Everyone heard about the concept of competitive advantage. It was suggested by Michael Porter in 1985. The concept is simple. Your company gains competitive advantage when the company owns factor(s) that allows it to perform better than competitors.
Originally, Porter introduced 3 approaches to gain competitive advantage:
- Cost leadership – a company can produce product or service cheaper than its competitors.
- Differentiation – a company has a clear differentiation in the market to its competitors.
- Focus – a company understand its market better than its competitors.
However, the world has changed. The above approaches do not guarantee that you can enjoy the competitive advantage forever. Your competitors could imitate or copy your approach and dilute your position in the market quite quickly.
Therefore, what you are looking for is to achieve a ‘sustainable’ competitive advantage.
What is a sustainable competitive advantage? The simplest explanation is it is a competitive advantage that is very difficult for competitors to imitate. But, let think about it for a moment. While the definition is easy to understand, it’s practically difficult to achieve at this level. What would be your company’s sustainable competitive advantage – something that helps you to outperform the market and is hard to copy? If you can answer this question with confidence, your company’s position in the market is secure and it’s very likely that your company is very profitable. However, it’s not always easy to identify the source of a sustainable competitive advantage.
Let’s go through a quick list of what could be the sources of a sustainable competitive advantage.
- Benefit of size – a company is the largest company in the industry or the market.
- Access advantage – a company gain sole access to resources and/or a customer base.
- Know-how – a company has superior access to information may reflect the benefits of scale or experience.
- Input – tying up inputs will lead to a sustainable advantage only if the commodity’s supply is bounded and the company has the right to use it on favorable terms.
Does your company own any of the above items?
Another way to secure a sustainable competitive advantage is to develop a system that an imitation of its part is useless. For example, Walmart developed a system to enter the markets that everyone else thought there was no potential. Walmart also developed one of the best distribution system for its inventory to its stores. It’s not too hard for Walmart’s competitors to understand and copy some of the items in Walmart’s system. However, imitating only part of the system is pointless because of the interaction of all parts cannot be imitated.
Apivut @ SiB