A Definition of Firm Performance

The firm performance is a complex term which may include different shadows of meaning as long as it relates to organizational performance, functioning of the firm and outcomes of its operations. Normally, the firm performance implies the organizational performance, including manufacturing of products and services, functioning of different units of the firm, performance of its employees and outcomes of their work in total. At the same time, the firm performance can be viewed in a broader context as a part of the business development of the firm. What is meant here is the fact that the business development mirrors the firm’s performance and allows to assess the extent to which the organizational performance is effective. At this point, it is important to place emphasis on the fact that the firm’s performance is basically measured in terms of efficiency of the firm’s operations. In fact, the more effective the firm’s operations are completed the more positive the organizational performance is and, on the contrary, the low efficiency of firm’s operations and employees’ performance means the poor firm’s performance. In this respect, employees’ performance comprises an integral part of the firm’s performance because, in the contemporary business environment human resources, comprise an important marketing asset of any organization. Therefore, the efficiency of employees’ performance affects consistently the firm’s performance.

Furthermore, it is important to take into consideration that the firm’s performance is an important indicator for investors and stakeholders. What is meant here is the fact that the firm’s performance indicates whether the company is worth investing or not. For instance, investors are ready to invest money in firms with the positive marketing performance, whereas poor marketing performance indicates at problems firms have in their business development. As a result, investors avoid investing money in companies with poor performance because they are uncertain in the return on investments and because of high risks accompanying such investments.

The competitive advantage of a company is one of the most important factors that define the competitive position of the company in the market. In fact, the competitive position of a company means the marketing position and performance of the company compared to its major rivals. In this regard, it is necessary to pay a particular attention to the return on investments rate of the company because the higher is the return on investments and lower risks associated with investments and business development of the company, the better is the marketing position of the company. In fact, the company with the high return on investment can count for the steady improvement of its marketing and competitive position because it can take advantage of its business development and growth which occur due to the high return on investments. In addition, the competitive advantage should be unique, relevant and sustainable.

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At the same time, it is important to distinguish competitive position in operational and concrete terms. In this regard, the competitive advantage in operational terms implies the advantage of the company in terms of its business development, introduction of innovations, use of management strategies, organization of production process and other operations conducted by the company. The competitive advantage of the company in operational terms is defined by its ability to take a better position compared to its rival due to a better organization of the production process and other operations conducted by the company compared to its rivals.

As for the competitive advantage in concrete terms, it is important to place emphasis on the fact that the competitive advantage in concrete terms implies the advantage of the company in terms of the assets’ value of the company, costs of its facilities, fixed costs, and other fixed values of the company, along with the products and services provided by the company to its customers. In other words, the competitive advantage in concrete terms implies the advantage the company gains in quantity of products, revenues and other items which can be measured and assessed accurately.

Finally, on analyzing the competitive advantage concept, it is worth mentioning the fact that companies have to maintain their competitive advantage. In other words competitive advantage should be sustainable to insure that the company keeps progressing. Otherwise, if the company fails to maintain its competitive advantage, it is doomed to failure because it cannot afford the competition for rivals will keep progressing and outpace the company that has stopped in its development.

The VRIO framework allows to obtain the basic information on the competitive advantage of a firm. To put it more precisely, the VRIO framework focuses on four key items defining the competitive position of a firm, including value, rarity, imitability, and organization. The value of the company is very important for determining its competitive position. In terms of the VRIO framework, the value implies the ability of a firm to neutralize external threats and hold a better marketing and competitive position compared to its rivals. In such a way, increasing the value, a firm can improve its competitive position and take the lead in the industry. The rarity implies the control over resource in hands a few and the firm should attempt to limit the access of the rivals to the resources. Alternatively, the company may attempt to establish control over resources and, thus, get a consistent competitive advantage over its rivals, especially if they cannot get access to resources.

Furthermore, imitability involves the protection of the uniqueness of products and services provided by the company to its customers and the ability of the company to protect its products and services from imitations from the part of its rivals. In this regard, the protection of intellectual property rights, the development of new, original and unique products is crucial because it provides the company with an excellent opportunity to take advantage and hold the dominant competitive position in the market. The uniqueness of products or services is crucial for the competitive position of the company.

Finally, the organization is another important factor that determines the competitive position of the company and its competitive advantage. In this respect, it is worth mentioning the fact that the effective organization allows the company to optimize the production process and company-customer relationships. As a result, companies with a better organization has a competitive advantage of its rivals because its performance is better compared to its rivals due to the better organization of work and more efficient work of employees within the company.