Competitive Advantage

What is it?

Competitive advantage is the holy grail of business strategy. It is often useful to replace the word “strategy” with the words “competitive advantage” to sharpen your thinking, the two are that closely linked.

The term was popularised by Michael Porter in his classic books “Competitive Advantage” and “Competitive Strategy”

In general, there are two types of competitive advantage:

1) Resource/asset based advantages

These are the “Maginot line” of competitive advantage, assets and resources that can be pointed at and sold.

Examples are:

  • Brand equity
  • Patents
  • Low cost production sites
  • Global distribution network

Resource/asset based advantages don’t just spring into being,  they are created over time by capability advantages.

2) Capability advantages

These are the internal processes of the company that the company does better than anyy other company. They are the dynamic version of competitive advantage, building up assets and resources over time as the advantaged processes work.

Examples are:

  • Global brand management
  • Research
  • Continuous improvement processes in manufacturing
  • Distributor partner management

Notice that these capability advantages map directly on to the asset-based advantages – every resource/asset the company has has been created by an advantaged process.

Capability-based advantages tend to be more important, because they represent the rate of change in competitive advantage, rather than just a snapshot picture that asset-based competitive advantages give.

Competitive advantage

This ties back to Jack Welsh’s great quote:

“If the rate of change on the outside exceeds the rate of change on the inside, the end is near.”

 

 

 

 

When is it useful?

A diagnostic of competitive advantage is a foundation for any strategy, since the best opportunities will always be ones where your company starts with an advantage.

An Example?

Apple has many asset-based advantages – it holds many patents and its brand is among the most valuable in the world. However, its critical advantged capability is its product development process, enabling to blend hardware and software with great design flair to create electronic products that everyone aspires to.

How do you do the analysis?

 

I want to know more

 

How can you adapt this concept?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: