Competitive advantage, or business based competition, is often treated as a myth. This is clear when either a ‘seat of the pants’ approach is taken to corporate governance and strategy or when misalignment increases across the business model. The result is an iterative process where quality, profits, and stakeholder satisfaction deteriorates. A result that no business can afford, let alone survive.
HrZone (n.d.) defines competitive advantage as the following:
“Companies with a competitive advantage have an identifiable part of their proposition that allows them to achieve a greater degree of success than similar businesses in their industry.”
What represents a competitive advantage will depend on the industry, location, economic forces, and regional resources. What may keep up competition in one region may not represent a competitive advantage in another region halfway across the world.
Michael Porter (1985) lists the following three strategies for building a competitive advantage (cited in HrZone, 2013):
- Cost Leadership: In cost leadership, a firm sets out to become the low cost producer in its industry.
- Differentiation: In a differentiation strategy a firm seeks to be unique in its industry along some dimensions that are widely valued by buyers.
- Focus: The generic strategy of focus rests on the choice of a narrow competitive scope within an industry.
A SWOT analysis can give answers to some of these questions but often falls short unless internal stakeholders are dedicated to excellence. Half-hearted efforts, and outputs, can possibly be afforded in non core areas but even then this can erode profit and business model alignment if not properly evaluated. Risks to building a competitive advantage within a previous Daas business model (Data Analytics, Inc.) are identified in the SWOT graphic below:
When the business focus is internal the vision is understandably narrow and unprofitable. But as the scope of competition branches out to regional, national, and international levels.
Several myths of competitive advantage are clarified below:
- Competitive advantage does not exist in a vacuum.Being first has its advantages but only in industries where cost to entry are high. In industries with low costs to entry there is no competitive advantage to being first. First entrant achievements will often be copied.
- Competitive advantage does not exist when a company builds a product or service that nobody else wants, but better than everyone else.Advantages only exist when the product/ service configuration solves a problem customer actually want solved.
- Competitive advantage does not exist by litigating the competition or individuals to keep scandals quiet.Scandals or secrets are tied to business model weaknesses. Treating the symptom (visibility) does not cure the source of the problem. Litigation limits having to respond effectively to the source of the problem.
- Competitive advantage is not about optics.If the business model ‘under the hood’ is defective the business will only function for so long.
- Competitive advantage does not last forever.Advantages and their supporting competencies must change and adapt with the environment to be sustained.
- Competitive advantage is not decided by what internal business stakeholders want.Focusing inward will only drive improvements when an internal stakeholder is dissatisfied. In contrast, focusing on external stakeholders, customers, and the environment supports forecasting future trends and identifying profitable opportunities for growth.
- Competitive advantage is not achieved by being 2nd best.It is achieved by paying careful attention to the environment, trends, and identifying opportunities to lead the pathway to innovative change.
- Competitive advantage can be undermined by focuses on protection instead of innovation. Defense is not a good offense as it is reactive and will often seek to protect outdated strategies, technologies, competencies, attitudes, and assumptions. Profitable growth requires an outward focus.
- Competitive Advantageis not a myth. Building a product/ service configuration that fails to meet excellence on all measures and KPI’s can only leave room other competitors to advance (and dominate market share).
- Competitive Advantage requires agile leadership. An exclusive hierarchical or top-down approach to strategy, planning, and design will incur increasing costs and errors with increased scope of the project/ effort.
Leading a market requires more than just emulating or copying the competition. Defensive strategies (litigation, secrecy, etc.) are also insufficient as these do not guide the development and growth of world-class competencies or product/ service configurations. An outward focus is needed to calibrate strategy with the business’ future vision.
How does your business pursue a competitive advantage? Share your comments below.
Travis Barker, MPA GCPM
Innovate Vancouver is a business development & consulting service and technology startup located in Vancouver, BC. Contact Innovate Vancouver to help with your new project. Innovate Vancouver also gives back to the community through business consulting services. Contact us for more details.
Porter, Michael E., “Competitive Advantage”. 1985, Ch. 1, pp 11-15. The Free Press. New York.
What is a Competitive Advantage? (2013, July 26). Retrieved September 10, 2017, from https://www.hrzone.com/hr-glossary/what-is-a-competitive-advantage