The Multidimensional Nature of Sustained Competitive Advantage: Test at a United States Airline

We show that evaluating the sustained competitive advantage (SCA) of a firm according exclusively to superior economic performance sustained for a given period of time hides, in fact, alternative manifestations of SCA. We suggest that SCA is a multidimensional construct that may be subject to different, complementary operationalizations in empirical tests. We propose an untapped dimension of SCA related to the degree of autonomy of a firm relative to its industry rivals and present a new measure, inspired in the CAPM (capital asset pricing model), to capture it. This measure reflects the resilience of a firm against economic recessions and industry turmoil. We show the benefits of the proposed alternative measure of SCA based on firm autonomy through its application to the position of Southwest Airlines in relation to the US airline industry (1982-2003). Introduction The concept of competitive advantage (CA) has a long tradition in the strategy literature (Ansoff, 1965; Porter, 1980, 1985; Barney, 1991, 2002; Peteraf, 1993;Besanko,Dranove and Shanley, 2000; Ghemawat and Rivkin, 1999; Grant, 2005; Barney and Hesterly, 2006) and in recent years it has become one of the key concepts in business strategy. Similarly, the more recent concept of sustained competitive advantage (SCA) has become also a major area of research mainly in theoretical and empirical studies based on the resource-based view of the firm (Barney, 1991; Wiggins and Ruefli, 2002; Foss and Knudsen, 2003; Peteraf and Barney, 2003). Management scholars assume, implicitly or explicitly, that a firm earning above average accounting or above normal economic performance for a sufficiently long period of time enjoys a SCA (Porter, 1985: 11; Wiggins and Ruefli, 2002; Barney and Hesterly, 2006: 22). One main problem in identifying SCA with superior profitability (whatever the measure of profitability used and the time span considered) is that a CA may not be revealed in higher profitability because, for example, a firm may forgo current profits in order to invest in human capital, technology, customer and employee loyalty, executive perks and so on (Grant, 2005). Indeed, Coff (1999) has shown how and when CA does not lead to financial performance in situations when stakeholders have certain bargaining power. If SCA does not lead always to superior performance (Coff, 1999; Ray, Barney and Muhanna, 2004), how can we identify, then, firms with SCA in empirical studies? A plausible solution may be to avoid narrow conceptualizations of SCA and to enlarge our current operationalizations of SCA to include not only superior performance-related measures as dependent variables in empirical studies (Ray, Barney and Muhanna, 2004). In this paper we argue that SCA is a multidimensional construct, meaning that different definitions and operationalizations may be capturing different relevant aspects of the competitive positions of firms. In particular, we present an alternative and complementary measure that captures particular outcomes of SCA, not captured in traditional performance measures. Our proposed measure is based on the correlation between the performance of a firm and the performance of all the other rivals in an industry. The notion of correlation between a firm's performance and its rivals is intrinsic to the notion of competition and SCA because the very idea of advantage must be always related to a group of competitors. Depending on such a correlation, a firm can be said to have a high or low degree of independence within its industry. Inspired in the CAPM model, the measure presented in this paper is a simple but powerful way to assess rigorously such degree of independence of a firm in empirical tests of SCA. As we illustrate in the paper, our method allows researchers to discover manifestations of SCA that remained "hidden" using traditional measures, based mainly on superior performance. The rest of the paper is structured as follows. …