Lastly, focusing on the linkages between individual capabilities and the firm’s overall competitive advantage does not represent the intellectual roots of the RBV well (e.g., Carmeli and Tishler, 2004). In fact, Newbert (2008: 751) argues that ‘it is unlikely that a firm’s competitive position is solely attributable to any one specific resource or capability.’ Likewise, work on complementarities is based on the integration of many capabilities (Black and Boal, 1994; Carmeli and Tishler, 2004; Stieglitz and Heine, 2007). Therefore, to examine a more accurate model of competitive advantage, we do not address one or two individual capabilities; instead, we explore how capabilities, which are individually identified as either being a strength or weakness, form sets of capability strengths and
capability weaknesses that directly and interactively affect competitive advantage. Importantly, while any particular capability falls on a continuum from weakness to strength, it can be considered only one or the other at any particular time, unless it is found to be at parity where it contributes to neither set.[2]
Firms operate in dynamic marketplaces in which competitors act and react to each other in order to exploit any advantage and earn greater relative performance (Smith, Ferrier, and Ndofor, 2001). In fact, research shows that these rivalrous dynamics can lead to the dethronement of market leaders (Ferrier et al., 1999; Ferrier et al., 2002). When viewed by the end-user, this rivalrous environment highlights differences among rivals’ market offerings as supported by their capabilities (Priem, 2007). Thus, the differences among rivals’ capability strength and weakness sets are expected to affect a firm’s relative performance (Grimm and Smith, 1997). We begin by examining the effect of strength sets.
The growing literature on the RBV demonstrates that an individual capability yields positive performance outcomes when it is valuable and rare (e.g., Hitt et al., 2001). This relationship holds when value is viewed through a comparative lens; higher levels of relative value increase positive outcomes (Sirmon et al., 2008). However, this relationship may be even more substantial when considering the firm’s set of strengths because it can include numerous capabilities. Thus, enhancing the firm’s set of strengths is likely to differentiate the firm from rivals, leading to increasing levels of competitive advantage and higher relative performance.
Increasingly positive performance gains are expected for two reasons. First, an enhanced strength set yields synergy. In other words, the strengths embedded in a strength set can complement each other. These complementarities, or enhancing relationships (Black and Boal, 1994), occur when the marginal value of a strength is enhanced by increases in other strengths (Milgrom and Roberts, 1995). Complementarities allow firms to improve both the quality and price of delivered goods/services, thereby not only growing market share but, perhaps, increasing the size of the market as well. Second, differences in rivals’ strength sets allow managers to react to the same market conditions in unique ways (Chen, 1996). For example, management’s awareness and motivation to engage in actions to improve their relative performance is affected by the firm’s set of capabilities (Chen, Su, and Tsai, 2007; Smith et al., 2001). An enhanced strength set allows firms to increase both their aggressiveness and range of competitive actions (Ferrier, 2001), while likely reducing the effectiveness of competitors’ retaliatory actions.
For example, Southwest Airlines’ system of short haul, direct flights, along with its operating efficiencies and a highly motivated workforce (representing strengths) allow it not only to offer low fares, but also to differentiate its service in ways that are often superior to most competitors (Sirmon, Hitt, and Ireland, 2007). Southwest’s set of strengths creates synergies that enrich its competitiveness by producing greater levels of enduser satisfaction. Moreover, its strengths protect the firm from competitive actions taken by rivals. Additionally, Southwest’s strength set facilitates growth in the number of customers in the market by allowing it to effectively compete with substitute services (e.g., automobiles, buses, and trains). As Miller, Eisenstat, and Foote (2002: 47) suggest, market share is beneficial because to improve performance, a firm must ‘satisfy the needs of a large enough audience.’
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