When an organization demonstrates profits that are above average for the industry, this organization is believed to have some form of competitive advantage over the competition. Michael Porter theorized that there were two basic forms of competitive advantage, that deriving from a cost advantage and a differentiation advantage. A cost advantage occurs when an organization is able to provide a product or service with similar benefits, but at a lower cost than their competitors. A differentiation advantage occurs when an organization’s product or service provides benefits beyond those of their competitors. In either case, the organization provides a superior level of value to its customers. These positional advantages are created by using resources and capabilities to either provide a differentiated offering, or an offering with a lower cost structure (Porter, 2006). However, not all strategic management authorities feel Porter has not provided a good understanding of the idea of competitive advantage.
As Aktouf, Chenoufi, and Holford note, Porter’s framework does provide for a basic, systematic approach to strategic management, but fails to provide any scientific rigor.
It is characterized by an environmental determinism, and a linear Cartesian attitude towards complex problems that assumes that a business is merely the sum of its parts, as opposed to a complex, uncertain and ever-changing relationship amongst its parts. This, along with a positivistic approach in the use of case studies of relatively limited realities, has resulted in generalizations and 'universal rules' which have simply served to legitimize three general trends inherent to the dominant financial capitalism: domination by large corporations towards situations of monopolies or oligopolies, the concentration of capital and an interdiction of any movement towards true participatory management (2005, p. 183).
Porter’s competitive advantage further fa...