You would have heard the concept of competitive advantage. It’s one of the most widely mentioned and used concepts in our business era. Michael E. Porter introduced the idea back in 1985. It was a new way of thinking at the time. Your company gains a competitive advantage when the company owns factor(s) that allows it to perform better than competitors.
Originally, Porter introduced three 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 strategy and dilute your position in the market relatively quickly.
To protect your competitive advantage position, you are looking for something that prevents your competitors from copying your strategy, your approach, and your operations. What you are looking for is a way to achieve a sustainable competitive advantage.
What is a sustainable competitive advantage?
A sustainable competitive advantage is an advantage that is very difficult for competitors to imitate. But, let’s think about it for a moment. While the definition is easy to understand, it isn’t easy to achieve. Allow me to ask you this question. What would be your company’s sustainable competitive advantage? It must be something that helps you to outperform the market and must be hard to copy. If you can answer this question with confidence, your company’s position in the market is secure. And your company is likely to be very profitable. However, it’s not always easy to identify the source of a sustainable competitive advantage.
As an example, if you run a hotel, what makes your hotel stand out from the hotel next door? Your service? Your facilities? Or your room rates? All of these factors are hardly unique. Any hotels could compete (and copy) in these factors. That’s why most hotels compete on prices.
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 exclusive access to resources and 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 favourable terms.
Does your company own any of the above items? These are the fundamental factors to run a business.
Another way to secure a sustainable competitive advantage is to develop a system that an imitation of its part is useless. For example, Walmart created a system to enter the markets that everyone else thought there was no potential. Walmart also developed one of the best distribution systems 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 aspects cannot be imitated.
However, with today’s advanced technologies, it’s easier than ever to adopt technology and copy some of the competitors’ system to create your own. You may enjoy the sustainable competitive advantage for a few years before your competitors catch on.
A true source of a sustainable competitive advantage
In my opinion, a true source of a sustainable competitive advantage lies in the concept of infinite mindset. In the infinite game, the objective is not playing to win. The objective is to keep on playing. It is a mindset to build something that lasts beyond your lifetime.
How can an infinite mindset be a true source of a sustainable competitive advantage?
It’s because it dictates the following key success factors that make a lasting company:
- Just cause – it’s a vision to create a better world. It doesn’t necessarily mean a global scale. It could only mean your customer’s world. What you try to achieve here is to create something that exists even after you are not around anymore.
- Leadership – a company’s just cause reflects a type of company’s leader. Does he/she see a bottom line more important than employees and customers?
- Culture – a company’s culture starts from the top. The type of leaders dictates the culture of the company.
- Employees – the just cause, the leadership, and the culture determine the types of employees a company has. If the majority of the employees come to work just to pay bills, it would be difficult for a company to succeed in the long term.
- Brand – the above three factors determine a company’s brand and its strategy. A strong brand with a clear vision of a better world normally commands the market for a long time.
None of the above could be imitated easily, close to impossible. The road to get there is long and difficult. And, it requires the infinite mindset. But once you achieve that point, your company will last forever.