Capabilities Differentials as Sources of Sustainable Competitive Advantage

ABSTRACT The aim of this study is to measure the sustainability of Malaysian private colleges/institutions' competitive advantage by adopting the concept of capabilities differentials. Extensive literature review has been made to discuss the concept of capabilities differentials as firm's intangible resources and strategic asset. The four dimensions capabilities differentials: functional, positional, cultural and regulatory capabilities differentials are used as tool in the study. Discussion on issues and challenges of Malaysian private colleges/institutions are included in the paper. The paper also discusses the key contributions of the study and the implication for future research on intangible resources and capabilities differentials. The results of the study reveal that, Malaysian private colleges/institutions possess modest sources of sustainable competitive advantage (SCA) and the sustainability of those resources is weak. In other words, it is difficult for Malaysian private colleges/institutions to maintain their competitive advantage in which their sources of competitive advantage may be easily imitable and substitutable by competitors. Keywords: Capabilities differentials, Intangible resources, sources of sustainable competitive advantage I. INTRODUCTION Recently, strategic management literature has been focused on the firm's endowment of intangible resources as determinants of firm's efficiency, effectiveness and competitiveness, and further as drivers of a firm's sustainable competitive advantage (Leitner, 2001; Fernandez, et al., 2000; Carmen, et.al.,2003; Joia, 2000; Sanchez, et al., 2000; Villalonga, 2002). This is because the current trend of economics development is accelerating the industrial society to a services society, whereby knowledge and information are the mainstays of business growth; and thus the importance of intangible resources will come increasingly to the forefront (Canals, 2000). A firm's superior performance then depends on its ability to innovate, defend intangible assets, such as knowledge, and use those assets (Teece, 2000). Assessing the endowment of intangible resources of firms has also become one of the most compelling challenges for strategy scholars and practitioners (Carmeli, 2004). Intangible resources, basically refers to a firm's capabilities, core competence, capacity in managing and conducting its business operations, which are hard for competitors to imitate and substitute, and that generate SCA and lead to superior performance. These capabilities entail a firm's functional capabilities, cultural capabilities, regulatory capabilities, and positional capabilities (Hall, 1992; 1993.), a firm's inside-out process, outside-in process, marketing, and information technology (Day and Wensley, 1988), a firm's shareholder value creation through the financial perspective, customer perspective, internal process perspective and learning and growth perspective (Kaplan and Norton, 2004). Capabilities Differentials as Firm's Intangible Resources and Strategic Assets The capability-based theory of sustained competitive advantage has gained prominence in strategy research over the last decade (Weerawaredena and O'Cass, 2003) and suggests that a firm can achieve competitive advantage through its distinctive or core capabilities (Grant, 1991; Hayes, et al, 1996; Prahalad and Hammel, 1990). According to the resource-based view, SCA can be achieved by continuously developing existing and creating new resources and capabilities in response to rapidly changing market condition. Coyne (1986) develops the concept of a capability gap to determine whether a firm's competitive advantage actually exists. According to Coyne (1986) a capability gap exists when the function responsible for the differentiated product/delivery attribute is one that only the producer in question can perform, or one that competitors (given their particular limitations) could do only with maximum effort. …