Firm resources and sustained competitive advantage*

Chapter 1 of this book defined and developed the strategic management question—Why do some firms outperform other firms?—and described the evolution of resource-based theory as one approach to answering this question. Chapter 2 introduced the concept of a strategic factor market to demonstrate that whether a firm gains competitive advantages does not depend just on strategies that create competitive imperfections in product markets, but on the total cost of implementing these strategies. This total cost is determined by the competitiveness of strategic factor markets. One of the central conclusions of this argument is that firms that exploit resources and capabilities they already control in choosing and implementing strategies are more likely to gain competitive advantages than firms that acquire the resources and capabilities they need to implement a strategy in more competitive factor markets. Of course, this conclusion is hardly unique to resource-based theory. Indeed, identifying and exploiting a firm's strengths while avoiding its weaknesses has been one of the central features of one of the oldest organizing frameworks in the field of strategic management— the SWOT framework (Ans off 1965; Andrews 1971; Hofer and Schendel 1978). This framework, summarized in Figure 3.1, suggests that firms obtain competitive advantages by implementing strategies that exploit their internal strengths, through responding to environmental opportunities, while neutralizing external threats and avoiding internal weak-nesses.