What is Competitive Advantage?

All of us in business are constantly thinking of ways to stay ahead of our competitors, but what actually is competitive advantage? Many strategy specialists discuss competitive advantage and the need for it in business, yet very few of them actually define the term. The difficulties in finding a suitable definition may simply be the result of competitive advantage meaning what it is; i.e. an advantage in terms of competitiveness, where no exact definition is given because it is company or product specific.

The notion that competitive advantage is company specific is supported by Hay and Williamson (1991, p42), where they define the term as a, deceptively simple idea of assessing a companys capabilities and market position by how they give it advantage relative to competitors. They bring forward the opinion that competitive advantage can only be found by making a comparison between a company and its competitors. This is further supported by Barney (1991, p99) who also brings in the concept of adding value, where he states, a firm is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by current or potential competitors.

Thus competitive advantage is unique to the company in question, its compatibilities, how it positions itself in the market and how it adds value to its customers. When identifying your companys competitive advantage try assessing it by these factors above.

Recent Developments in Competitive Advantage

Rayport and Jaworski (2004) suggest as the focus of competition shifts from what companies do to how they do it, the new frontier of competitive advantage lies in the quality of interactions and relationships companies can establish with their customers and markets. In order to gain the most from advances in (Human) thinking as well as in new technology, they believe that a harmony must be found in the intelligent division of labour between man and machine. Thus a company may be able to achieve competitive advantage by differentiating how they interact with their customers. With the advances in modern technology companies can reach more customers in different ways. For example, you can now order a pizza from Dominos via interactive digital television. No other pizza delivery company can offer such a service and so Dominos has developed a differentiated competitive advantage through exploiting new customer interfaces.

Kim and Mauborgne (2004) introduce the concept of Blue Ocean Strategy as a method of doing away with all competition. They split the business world into red oceans and blue oceans. A red ocean is an existing and often over crowed market place, where competition is great. A blue ocean is a newly created uncontested market place, which makes all competition irrelevant. When it comes to creating blue oceans, Kim and Mauborgne (2004) believe that successful companies pursue differentiation and low cost strategies simultaneously. However, it could be argued that use the use of the term blue ocean is just an elaborate explanation of key concept of marketing; finding a need, satisfying it and regenerating it at a profit. Where the blue ocean is the need that has not yet been found.

For help in developing your competitive advantage feel free to contact AC&A and discuss it with one of our strategy specialists.

Bibliography

Barney, J., 1991. Firm resources and sustained competitive advantage. Journal of Management. Vol. 17, p99-120

Hay, M. Williamson, P., 1991. The Strategy Handbook. Oxford, Basil Blackwell, p42.

Kim, W. Mauborgne, R., 2004. Blue Ocean Strategy. Harvard Business Review, Oct 2004, p77-84

Rayport, J. Jaworski., 2004. Best Face Forward. Harvard Business Review. Dec 2004, p47-58

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