Competitive Advantages
Competitive Advantages
Why, within a particular industry or market, do some companies outperform others? When a firm sustains profits that exceed the average for its industry, the firm is said to possess a competitive advantage over its rival. The competitive advantages translate into the ability to win market share or earn a higher profit than competitors. A successful business model results from business-level strategies that create a competitive advantage over rivals and achieve superior performance in an industry, that is, they must optimize competitive positioning. They must first decide on (1) customer needs, or what is to be satisfied, (2) customer groups, or who is to be satisfied, and (3) core competencies, or how customer needs are to be satisfied. These decisions determine which strategies they formulate and implement to put a company’s business model into action.
This essay will examine the nature of competitive advantage and why managers need to perform internal analysis, just as they must conduct industry analysis, to achieve superior performance and profitability. And it will find out as well how business is looking to maintain competitive advantages beyond the present, well into the future. In other words, what are the difficulties the enterprise would face and have to overcome to maintain its competitive advantages over a longer period of time?
According to Colin White, competitive advantage is “the ability to provide utility to, or to satisfy, customers better than competitors can”. Or “a competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices” (tutor2u, 2006). Competitive advantages exist thanks to the combination of an appropriate application of the core competencies possessed by the enterprise and an appropriate positioning of the enterprise in the relevant industries or market segment (Colin, 2004). However, competitive advantages are not sustainable, not lasting long unless business undertakes methods to maintain them. The goal of much of business strategy is to achieve sustainable competitive advantage.
Let’s have a look at a Model of Competitive Advantage
A MODEL OF COMPETITIVE ADVANTAGE
This essay is concerned with identifying the strengths of the company which gives managers the information they need to choose the business model and strategies that will enable company to attain a sustained competitive advantage. The core competencies of an organization arise from its resources and capabilities which are superior to those of its competitors. Resources are the firm-specific asset useful for creating a cost or differentiation advantage that few competitors can acquire easily. They consist of both tangible (financial, physical, human, technological, and organizational assets) & intangible assets (patent & trade mark, proprietary know-how, installed customer base, reputation of the firm, brand equity) of the organization. Capability refers to the firm’s ability to utilize its resources effectively. However, Core Competencies are not seen as being fixed and should change in response to changes in the companys environment. As a business evolves and adapts to new circumstances and opportunities, so its Core Competencies will have to adapt and change.
In order to achieve a competitive advantage, a company needs to pursue strategies that build on its existing resources and capabilities and formulate strategies that build additional resources and capabilities (develop new competencies). The source of a competitive advantage is superior value creation. To create superior value, a company must lower its costs or differentiate its product so that it creates more value and can charge a higher price, or do both simultaneously. The key drivers for competitive advantage are cost leadership and differentiation of product (Micheal Portel). Business-Level Strategy deals with decisions and actions pertaining to each business unit in order to make each unit more competitive in its market-place. Or in simpler words, it raises the question HOW DO WE COMPETE at Business-Level Strategy.
BUSINESS-LEVEL STRATEGY
The four building blocks of competitive advantage are efficiency, quality, innovation, and responsiveness to customers. These are generic core competencies. Superior efficiency enables a company to lower its costs; superior quality allows it to charge a higher price and lower its costs; and superior customer service lets it charge a higher price. Superior innovation can lead to higher prices, particularly in the case