Sustaining Competitive Advantage and Unique Value
Definition:
Sustaining competitive advantage and unique value is critical to differentiating a company's profits from the average of the industry. Without a sustainable competitively advantaged position, you will likely receive the industry average profitability or lower.
What it is: Companies that have achieved a competitively advantaged position will find that competitors will try and imitate them. There are many ways to maintain a competitively advantaged position. To avoid imitation, a company must erect barriers to their advantaged positions by inhibiting competitors' ability to recognize, receive incentives, diagnose the source of advantage, acquire advantaged capabilities, and deploy them the capabilities. Continuously adding sustainable advantaged capabilities that are valuable to the customer will maintain superior profits over time, even if competitors successfully imitate some of the capabilities. To increase revenue and profit above the industry average, a company must maintain advantaged resource and capability positions over time.
What it does: Creating barriers that protect a company's competitively advantaged capabilities keeps competitors from successfully imitating them and protects superior profit positions.
Uses:
How it is used: Identifying and protecting competitively advantaged resources and capabilities protects superior profit positions within an industry. Companies constantly fight against successful imitation by competitors to protect their competitively advantaged positions.
Where: While this concept will help anywhere, there are some focus areas to target:
In commodity industries, competitors should develop and protect competitively advantaged low-cost resources and capabilities.
In a specialty or differentiated products industry, a competitively advantaged product or service can often command a significant price advantage, incurring much higher profits than average for the industry.
In brand-sensitive markets, an advantaged brand position can garner superior market share and profits.
Most industries will contain one or more of the categories above.
Why: Competitively advantaged positions are difficult to build and expensive to maintain, so it is critical to maintain the advantage for as long as possible.
Limitations:
Where it shouldn't be used: If you have a very small advantage and it will be expensive to avoid imitation, it may not be worth it for you to expend the resources to avoid imitation.
Any restrictions: None
Warnings: If competitors find a way to imitate your advantaged position, your profitability will likely fall to the industry average, but your competitors will likely also remain at the industry average. Imitation reduces your differentiation but does not increase theirs. So the industry average profitability will actually fall as your company's profitability falls back to the level of your competitors (decreasing the average for the industry). Therefore, imitating a competitor's differentiated position will cost you money, but will likely give you no increased profit, so both you and the competitor will see your profits fall. The advantaged competitor will lose the profit associated with their differentiation, and you will lose profits because you increased costs, but did not achieve differentiation (only imitation). Therefore, you will still only receive the industry average price, but now with a higher cost basis, so your profitability will be lower. But if you do nothing, you will see your competitors achieve higher profits and potentially take some of your market shares. So the answer is to create a unique differentiation, not to imitate your competition.
Step-by-Step Process:
Gather data: Gather data on your competitively advantaged capabilities and resources and consider the existing barriers to imitation.
Cause competitors to think they are not interested in picking a fight with a company that has an incentive to win that fight, and they can’t afford to stay in that fight.
Limit pricing (a type of deterrence). Set your prices so low that competitors don’t see any value in trying to compete with you.
Barriers to recognition: What barriers exist so the main competitors don’t notice you or don’t believe they need to pay attention to you?
Barriers to incentive to imitate: Deterrence, or a threat to punish imitators.
Barriers to diagnostic—causal ambiguity: Make it difficult for competitors to diagnose the source of your advantage.
Barriers to acquisition: Make resources less mobile. Embed them into the firm’s culture and processes. Utilize patent protection as appropriate.
Barriers to deployment: Valuable only in combination. Combine with other resources and activities, especially when these other resources and activities run counter to competitors’ prior commitments.
Utilize industry analysis (see under Strategy Development) to identify sustainably competitively advantaged resources and capabilities.
Determine the current barriers to imitation for each advantaged resource and capability.
Analyze the data: Determine whether the current barriers are adequate to provide the needed protection for the current advantaged resources and capabilities. If the barriers are not adequate, develop a list of alternatives that could increase the barriers to imitation.
Interpret the results: Forecast the effect of each proposed new barrier and determine which scenario will have the most efficient impact on making the resources and capabilities sustainable.
Present results:
Present the list of resources and capabilities you analyzed.
Demonstrate the barriers for each resource or capability.
Compare the scenarios available for each of the proposed new barriers or improved barriers.
Show the recommended new barriers and the cost-effectiveness of the increased protection against imitation.