,IL: Irwin.
Strategy, HarvardBusinessReview,73(July-
August):57-71.

H. Igor(1965), CorporateStrategy,
Ansoff, New York: New York:Currency.
(1996), Competition,
McGraw-Hill.
AdamM. & H. W. Stuart,
Brandenburger, Jr.(1996),
W. Brian(1996), "IncreasingReturns
Arthur, andtheNew "Value-basedBusinessStrategy,"
Journalof
WorldofBusiness,"HarvardBusinessReview, Economics& Management Strategy,5(Spring):5-
August):100-109.
74(July- 24.

Barney,JayB. (1986), "Strategic

FactorMarkets:
Expectations,Luck,andBusinessStrategy,"
Management Science,32(October):123 1-124 1.
(1997), GainingandSustainingCompetitive
Advantage, Reading,MA: Addison-
Wesley.
Buzzell,RobertD., BradleyT. Gale,& RalphG. M. Sultan
(1975), "MarketShare- A Key to Profitability,"
HarvardBusinessReview,53(January-February):
97-106.
Byrne,JohnA. (1999), Chainsaw,New York: Harper
Business.

66 JournalofMarketing
THEORY AND PRACTICE
 ClaytonM. (1997), TheInnovator'sDilemma,
Christensen, (1987), "AdolphCoorsintheBrewingIndustry,"
Boston,MA: HarvardBusinessSchoolPress. HBS-9-388-014,Boston,MA: HarvardBusiness
SchoolPublishing.
Clark,BruceH. & SangitChatterjee(1999), "The Evolution
ofDominantMarketShares: The Role ofNetwork ( 199 1), Commitment:
TheDynamicofStrategy,
JournalofMarketing
Effects," Theoryand New York: FreePress.
83-96.
Practice,7(Spring):
Goldhar,JoelD. & MariannJelinek
(1983), "Planfor
Collis,David J.& CynthiaA. Montgomery (1995), Economiesof Scope,"HarvardBusinessReview,
"Competing on Resources:Strategyinthe1990s," 61(November-December): 141-148.
HarvardBusinessReview,73(July-August):118-
128. Goold,Michael& AndrewCampbell(1998), "Desperately
HarvardBusinessReview,
SeekingSynergy,"
Conner,KathleenR. (1991), "A HistoricalComparisonof 131-143.
76(September-October):
Resource-Based TheoryandFive Schoolsof
ThoughtWithinIndustrial Organization Grant,RobertM. (1991), "The Resource-Based
Theoryof
Economics:Do We Have a New Theoryofthe Competitive for
Advantage:Implications Strategy
Firm?"JournalofManagement, 17(March):121- Formulation,"CaliforniaManagement Review,
154. 33(Spring):114-135.

RobertX. (1993), AccidentalEmpires,New York:

Cringely, Hamel,Gary& C. K. Prahalad(1989), "Strategic
Intent,"
Harper-Collins. HarvardBusinessReview,67(May-June): 63-76.

Crosby,PhilipB. (1980), QualityIs Free,New York: as Stretch

(1993), "Strategy andLeverage,"
Mentor. HarvardBusinessReview,71(March-April):75-84.

Day,GeorgeS. (1992), "Marketing's

Contribution
to the Hill,Terry& Roy Westbrook (1997), "SWOT Analysis:
Strategy Dialogue,"JournaloftheAcademyof It's Timefora ProductRecall,"LongRange
Marketing Science,20(Fall): 323-329. Planning,30(February):46-52.

& David B. Montgomery(1983), "Diagnosingthe Hofer,CharlesW. & Dan Schendel(1978), Strategy

ExperienceCurve,"JournalofMarketing, Formulation:AnalyticalConcepts,St. Paul,MN:
47(Spring):44-58. WestPublishingCompany.

& RobinWensley(1988), "AssessingAdvantage: Hunt,ShelbyD. (2000), A GeneralTheoryofCompetition,

A Framework forDiagnosingCompetitive
JournalofMarketing,
Superiority," 52(April):1-
20.
Dickson,Peter(1982), "Person-Situation:
Segmentation's
MissingLink,"JournalofMarketing, 46(Fall): 56-
64.
& JamesL. Ginter(1987), "MarketSegmentation,
ProductDifferentiation,
and Marketing Strategy,"
JournalofMarketing,5 1(April):1-10.
Dierickx,Ingemar& KarelCool (1989), "AssetStock
Accumulationand SustainabilityofCompetitive
Advantage,"Management Science, 35(December):
1504-1511.
ThousandOaks,CA: Sage.
& RobertM. Morgan(1995), "The Comparative
AdvantageTheoryofCompetition,"Journalof
59(April):1-15.
Marketing,
Jacobson,Robert& David A. Aaker(1985), "Is Market
ShareAll ThatIt's CrackedUp to Be?" Journalof
Marketing,49(Fall): 11-22.
Johansson,
JohnyK. & IkujiroNonaka(1996), Relentless:
TheJapaneseWayofMarketing, New York:
Collins.
Harper
Kotier,Philip(2000), Marketing
Management,
Upper
SaddleRiver,NJ: Prentice-Hall.

Pankaj(1986), "SustainableAdvantage,"
Ghemawat, Lippman,S. A. & RichardP. Rumelt(1982), "Uncertain
HarvardBusinessReview,64(September-October): Instability:An Analysisof Interfirm in
Differences
53-58. Efficiency UnderCompetition," Bell Journalof
Economics,13(August):418-438.
Spring2001 67
 (1992), "DemandUncertainty,CapitalSpecificity, Schnaars,StevenP. (1998), Marketing New York:
Strategy,
andIndustryEvolution,"Industrialand Corporate Free-Press.
Change,1(1): 235-262.
Paul J.H. (1990), "Strategy,
Schoemaker, Complexity,and
Plans,Oxford,UK:
McDonald,Malcolm(1999), Marketing EconomicRent,"Management Science,36(10):
Butterworth-Heinemann. 1178-1192.

Francis,& Sean White(2000), FutureWealth,

Mclnerny, Senge,PeterM. (1990), TheFifthDiscipline,New York:
New York: St. Martin'sPress. Doubleday/Currency.

Henry,BruceAhlstrand,
Mintzberg, & JosephLampel N., BruceI. Newman,& BarbaraL. Gross
Sheth,Jagdish
Safari: A GuideThrough
(1998), Strategy the (1991), ConsumptionValuesand MarketChoices,
WildsofStrategicManagement, New York: Free OH: South-
Cincinnati, WesternPublishing
Co.
Press.
RajendraK., TasadduqA. Shervani,
Srivastava, & Liam
A. (1999), InsidetheTornado,New York:
Moore,Geoffrey Fahey(1998), "Market-BasedAssetsand
HarperPerennial. Shareholder
Value: A Framework forAnalysis,"
JournalofMarketing, 62(January1998): 2-18.
Morita,Akio(1986), Made inJapan,New York: NAL
Penguin. Teece,David,GaryPisano,& AmyShuen(1997),
"DynamicCapabilitiesand Strategic
Management,"
Neher,Jacques(1982), "WhatWentWrong?"inStrategic StrategicManagementJournal,18(7): 509-533.
MarketDecisions,EnglewoodCliffs,NJ: Prentice-
Hall,313-23. Arthur
Thompson, A., Jr.& A. J.Strickland
(1998),
StrategicManagement, Boston,MA:
Peter,J.Paul & Jerry
C. Olsen(1996), ConsumerBehavior Irwin/McGraw-Hill.
and MarketStrategy,Chicago,IL: Irwin.
Valentin,E. K. (1994), "Anatomyofa FatalBusiness
Peteraf,
MargaretA. (1993), "The Cornerstones
of Strategy," JournalofManagement Studies,
Competitive Advantage: A Resource-Based
View," 3 l(May): 359-82.
StrategicManagement Journal,14(May-June):
179-91. (1996), "The Marketing
Conceptandthe
ofMarketing,"
Conceptualization Journalof
MichaelE. (1979), "How Competitive
Porter, ForcesShape Marketing Theoryand Practice,4(Fall): 16-26.
Harvard
Strategy," Business
Review,57(March-
April):137-45. Birger(1984), "A Resource-based
Wernerfeit, View ofthe
Firm,"StrategicManagement Journal,
Strategy.New York: Free
(1980), Competitive SiNovember-December): 170-180.
Press.
JohnP., Jr.(1993a), "WhenMarketing
Workman, Should
(1991), "Towarda DynamicTheoryof Strategy," FollowInsteadofLead," MarketingManagement,
StrategicManagementJournal,12,95-117. 2(Summer):9-19.

Prahalad,C. K. & GaryHamel(1990), "The Core LimitedRole inNew

(1993b),"Marketing's
Competence oftheCorporation,"HarvardBusiness ProductDevelopmentin One Computer Systems
Review,68(May-June): 79-91. Firm,"JournalofMarketingResearch,
30(November):405-421.
RichardS. & MichaelA. Cusumano(1987),
Rosenbloom,
"Thechnological andCompetitive
Pioneering Zeithaml,ValerieA. (1988), "ConsumerPerceptions
of
Advantage:The BirthoftheVCR Industry," Price,Quality,and Value: A Means-EndModel
CaliforniaManagement Review,29(Summer):51- and Synthesis ofEvidence,"JournalofMarketing,
76. 52(July):2-22.

Scherer,F. M., & David Ross (1990), IndustrialMarket

Structure and EconomicPerformance, Boston,
MA: HoughtonMifflin.

68 JournalofMarketing
THEORY AND PRACTICE
 AUTHOR BIOGRAPHY

ErhardK. Valentin(Ph.D., Universityof Utah)is a professor

of marketing and theWillardL. Eccles Fellowof Market
StrategyintheJohn B. Goddard SchoolofBusiness and Economics,Weber State Ogden,Utah.His articlesand
University,
case studieshave appearedin theJournalofManagement the
Studies, Journal ofMarketingTheoryand Practice,the
JournalofConsumer the
Affairs, Case ResearchJournal, theJournal ofRetailingand ConsumerServices,theJournalof
ServicesMarketing, theJournalofProductandBrandManagement, theInternationalReviewofRetail,Distribution
and
ConsumerResearch,and numerous otherpublications.Marketstrategy is his primary
researchinterest.He engagesin
consultingandhas heldadministrativepositionswithBoise Cascade and severalothermajorcorporations.

Spring2001 69