FOR IMMEDIATE RELEASE
REF: 1-5-30-00
CONTACT: Leslie Woodard, [email protected]
(806) 742-2136
TEXAS TECH BUSINESS PROFESSOR TOUTS RADICAL NEW
THEORY OF COMPETITION
LUBBOCK -- The accepted theories of how businesses compete are wrong, according to Shelby Hunt, Ph.D., professor of marketing, in Texas Tech University's College of Business Administration. His recently developed Resource-Advantage Theory of Competition makes clear the uselessness of long-accepted theories of competition. Hunt explains and compares his theory in a new book, "A General Theory of Competition: Resources, Competences, Productivity, Economic Growth."
"Everything in the neo-classical theory of economics says, 'If you want growth, increase investments.' And that is wrong. First you increase economic growth, which will lead to increased investments. It's just backwards. And, that's what the evidence shows," said Hunt, who is a J.B. Hoskins and P.W. Horn professor at Texas Tech.
Hunt's theory defines competition as the ongoing struggle among firms for a resource advantage that will yield a marketplace advantage, and thus, superior financial performance. The theory addresses the complex, ever-changing role of resources and product value in attaining that superior financial performance.
Resource-Advantage Theory claims that businesses can take advantage of all resources, tangible and intangible, to achieve superior financial performance in the marketplace. Hunt's book defines resources as, "the tangible and intangible entities available to the firm that enable it to produce efficiently and/or effectively a market offering that has value for some market segment(s)."
Some examples of intangible resources would be a well-known logo or trademark, for example, like the Golden Arches are to McDonald's; a name or label, like Tide is to Procter & Gamble; and even a competence, like safety is to Volvo. Things that cannot necessarily have a value placed on them, that, in and of themselves, cause a consumer to buy a product or patronize a business, are intangibles.
"Companies that are at the bottom obviously are having inferior financial performance, which is unacceptable in our economy," Hunt said. "Everyone wants to be superior. Everyone at the bottom wants to overthrow all the folks at the top. They can innovate by trying to lower their costs, or produce more value or whatever. This is called reactive innovation. Those innovations, however, do result in economic growth. Therefore you have this dynamic process that must continue, because you get rewarded for relative performance, not on absolute performance."
Hunt maintains that even the businesses seemingly on top of the game still need to innovate, or they face stagnation. "Most companies think only in terms of one dynamic. You have to think in terms of both cost and value," Hunt said.
"The guys on the top are in a favored position and want to stay there. They, then, also have to innovate (proactive innovation). If you don't continue to innovate, the ones on the bottom will catch you," Hunt said.
Hunt's theory says competition is a learning experience, that "firms learn their relative market position through competition, as a result of feedback from relative financial performance."
The book has evolved over a period of about six years, according to Hunt. In 1994, he and then doctoral student Robert Morgan set out to answer the question of why some firms are more profitable than others. In the course of their research they developed the new theory. The book has been extremely well received by many disciplines. Articles have been published in no less than 14 academic journals; not just marketing journals, but also economics and management publications. Hunt says that is highly unusual.
According to a recent review in the April Journal of Marketing, "Hunt's general theory is indeed a truly interdisciplinary theory," said Robert F. Lusch, of the University of Oklahoma. "The book is clear, logical and compelling, and avoids unnecessary jargon ... which makes it accessible to a variety of readers. I would expect the book to be of interest, at the very least, to scholars and students in economics, history, law, political science, business (especially marketing and strategy), management consulting and public policy, as well as to executives and entrepreneurs."
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SOURCE: Shelby Hunt, Ph.D., (806) 742-3436 or [email protected],
professor of marketing, Texas Tech University College of Business Administration
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