The concept of competitive advantage is quite popular among business managers. In management literature , this concept has been explored from various perspectives. Competitive advantage seeks to identify particular properties of individual product markets which will give the firm a strong competitive position (Ansoff, 1965). It is a philosophy of choosing only those competitive arenas where victories are clearly achievable (South, 1981). A firm’s ability to outperform its competitors lays in its ability to translate its competitive strategy into a competitive advantage. The competitive strategy entails positioning the firm favourably in an industry relative to competitors. There are, in general, only two possible competitive advantages a firm may possess, cost advantage or a differentiation advantage (Porter & Millar, 1985). Proponents of the resource-based view of the firm (Barney, 1991; Conner, 1991), have extended the definition to include a wider range of possible competitive advantages such as physical capital (Williamson, 1975), human capital (Becker, 1964), technological opportunities and learning (Teece, 1986) and organizational capital (Tomer, 1987).
The basic premise underlying the concept of competitive advantage is the inseparability of a firm, its competitive environment and its endeavours to survive and prosper in this environment. An understanding of the dynamics of the latter is a key element in the formation of a firm's strategic thinking (Brummer et al., 2006). Organizations possess numerous resources, but it is the resources that are unique, inimitable and valuable which are central to a competitive advantage (Barney, 1991; Barney, 1986b; Prahalad & Hamel, 1994; Wernerfelt, 1984). Competitive Intelligence, which is at the core of this study is one such resource.
Over half a century, researchers and managers have been interested in understanding sources of competitive advantage in organisations. Typically, this interest is focused on understanding the relationship between the firm’s external (opportunities and threats) factors and it's internal (strengths and weaknesses) factors. This approach has given rise to a well-established tool – the SWOT (Strength, Weakness, Opportunities and Threat) analysis (Pickton & Wright, 1998). This logic suggests that organisations that use their internal strengths in exploiting opportunities and neutralising threats, while minimising internal weaknesses are more likely to gain a competitive advantage in their industry. The original SWOT framework was proposed in 1969 in ‘Business Policy’ and has been a popular framework among academics and practitioners alike (Learned et al., 1969). Although the field of management has developed a great deal since then, this framework has remained unchanged.
Different approaches and techniques were used to analyse the macro environment (Lynch, 2015). PESTEL (Political, Economic, Socio-cultural, Technological, Environment and Legal) analysis has different definitions within the literature, such as PEST (Dale, 2000) and STEPE (Richardson Jr, 2006). The original PESTEL was first proposed by Aguilar as ETPS (economic, technical, political, and social). This was later reorganized as STEP for use in strategic evaluation of trends (Yüksel, 2012). It was subsequently modified to address a macro analysis of the external environment and was defined as STEPE. The legal dimension was added to this approach in the 1980s (Richardson Jr, 2006). Apart from a technique for strategic analysis, PESTEL analysis began to be used in different fields and applications (Richardson Jr, 2006; Shilei & Yong, 2009). PESTEL analysis has two basic functions for an organisation. Firstly, it allows identification of the environment within which the company operates. Secondly, the basic function is that it provides information that will enable the company to predict circumstances that it might encounter in the future. PESTEL analysis is, therefore, a precondition analysis, which should be utilized in strategic management (Yüksel, 2012).
The present form of PESTEL analysis has some limitations in terms of measurement and evaluation. The first problem is that it does not adopt a quantitative approach. Due to its qualitative nature, a measurement cannot be generally made. It does not allow the factors constituting the external environment to be objectively and rationally analysed. The second issue is that, although the conceptually PESTEL analysis prescribes a holistic approach, it is not reflected in the measurement and evaluation dimension (Yüksel, 2012). The analysed factors are generally evaluated independently and all factors within the external environment would not be expected to have equal influence on commercial activities. While some may have significant effects on a company’s success, others might have a limited effect (Yüksel, 2012). Factors in PESTEL analysis may differ in their relative importance. This requires the use of a technique that allows for the measurement of the relative importance of factors and sub-factors in evaluating the macro environment of the company (Yüksel, 2012). Another issue that should be considered in a holistic perspective is the relations and interactions between PESTEL factors. Independent evaluation of each macro-environmental PESTEL factor might not reflect the real situation. For example, it is not possible to consider economic arrangements or legal conditions in isolation from political conditions. A political situation might give rise to economic and socio-cultural implications. PESTEL analysis should adopt an approach based on the inter-dependence of the factors (Conger, 2015).
Porter’s five forces model describes an organisation’s strategy in relation to its product and market positioning. The rules of the competition are embodied in five forces which are listed as (1) Bargaining power of suppliers (2) Bargaining power of buyers (3) Threat of substitutes (4) Threat of new entrants and (5) Rivalry among existing competitors (Porter, 2008a). Porter’s work sets out the basis for the Market Based View (Albers et al., 2017). The sources of value for an organisation are embedded in competitive conditions of different industries and markets (Makhija, 2003). The market-based view builds on this external orientation, at the expense of internal resource management as a prerequisite for competitive success. Following the original development and popularisation of Porter’s five forces model, this dominant view helped senior decision makers to understand industry dynamics and predict the impact of external factors on the firm’s operating environment for more than two decades (Gratzer & Winiwarter, 2003).
The only competitive advantage organizations will have in the 21st century is what they know and how they use it (Civi, 2000; Gupta et al., 2000). This is because the proper management and application of knowledge can propel an organization to become more intelligent, innovative, adaptive and sustainable (Yew Wong & Aspinwall, 2004). Several models and frameworks reviewed above help companies to build their strategy to achieve competitive advantage. Sustaining this competitive advantage is critical for the survival of companies and is a challenge on its own. Competitive intelligence plays an important role in creating and sustaining competitive advantage.