What
is Competitive Advantage?
It
is a truism that strategic management is all about gaining and maintaining
competitive advantage. The term can be defined to mean “anything that a firm
does especially well when compared with rival firms”. Note the emphasis on
comparison with rival firms as competitive advantage is all about how best to
best the rivals and stay competitive in the market.
Competitive
advantage accrues to a firm when it does something that the rivals cannot do or
owns something that the rival firms desire.
For instance, for some firms, competitive advantage in these recessionary times
can mean a hoard of cash where it can buy out struggling firms and increase its
strategic position. In other cases, competitive advantage can mean that a firm
has lesser-fixed assets when compared to rival firms, which is again a plus in
an economic downturn.
What
is Sustained Competitive Advantage?
We
have defined what competitive advantage is as it relates to strategic
management and the sources of competitive advantage differing from firm to
firm. However, a firm can have a source of competitive advantage for only a
certain period because the rival firms imitate and copy the successful firms’ strategies
leading to the original firm losing its source of competitive advantage over
the longer term. Hence, it is imperative for firms to develop and nurture
sustained competitive advantage.
This
can be done by:
- Continually adapting to the changing external business landscape and matching internal strengths and capabilities by channeling resources and competencies in a fluid manner.
- By formulating, implementing, and evaluating strategies in an effective manner which make use of the factors described above.
The
fact that firms lose their sources of competitive advantage over the longer
term is borne out by statistics that show that the top three broadcast networks
in the United States had over 90 percent market share in 1978 which has now
come down to less than 50 percent.
The Advent of the Internet and Competitive Advantage
With
the advent of the internet, competitive advantage and the gaining of it has
become easier as firms directly sell to the consumers and interlink the
suppliers, customers, creditors, and other stakeholders into its value chain.
Because of the removal of intermediaries, firms can reduce costs and improve
profitability. Essentially, the internet has changed the rules of the game and
hence sources of competitive advantage in this digital era are now about how
well firms utilize the digital platform and social media to gain advantage over
their rivals.
Closing
Thoughts
Finally,
competitive advantage has to be earned, gained, and defended as the preceding
discussion shows. Hence, those firms that are agile and responsive to changing
market conditions and whose internal capabilities are aligned with the external
opportunities are those who would survive in the brutal business landscape of
the 21st century. As can be seen from the characterization of competitive
advantage, it is ethereal and subject to change and hence firms must always
been on the lookout for newer sources of competitive advantage and be alert for
competitors’ moves.
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