Competitive Advantage – the Holy Grail?
Many markets and industries are not stable any longer because the forces at work in the environment are rapidly changing. New technology, in particular, is reshaping industries, and organisations are busy trying to disrupt the status quo rather than preserve it. Organisations will therefore try to build barriers to preserve their advantage in different ways, others will be trying to circumvent or overcome these bases of advantage.
Advantage can be initially created in a number of different ways:
- A business may utilise low price as a competitive advantage. However this is not sustainable over a long period of time as this advantage is likely to be eroded by competitors
- A business may utilise a difference in the way they present value to the customer. Again though competitors can usually easily erode this by imitation.
- First mover advantage
- A firm may seek advantage by being the first to make a move in the market. This, on the face of it, can give considerable benefits. It may take time for competitors to catch up. However in competitive markets they will usually catch up!
- New product / market development
- Firms can also seek competitive advantage by the introduction of new products (similar to first mover advantage) or entering new markets. Again this has the risk of imitation as competitors also spot the moves and the advantages they have.
- Resource based advantage
- In a different way firms can seek competitive advantage through its resources, obtaining key and unique resources which competitors would find difficult to imitate or obtain. In rapidly moving markets though this can be difficult to sustain.
- A firm may dominate a particular geographic area and therefore create a stronghold. The benefits of obtaining economies of scale in a particular area can be easily eroded by a competitor utilising economies of scale in another area.
- Deep pockets
- Deep pockets allow organisations to withstand an intensive competitive war. However, as with any war, fighting on many fronts can take its toll on a business. Smaller firms attack a larger organisations market share by taking small bites (niches).
As we have explained the bases of competition change. A firm may develop a product or service and seek to achieve advantage through differentiation in its market. However this will be imitated – slowly or quickly depending on the level of competition within the market. The firm may then attempt to build barriers perhaps by exploiting its expertise (resources). However this may prove difficult in conditions where technical advances are moving fast. The next move may be to try and stretch competencies and resource to find new markets; but if this is successful competitors will follow. There may be an attempt to drive down costs to achieve a low price, differentiation as a basis for competition (formulate a hybrid strategy) or perhaps the firm will try and build a stronghold in certain areas. But competitors can also drive down costs and strongholds may be difficult to preserve in fast moving markets.
The overall message is not one of doom and gloom but one where owners will need to rethink their approach to strategic management.
- Every advantage will be temporary and will be eroded. However, long term advantage may be sustained through a series of temporary advantages
- Disruption of the status quo is strategic behaviour – not mischief.
- Sustaining old advantages can be a distraction from developing new advantages
- Predictability is dangerous – surprise is important.
- Competing is necessary but makes winning more difficult.