Question

Competitive advantage is an important concept of strategic planning and healthcare leadership today for stakeholder analysis. In this unit’s assignment, you will consider and discuss a specific theory of competitive advantage held by some of America’s leading health systems.

For this assignment, address the following questions.

• What is the resource-based theory of competitive advantage for stakeholder analysis?
• What are the competitive strengths and weaknesses?
• As chief executive officer (CEO) of a health system, how could you put this theory to work for you and use the strengths and weaknesses for developing a strategic plan and gaining competitive advantage in your own healthcare market organization?

Answer 1

A growing body of research demonstrates the effectiveness of evidence-based pharmacy practice, but too many practice innovations fail to survive past the initial implementation and study phase. This paper presents the resource-based theory of competitive advantage as a framework for describing, understanding, and predicting the adoption and dissemination pharmacy service innovations into routine practice. The theory argues that the sustainability of any business innovation (e.g., pharmacy service) is based upon (1) the internal resources of the firm offering it, (2) the firm’s capabilities in using those resources, (3) the competitive advantage to the firm of its resources and capabilities, (4) the attractiveness of the market in which it competes, and (5) the innovation’s contribution to financial performance of the firm. This paper argues that the resource-based theory of competitive advantage provides a foundation for comparing findings from different research frameworks and studies relating to innovations in services, service processes, and service business models. The paper also poses a number of research questions related to the theory that can be used to further the literature about pharmacy practice innovations. Finally, it makes a case that competition is a fundamental aspect of pharmacy practice and the resource-based theory of competitive advantage can serve as a general theory for studying innovations in pharmacy practice and in the social and administrative sciences.

Numerous frameworks have been used to describe, understand, and predict the adoption and dissemination of evidence-based innovations into routine practice. This paper proposes a framework from the business literature, the resource-based theory of competitive advantage, which can be used for conducting research about innovations in pharmacy practice.

Originating from the strategic planning literature4, the resource-based theory of competitive advantage addresses the complexity of innovation adoption, diffusion, and sustained success in competitive practice settings.5 It is an interdisciplinary theory developed from wide ranging disciplines including marketing, management, ethics, law, supply chain management, and general business.6 Its deceptively simple premise is that the sustainability of innovations comes from developing superior capabilities and resources.

It offers a theoretical foundation for evaluating innovations that can be used in the context of pharmacy practice.6 Pharmacy practice happens in competitive environments, so any theory should be consistent with a general theory of competition. As the name implies, the resource-based theory competitive advantage fits this requirement. Another argument for the theory is that it provides a foundation for standard theories of pharmacy practice research including implementation science7, pharmacoeconomics8, Donabedian’s structure-process-outcome framework9, operations research10, amongst others. This provides an opportunity to unite a number of research streams into a single coherent framework. In fact, the resource-based theory of competitive advantage can serve as a general theory for social and administrative sciences in pharmacy and pharmacy practice.

RESOURCE-BASED THEORY OF COMPETITIVE ADVANTAGE

The resource-based theory of competitive advantage argues that the long-term success of any business innovation (e.g., pharmacy service) is based upon the internal resources of the firm offering it, the firm’s capabilities in using those resources to develop a competitive advantage over competing options, and the innovation’s contribution to financial performance of the firm in a market.5 It is predictive because it hypothesizes directional relationships between the concepts of competition.

In this theory, the “firm” is defined as a business organization, such as an independent pharmacy, pharmacy chain, hospital, or other organizational entity that offers goods and services. In this paper, the term “firm” will be used interchangeably with the terms “business” and “organization.”

The theory considers innovating to be an evolutionary process founded on the following premises:6

Demand continually varies in market segments;

Consumers and firms lack perfect information;

Humans are motivated by self-interest;

Firms seek superior financial performance;

The firm’s heterogeneous resources are physical, human, and organizational capital;

Competition is the source of innovation and it comes from a firm’s ability to recognize, understand, create, select, implement, and modify strategies to its situation;

Financial performance between firms varies depending on their resources and capabilities.

Resource-based theory of competitive advantage argues that innovations achieve sustainable competitive advantage by accumulating and using resources to serve consumer interests in ways that are hard to substitute for or imitate. It states that successful innovations are determined not just by the innovation. Success is also the result of the people involved, the organization(s) behind the innovation, contextual factors surrounding its implementation and dissemination, and the innovation’s benefits to stakeholders and the firm. The theory has been studied extensively and it allows researchers to understand and explain what works, where it works, and why.