“Business Capabilities, Core Competencies V Pestle and Five Forces Trying to Get Barney and Porter on the same page”.
SWOT is a familiar tool in strategy analysis, it is well known and frequently used. It has four labels: Strengths, Weaknesses, Opportunities and Threats. Strengths and weaknesses are internal, looking at what a firm considers it does well and what it does less well; its aim is to identify key features to inform future planning.
Opportunities and Threats are an external exploration of the business environment to see what is looming out there that can be taken advantage of, and what might challenge the current approach. It centres on market competitive analysis and is assisted by techniques like Porter’s five forces and another of the “pillar” tools of strategic analysis PESTLE.
Strengths and weaknesses are all about business capabilities and core competencies. It looks at what the key strategic activities and specifically there outcomes are – “the ability to achieve outcomes”. It also tries to identify what business capabilities give the firm strategic advantage these are often referred to as core competencies. This strategy view is known as the Resource Based View or RBV. The Resource Based View idea was proposed by Barney in his 1991 article “Firm Resources and Sustained Competitive Advantage”. In this article he argues that all organisations are different, (heterogeneous) based on their unique sets of resources.
In summary the SWOT analysis then is based on these two themes: market based or resource base.The RBV V MBV discussion looks at the relationship between SWOT’s internal and external views. One is about looking at what you are from an inside outwards, a supply perspective and developing approaches to find where you can use what you must maximize advantage; the other, a demand perspective, where you seek to fulfil market changes. Another way of looking at it is that RBV is a push strategy and MBV is a pull strategy.
- An RBV approach looks for opportunities to exploit what you are to find opportunities outside the organisation and build a response. It is an outward perspective based on exploring Strengths and Weaknesses.
- An MBV approach is about exploring threats and opportunities and looking outwards to the market to decide how to operate to take advantage of change.
“There is often a mix between the two”
Like many of these theories the people behind them and those that adhere to them sometimes argue that one position is better than the other. People argue that a strategic approach is either a resource based organisation or a market based organisation. In the real world there is a frequently a mix between the two, each giving an indication on why the strategy is the way it is, and perhaps more importantly what we should do about changing it. It is a spectrum of all variations between the two.