H&M In Fast Fashion Continued Success Case Solution

2. Sources of Competitive Advantage and its relevance to management

This section will discuss three theories of competitive advantage and critically review them. It will describe the theories and discuss how management at H&M can use these theories to attain a competitive advantage. The theories that are going to be discussed are Porter's Generic Strategies, Resource Based View (RBV), and the Knowledge Based View (KBV).  

Porter’s Generic Strategies

According to this theory, there are three types of strategies that a firm can use to gain a competitive advantage. The first of these is cost leadership, which requires a company to focus on operational efficiency to reduce its costs. It then offers the lowest prices due to low costs and is able to beat competitors on price. The company takes advantage of economies of scale where it sells in large volumes to make up for lower prices (Porter, 1985). H&M can make use of this strategy and offer lower prices than the competition. It would be able to sell more than the competition and would profit due to large volumes. The cost leadership strategy is the strategy that H&M had been following up until recently.

The second type of strategy, according to this theory, is the differentiation strategy, where a company provides a product with a unique advantage. By providing a benefit that competitors do not offer, the company can charge a higher margin. This allows the company to benefit from value rather than volumes (Amadeo, 2019; Porter, 1985). H&M can use this strategy, but it will require investments in innovation to acquire unique benefits within the marketplace. H&M can focus on better quality fabric within its clothing or better designs. If it does use differentiation, then it can achieve charge a higher price. 

The third type of strategy is the focus strategy, where a company tries to target a niche segment and achieve expertise in this niche segment. These niche segments are parts of the market that other competitors do not serve. There are two ways in which a niche segment can be served. The first one is when the company offers a unique benefit in this segment. This is called differentiation focus. The second one is when the company offers a lower price due to lower costs in this niche segment. This is called cost focus (Amadeo, 2019; Porter, 1985). H&M already uses this strategy with its sub-brands. For example, brand Athleta is targeted towards the sports segment for women. It focuses on the performance benefit and is a differentiation focus strategy. H&M can look for other underserved niche segments and introduce new sub-brands to target these. 

Resource Based View (RBV)

The resource-based view focuses on the internal resources of a firm, both tangible and intangible, that help them achieve a competitive advantage in their particular industry. It was introduced in 1959, against the then popular theory of structure-conduct-performance. It stated that the resources possessed and used by the firm are far more important in defining the potential success of the firm rather than the structure of the industry itself (Wang, 2014). As the theory developed overtime, it first started with defining resources only as physical, monetary, and human. With more contributors to the theory, Barney in 1991 came up with defining resources as not just assets but also organizational processes, information, and knowledge, capabilities, and a firm's attributes that help them prepare and apply strategies that improve their efficiencies. Strategies developed under this perspective involve looking for a balance between usage of current resources and the creation and development of new ones in order to visualize a resource to product matrix (Wernerfelt, 1984).

The theory talks about the concept of acquired resources being heterogeneous in their nature, which indicates that firms with varying capabilities are better able to compete in the market. The reason is that heterogeneity, if present in an industry, gives away the presence of superior factors of production, which help firms produce more economically and also aids them in satisfying consumer demand in the market (Peteraf, 1993). Even though the presence of certain superior resources alone plays a significant role in defining how the firms gain a competitive advantage in the market, a sustainable competitive advantage can only be achieved by taking into view which business processes increase or decrease the firm's overall performance. Also because these processes are greatly influence by a firm's capabilities and resources, a firm needs to set the performance of a business process as a dependent variable and then examine the combination of resources and capabilities that produces competitive analysis for the firm at a particular level of analysis (GAUTAM RAY, 2004).

H&M, therefore, can use this theory to gain a competitive advantage. But it needs to first have resources and capabilities that are different and superior to that of competition. It also needs to test whether these resources contribute to superior business performance or not. H&M can develop its human resources, where it trains its designers to produce better quality garments. It can develop a better in-store experience for its customers and use this as an advantage against competitors.   

Knowledge Based View (KBV)

The Knowledge Based View of the firm is an extension of the RBV theory, where knowledge is regarded as a separate resource. According to this theory, the most important resource for an organization is knowledge. The difference in performance across organizations is due to their difference in the ability to acquire and process knowledge. It is important for companies to optimize how knowledge is developed, integrated, and transferred (Gassmann & Keupp, 2007). 

A firm can have knowledge-based resources through the intellectual capital within its employees. It also includes explicit and tacit knowledge. Explicit knowledge is the one that is available in coded tangible form and is well structured. Tacit knowledge is one that is available in the minds of the employees due to experience. A firm will achieve a competitive advantage if it is able to develop, integrate, and transfer these two types of knowledge better than their competitors (DeNisi, Hitt, & Jackson, 2003). 

Managers at H&M can use this theory to improve how knowledge is developed, integrated, and transferred. It needs to have systems that collect external data from customers and convert it into useful knowledge. It should be able to create knowledge from its employees. This includes knowledge sharing meetings and brainstorming. An example of this is Toyota’s Kaizen system. It should be able to document knowledge from the minds of employees into coded documented formats and store them. Lastly, H&M should be able to share knowledge across the various departments of the organization (Cengage, 2020).