Competitive advantage
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Competitive advantage is, in very basic words, a position a firm occupies against its competitors.
According to Michael Porter, the three methods for creating a sustainable competitive advantage are through:
1. Cost leadership - Cost advantage occurs when a firm delivers the same services as its competitors but at a lower cost; [1]
2. Differentiation - Differentiation advantage occurs when a firm delivers greater services for the same price of its competitors. They are collectively known as positional advantages because they denote the firm's position in its industry as a leader in either superior services or cost; [2]
3. Focus (economics) - A focused approach requires the firm to concentrate on a narrow, exclusive competitive segment (market niche), hoping to achieve a local rather than industry wide competitive advantage. There are cost focus seekers, who aim to obtain a local cost advantage over competition and differentiation focuser, who are looking for a local difference. [3]
Many forms of competitive advantage cannot be sustained indefinitely because the promise of economic rents invites competitors to duplicate the competitive advantage held by any one firm.
A firm possesses a sustainable competitive advantage when its value-creating processes and position have not been able to be duplicated or imitated by other firms,[4]. Sustainable competitive advantage results, according to the resource-based view theory in the creation of above-normal (or supranormal) rents in the long run.
Analysis of competitive advantage is the subject of numerous theories of strategy, including the five forces model pioneered by Michael Porter of the Harvard Business School.
The primary factors of competitive advantage are innovation, reputation and relationships.
Competitive advantage occurs when a organization acquires or develops an attribute or combination of attributes that allows it to outperform its competitors. These attributes can include access to natural resources, such as high grade ores or inexpensive power, or access to highly trained and skilled personnel human resources. New technologies such as robotics and information technology either to be included as a part of the product, or to assist making it. The term competitive advantage is the ability gained through attributes and resources to perform at a higher level than others in the same industry or market (Christensen and Fahey 1984, Kay 1994, Porter 1980 cited by Chacarbaghi and Lynch 1999, p.45). The study of such advantage has attracted profound research interest due to contemporary issues regarding superior performance levels of firms in the present competitive market conditions. “A firm is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential player” (Barney 1991 cited by Clulow et al.2003, p.221). Successfully implemented strategies will lift a firm to superior performance by facilitating the firm with competitive advantage to outperform current or potential players (Passemard and Calantone 2000, p.18). To gain competitive advantage a business strategy of a firm manipulates the various resources over which it has direct control and these resources have the ability to generate competitive advantage (Reed and Fillippi 1990 cited by Rijamampianina 2003, p.362). Superior performance outcomes and superiority in production resources reflects competitive advantage (Day and Wesley 1988 cited by Lau 2002, p.125).
Above writings signify competitive advantage as the ability to stay ahead of present or potential competition, thus superior performance reached through competitive advantage will ensure market leadership. Also it provides the understanding that resources held by a firm and the business strategy will have a profound impact on generating competitive advantage. Powell (2001, p.132) views business strategy as the tool that manipulates the resources and create competitive advantage, hence, viable business strategy may not be adequate unless it possess control over unique resources that has the ability to create such a unique advantage. Summarizing the view points, competitive advantage is a key determinant of superior performance and it will ensure survival and prominent placing in the market. Superior performance being the ultimate desired goal of a firm, competitive advantage becomes the foundation highlighting the significant importance to develop same.
In the event competitive advantage is gained by a firm wouldn’t it be necessary to sustain such value creating advantage for desired periods of time in order to gain maximized superior outcomes? As Ma state (2003, p.73) winning is a habit not a one time event. With the same view point Chaharbaghi and Lynch (1999, p.45) writes “ sustainable competitive advantage is a journey not a destination- it is like tomorrow which is inescapable but never arrives” stressing the idea that ones reached, all attempts should be made to sustain competitive advantage. Apparently academics view and stress the idea of sustaining competitive advantage. In my opinion, to understand the way to sustain it is first essential to confirm and establish the generic root causes for competitive advantage. As discussed above business strategy and resources are the important elements in creating a competitive advantage. This understanding will help to explore the different approaches or perspectives of sustainable competitive advantage.(Achieving a sustainable competitive advantage in the IT industry through hybrid business strategy- Tharinda Jagathsiri(MBA- University Of East London)
[edit] Further reading
- Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter
- Creating Competitive Advantage: Give Customers a Reason to Choose You Over Your Competitors by Jaynie L. Smith
Using MIS by David M. Kroenke pages 71–77
[edit] References
- ^ Michael E. Porter. On Competition. Harvard Business Review, Boston, 1998, p.40-42.
- ^ Michael E. Porter. On Competition. Harvard Business Review, Boston, 1998, p.40-42.
- ^ Michael E. Porter. On Competition. Harvard Business Review, Boston, 1998, p.40-42.
- ^ Sustainable Competitive Advantage
