Business
Competitive Advantage
Competitive advantage refers to the unique attributes or strategies that allow a company to outperform its competitors. It can be achieved through cost leadership, differentiation, or focus. By possessing a competitive advantage, a company can attract more customers, generate higher profits, and maintain a strong market position.
Written by Perlego with AI-assistance
Related key terms
1 of 5
12 Key excerpts on "Competitive Advantage"
eBook - ePub- Kevin Wayne(Author)
- 2017(Publication Date)
- Business Expert Press(Publisher)
Referencing numerous texts that have leaned on the strategy parlance of Harvard Business School’s Michael Porter, a Competitive Advantage is “what sets the organization apart from others and provides it with a distinct edge for meeting customer or client needs in the marketplace. The essence of formulating strategy is choosing how the organization will be different.” 1 Consequently, this phantom distinctiveness misleads many into thinking they have a Competitive Advantage. Strategy scholar Jay Barney defined Competitive Advantage more formally, citing that a firm achieves it “when it is able to create more economic value than rival firms.” This economic value is the customer’s perception of value, which is the difference between the perceived benefits and the costs incurred by the customer. 2 In other words, a firm possessing a Competitive Advantage is offering a distinctively higher value (real or perceived) to customers than these customers can get from competitors. Most strategic management experts stress the attribute of inimitability with regard to Competitive Advantage, meaning the distinctive edge that a firm possesses cannot be readily copied. This in turn yields a continued Competitive Advantage. Thus, if a firm is able to protect its distinct ability to offer the lowest prices (by being the lowest cost producer), provide the best customer service, operate the most effective distribution system, or possess patent-protected and superior product designs, then this firm will be more suited to achieve superior economic results over time. However, most organizations do not have an inimitable edge yet they are still successful competitors. These firms routinely win customers and eke out revenue, profits, and market share—albeit not overwhelmingly—but they survive nonetheless
eBook - PDFDarwinian Fitness in the Global Marketplace
Analysing the Competition
- P. Rajagopal(Author)
- 2012(Publication Date)
- Palgrave Macmillan(Publisher)
66 3 Competitive Advantage: Analysis and Strategy In this chapter, the convergence of competitive strategies with value chain man- agement of companies to gain Competitive Advantage is discussed in depth. Many factors determine the nature of competition, including not only rivals, but also the economics of particular industries, new entrants, the bargaining power of custom- ers and suppliers, and the threat of substitute services or products. A strategic plan of action based on this might include positioning the company so that its capabili- ties provide the best defence against the competitive forces, influencing the balance of forces through strategic moves and anticipating shifts in the factors underlying competitive forces. In this process a company must understand thoroughly all the moves of the rival firms. Locales of business rivalry have to be spotted to assess their strengths. An intriguing aspect of the marketplace is that the nature of com- petition can change over time. It has been argued that technology, company, or product does not need to remain vulnerable to others forever. Competitive roles can be radically altered with technological advances or with the right marketing decisions. Competition may be defined as an object-centred process in business performance. Competition may be semantically described as a combination of two distinct Latin words – com (together) and petere (to seek). Similarly, conflict is derived from com (together) and fligere (to strike). This distinc- tion between the quest and the blow, to strive or to strike seems precisely the pertinent one for clarity and efficiency in social science. 1 Competition may be characterised as striving together to win the race not to destroy the other competitors from the point of view of the supporters of globalisation. Local market competition is targeted towards customers, and competitors strive to win the customer, temporarily or permanently.
eBook - ePubGrow Globally
Opportunities for Your Middle-Market Company Around the World
- Mona Pearl(Author)
- 2011(Publication Date)
- Wiley(Publisher)
Three Key Strategies: Distinguishing Your Company through Competitive AdvantageOne program created by Centroflora Group integrates end consumers with the rural communities and small farmers. The program operates at a worldwide level, reaching thousands of consumers who purchase nontoxic and effective natural products, where production is safe for the environment, delivering a better quality of life to all. “The goal of our program is to develop a quality and reliable supply network while promoting sustainable agricultural and harvesting practices, improving incomes and social and economic well-being, as well as providing a model for vertical integration and transparency for our customers,” explains Hans Jorg Blaich and Raquel Silveira Capaz, who are team members of the Botanical and Sustainability Department at Centroflora Group. Today, Centroflora is the leader in the production and development of standard plant extracts for the drugs, cosmetics, and food industries in South America.By definition, a Competitive Advantage refers to the manner in which a company distinguishes itself to gain market share and establish both a niche and a customer base. A Competitive Advantage is achieved when a business markets a product or service in a manner that allows it to truly connect with customers and outperform its competitors. Without a Competitive Advantage, businesses struggle to gain traction, and they often resort to selling their products or services based solely on price. This approach ultimately leads to slashing costs and other non-value-added measures.Conversely, by identifying a particular attribute that could appeal specifically to a new market and then developing a strategic plan to promote that attribute, a company can gain a Competitive Advantage. Highlighting product differentiation, developing corporate recognition programs, and creating brand awareness are several methods that are tied directly to Competitive Advantages resulting in ongoing profitability. Fortunately, for globally minded U.S.-based businesses, Competitive Advantages are unlimited and waiting to be discovered.No discussion on strategy is complete without mentioning Professor Michael Porter’s pioneering work Competitive Advantage: Creating and Sustaining Superior Performance . In the 1980s, Porter proposed three generic strategies as uniquely different approaches for a business to achieve Competitive Advantage. These are cost leadership, differentiation, and focus. While each of these strategies has to be defined in terms of the industry context and the competitive forces that operate therein, each fulfills a core purpose. Cost leadership requires a firm to be the lowest-cost producer for a given level of quality. The differentiation strategy requires a product or service to have certain unique attributes that the competitors’ products lack. The focus
eBook - ePubStrategic Thinking
Today’s Business Imperative
- Irene M. Duhaime, Larry Stimpert, Julie Chesley(Authors)
- 2012(Publication Date)
- Routledge(Publisher)
Does a company have to outperform every one of its competitors every quarter or every year in order to claim that it has a Competitive Advantage? There’s probably no consensus among business professionals and academic researchers on this point. While outperforming all competitors every year on every conceivable performance dimension would provide a very clear-cut definition of Competitive Advantage, the fact is that very few, if any, companies would ever be able to claim that they enjoy a Competitive Advantage if these criteria were the requirement. Even the strongest companies will have a bad year or two or will experience a sustained slump. And, few if any companies have managed to weather the recent severe recession without impacts on their sales or profitability. On the other hand, many companies have succeeded in enjoying strong performance and remaining market leaders for many years or even decades. Thus, we will use less restrictive criteria when evaluating whether a company enjoys a Competitive Advantage, requiring that a company experience strong performance, beating the performance of most of its competitors, in most years in order to claim that it enjoys a Competitive Advantage.Competitive Advantage: The Importance of Firm-Specific Resources and Capabilities
The aim of strategic management is the development of sustainable Competitive Advantage. Given this book’s definition of strategy as “a pattern in a stream of decisions,”1 our focus is on the patterns of decisions that contribute to the development of Competitive Advantage and sustained high performance. The model of strategic management illustrated in Exhibit 2.1
eBook - PDF- Garth Saloner, Andrea Shepard, Joel Podolny(Authors)
- 2016(Publication Date)
- Wiley(Publisher)
We mention many specific forms of Competitive Advantages firms have developed, but our goal is to help managers understand Competitive Advantage. We start from the position that any specific Competitive Advantage derives from the firm’s context. By context we mean a firm’s assets, its organization, its industry, and its nonmarket environment. As Figure 3-1 illustrates, Competitive Advantage is a char- acteristic of both the firm and its relationship to its environment. The firm has an asset—the ability to provide customer service efficiently, for example—and because that asset is superior to that of its competitors and is valued by its customers, it is a Competitive Advantage for the firm. Any such advantage the firm can exploit through its activity contributes to superior performance. 40 CHAPTER 3 • Competitive Advantage 3.3 TWO MAIN ROUTES TO Competitive Advantage There are many kinds of Competitive Advantage, and they can be divided into two cat- egories: advantages based on the firm’s position and advantages based on the firm’s capabilities. To provide concrete examples of these kinds of Competitive Advantage, consider two hypothetical firms: Positions Inc. and Global Capabilities. They operate in different industries, but both earn returns on shareholders’ equity that are well above average. • Positions Inc. was founded in 1802 to provide a secure way to send cash over long distances. In the early days, a person wanting to send money deposited the funds (plus a healthy commission) at a nearby Position Inc. branch office. Positions Inc. would then send a message to its branch that was closest to the intended recipient of the money authorizing it to pay the sum deposited. Mes- sages were initially sent by stagecoach, then by telegraph, and, ultimately, by a computer network. Although the communications technology has changed, Positions Inc.
eBook - ePub- Erica Olsen(Author)
- 2011(Publication Date)
- For Dummies(Publisher)
What’s the number-one attribute Warren Buffet, arguably one of the most successful investors in the world, looks for in a company? “Sustainable Competitive Advantage,” he told an interviewer. If one of the most successful businessmen of today puts this at the top of his list, you should too. So what is it exactly?Your Competitive Advantage is what you, your company, or your department does better than anyone else. It is what makes you unique. The sustainable part refers to your ability to continue to do those activities over a long period of time. And yes, you can have more than one advantage and you can develop advantages as well. You don’t have to possess them all at this moment.I can’t emphasize the importance of understanding your Competitive Advantage enough. When you really have it nailed down, it helps you and your staff recognize the following:Which opportunities to pursue and which to pass byWhere to allocate resources and where to cut backHow to do what you already do well, betterKnow the difference between an opportunity and a distractionWhen to outsource (to another department or externally) and when to keep it in houseYour Competitive Advantage(s) is the foundation, the cornerstone of your strategic plan. Throughout your planning process, you evaluate every part of your plan to determine whether it supports or detracts from your Competitive Advantage. In the process, you discover what draws customers to buy the product or service from you instead of the competition.Knowing how to define your Competitive Advantage is the first step toward applying it to your organization. Ninety-five percent of all companies don’t know their Competitive Advantages, let alone how to use them to communicate a compelling reason to choose their product or service. If Buffet examined your company, would he find what he’s looking for? You find out in the sections to come.The 30-second competitive advantage challenge
Here’s a 30-second test to determine if you know your Competitive Advantage. A test already? I know; you feel like you’re in school again, don’t you? Don’t worry — it won’t hurt. Ready?
eBook - PDFPublic Sector Management
Mission Impossible?
- Ian Chaston(Author)
- 2017(Publication Date)
- Red Globe Press(Publisher)
Klein expressed the opinion that most people, upon being asked to attribute this definition to a private sector scenario, would probably not perceive that statement as applying to Competitive Advantage but instead assume it is a description of the activities associated with the generation of profit. In terms of creating a link between competitive activity and the manage-ment of strategy, a simple definition applicable to both private and public sector organizations is hereby proposed, namely: Competitive Advantage is the long term tactical philosophy adopted by the organisation through which to outperform other organisations serving the same customer(s) and market sector(s) or competing for access to the same source of financial resources. One possible reason for the confusion which may exist in the literature about Competitive Advantage is that in an earlier text on strategic management Porter (1980) proposed there were four alternative generic strategic ‘Competitive Advantage’ options through which a firm could achieve market success. His model has subsequently been widely accepted by academics. One wonders whe-ther confusion over the term ‘Competitive Advantage’ would have never emerged if only Porter had referred to his four proposed options as ‘alternative strategies through which to gain advantage over competition’. The basis of the Porterian generic alternatives is based upon the two dimen-sions of (i) basis of performance and (ii) degree of market coverage. In relation to the latter, Porter proposed that an organization could opt to offer prod-ucts or services to the majority of the market or alternatively, adopt a ‘focused’ approach of only meeting the specific needs of a small group of customers. In relation to performance, Porter proposed the choice of ‘cost leadership’ or delivering superior performance (or ‘differentiation’).
eBook - PDF- Robert M. Grant(Author)
- 2021(Publication Date)
- Wiley(Publisher)
III 7 The Sources and Dimensions of Competitive Advantage 8 Industry Evolution and Strategic Change 9 Technology-Based Industries and the Management of Innovation BUSINESS STRATEGY AND THE QUEST FOR Competitive Advantage The Sources and Dimensions of Competitive Advantage If you don’t have a Competitive Advantage—don’t compete! JACK WELCH, CEO, GENERAL ELECTRIC 1981–2001 7 O U T L I N E ◆ ◆ Introduction and Objectives ◆ ◆ How Is Competitive Advantage Established? ◆ ● External Sources of Competitive Advantage ◆ ● Internal Sources of Competitive Advantage: Strategic Innovation through Business Models and Blue Ocean Strategy ◆ ◆ How Is Competitive Advantage Sustained? ◆ ◆ Cost Advantage ◆ ● The Sources of Cost Advantage ◆ ● Using the Value Chain to Analyze Costs ◆ ◆ Differentiation Advantage ◆ ● The Nature and Significance of Differentiation ◆ ● Analyzing Differentiation: The Demand Side ◆ ● Analyzing Differentiation: The Supply Side ◆ ● Bringing It All Together: The Value Chain in Differentiation Analysis ◆ ◆ Can Firms Pursue Both Cost and Differentiation Advantage? ◆ ◆ Summary ◆ ◆ Self-Study Questions ◆ ◆ Notes 142 PART III BUSINESS STRATEGY AND THE QUEST FOR Competitive Advantage How Is Competitive Advantage Established? Competitive Advantage refers to a firm’s ability to outperform its rivals. Most of us can recognize Competitive Advantage when we see it: Starbucks in coffee shops, Vestas in wind turbines, Google in online search, and Spotify in music streaming. Yet, defining Competitive Advantage is troublesome. Competitive Advantage can be defined broadly in terms of a firm’s superiority in creating value for its stakeholders, or more narrowly in terms of profitability. Because of the difficulties in identifying and measuring total Introduction and Objectives In this chapter, we integrate and develop the elements of Competitive Advantage that we have analyzed in previous chapters.
eBook - PDF- Robert M. Grant, Judith J. Jordan, Phil Walsh(Authors)
- 2015(Publication Date)
- Wiley(Publisher)
As a price dis- counter, Target made the idea of affordable, great design for everyone paramount. To U.S. shoppers’ delight, the company collaborated with top-tier fashion designers. In 2011 Target partnered with Italian fashion house Missoni OPENING CASE TARGET CANADA: INVADING THE GREAT WHITE NORTH THE EMERGENCE OF Competitive Advantage To understand how Competitive Advantage emerges, we must first understand what Competitive Advantage is. Most of us can recognize Competitive Advantage when we see it: Walmart has a Competitive Advantage in discount retailing within the United States; Toyota has a Competitive Advantage in making mass-produced cars; SAP has a competi- tive advantage in enterprise resource planning (ERP) software. Defining Competitive Advantage is troublesome. At a basic level we can define it as follows: When two or more firms compete within the same market, one firm possesses a Competitive Advantage over its rivals when it earns (or has the potential to earn) a persistently higher rate of profit. The problem here is that if we identify Competitive Advantage with superior profit- ability, why do we need the concept of Competitive Advantage at all? The key difference is that Competitive Advantage may not be revealed in higher profitability. A firm may forgo current profit in favour of investment in market share, technology, customer loyalty, or executive perks. 9 In the long run, competition eliminates differences in profitability between competing firms but external and internal changes can create short-term oppor- tunities for creating an advantage (see Figure 4.1). External Sources of Change For an external change to create Competitive Advantage, the change must have differen- tial effects on companies because of their different resources and capabilities or strategic positioning.
eBook - PDF- Charles Hill, Gareth Jones(Authors)
- 2011(Publication Date)
- Cengage Learning EMEA(Publisher)
2. The four building blocks of competitive advan-tage are efficiency, quality, innovation, and cus-tomer responsiveness. 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 of product innovations, or lower unit costs, particularly in the case of process innovations. 3. The term value chain refers to the idea that a com-pany is a chain of activities for transforming inputs into outputs valued by customers’ value. The pro-cess of transforming inputs into outputs is com-posed of a number of primary activities and support activities. Each activity adds value to the product. 4. Actions taken by functional managers at every step in the value chain—functional level strategies— can increase the efficiency, quality, innovation, and customer responsiveness of a company. 5. Distinctive competencies are the firm-specific strengths of a company. Valuable distinctive com-petencies enable a company to generate superior profitability. 6. The distinctive competencies of an organization arise from its resources and capabilities. 7. In order to achieve a Competitive Advantage, a company needs to pursue strategies that build on its existing resources and capabilities and formu-late strategies that build additional resources and capabilities (develop new competencies). 8. The durability of a company’s competitive ad-vantage depends on the height of barriers to imitation. Summary of Chapter Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience.
eBook - PDFStrategy for Sustainable Competitive Advantage
Surviving Declining Demand and China's Global Development
- Ian Chaston(Author)
- 2012(Publication Date)
- Routledge(Publisher)
A key reason for the definition of strategy being ‘a statement which spec- ifies the nature of the entrepreneurial Competitive Advantage’ is to com- municate there is a fundamental need for the retention of organisational flexibility in the face of flattening demand in many Western markets and increasing success enjoyed by Indian and Chinese firms in global markets. By adopting an entrepreneurial approach to Competitive Advantage, this will ensure the organisation is able to recognise early signs of environmen- tal change and has the competences and internal culture to respond by using innovation as the basis for evolving a Competitive Advantage more suited to future trading conditions. It might be argued that this definition, by inclusion of the concept of com- petitive advantage, is not applicable to public sector or not-for-profit organisa- tions. However, consideration of the activities of organisations in these sectors will usually lead to the conclusion that competition is an element of their external environments. Charities, for example, compete with other chari- ties for donations. Different areas within the public sector such as education, social services and healthcare compete for resources both between different service provision sectors and between the various agencies charged with deliv- ering the same specific aspect of welfare state provision. Competitive Advantage A potential risk with the Porterian model of Competitive Advantage based upon cost versus differentiation and mass versus focused market coverage is Strategy 127 some users may adopt a literalist view of the concept. As a consequence some organisations may not realise it is possible to adopt a combined competi- tive advantage approach (Reitsperger et al. 1993).
eBook - PDF- BB Brown, AJ Voges KD Knowles(Authors)
- 2015(Publication Date)
- Macmillan(Publisher)
In Activity 5.1, you identified your preferred competitive strategy. Revisit your notes and, in the light of what you have learnt in this unit, decide whether you made the correct choice. 2. Write down your reasons for remaining with your choice of competitive strategy, or your reasons for changing to a different competitive strategy. 3. Decide which strategy you would prefer to adopt to secure Competitive Advantage for your business, giving reasons for your choice. 4. Indicate the strategy you would adopt to defend your Competitive Advantage, giving reasons for your choice. Figure 5.20: Fighting competitors can also show respect and humility 106 Summary • Once you have analysed the competitors in your industry, you need to look at strategies that you can use to secure, and then protect, your business’s Competitive Advantage. • The three main types of competitive strategy that are appropriate for use in an entrepreneurial business are the low-cost producer strategy, the differentiation strategy and the focus strategy. • Generic competitive strategies aim to help you to gain Competitive Advantage in your marketplace. • The low-cost producer strategy is based on gaining Competitive Advantage by selling the lowest-priced products in the marketplace. This strategy involves lowering costs to gain Competitive Advantage. • Low-cost producers continually do zero-cost reviews. These are reviews of the business’s operations that aim to drive every cost in the business down to its lowest point while maintaining a quality standard that makes the product acceptable to consumers. • Differentiation means being different from your competitors, or seeking to be the unique business in your industry. Being unique or having a unique product or service enables you to charge a premium – a higher price – for your product.
Index pages curate the most relevant extracts from our library of academic textbooks. They’ve been created using an in-house natural language model (NLM), each adding context and meaning to key research topics.
