Sustained Competitive Advantage
Getting your strategy right
Your company and both its internal resources and external competitive environment evolve over time as markets and technology change. What was once a sustained competitive advantage within a company can quickly become obsolete. Customers and markets evolve and with evolution, markets will demand different products/services. Businesses often need to re-evaluate their position and identify what core competencies are available before innovating and developing.
A SWOT/TOWS matrix can help a company begin to explore internal resource analysis through assessing strengths and weaknesses from a resource based perspective. Alternatively a company can undertake an external analysis through exploration of opportunities and threats that focus more on business environment advantage.
To begin with, it is best to define this articles perception of sustained competitive advantage as:
"The company’s assets, abilities or features that are difficult to replicate and provide the company with a long term preferable position over competitors."
Fortunately when a company finds itself in need of identifying its sustained competitive advantages, Barney’s provided a framework to begin strategic analysis named VRIN. VRIN asks business managers four key questions about the company offering.
1. Does the company provide value?
2. Is the product or service rare?
3. Can the product or service be imitated?
4. Are there any market substitutes?
Value: a company’s resources become valuable when the resources empower a company to implement strategies that improve effectiveness or efficiency. Valuable resources can be hard to identify when working everyday within a company, as a consultant we challenge our clients to begin asking:
What makes your products different?
A unique product can create market leadership and determine new demand. Differentiation can vary from quality, variation, flexibility or unique customer service.
Are there any barriers to entry?
Typical barriers to entry could include high volume requirements or significant asset investment. Companies that have traded for a long time can often lose sight of an important advantage that a company already has.
Does the company hold any strategic assets?
Trademarks, branding, patents or even a domain name can be of strategic value for a company. Well-known companies such as Coca-Cola has become synonymous with its sugary drink or KPMG is recognised worldwide as a leading consultancy organisation. These brand names are of great strategic importance and in turn form part of the aforementioned organisation’s sustained competitive advantage.
What is the financial position of the company?
Finance can be a powerful and valuable resource when a company is able to identify efficient ways to invest in innovation to secure a market leading position. Having a strong financial position enables a company to be able to invest in people, training, resources or machinery to ensure efficient product delivery and to more readily reach the market.
Rareness: If a resource is possessed by numerous companies then it is not rare, the resources that are most valuable to a company are those that are available to one company or at least a select few. Rare resources is an area that VP Consulting work hard to challenge its clients on identifying. Rareness can appear in many forms from the company’s people to technological innovations or even organisational structure and culture. Whilst one specific resource may not be rare or unique, a company can look to combine multiple resources to create rarity. A combination of people, (e.g. who are a great sales team) and a technological innovation could see a company transcend the market to become market leader. Rarity of a product is important but it is also important that common resources are not disregarded. Common resources often lead to the creation of sustainability and rareness.
Imitable: To create a sustained competitive advantage, the products and services that are created by the company must not be easily imitated. When a resource becomes easily imitated then rarity and ultimately value will be lost as supply to the demanding market will increase as more competitors provide products/services. Often non-imitable resources lead to company specific strategic innovation. Non-imitable resources can guide company strategic direction as the non-imitable resource provides access to new markets where competition will be limited. It is therefore expected that a non-imitable resource should be able to provide competitive advantage as other businesses will not be able to provide the same product or service.
Non-substitutable: Companies have to ensure that the resource cannot be replaced by a competitor product that provides the same function. As a consultancy we advise that our clients take time to review their market place and ask their customers about how the product or service provided meets the customer’s needs. The results from asking the customer, “what function does the product/service provide” can often be surprising. On occasion a customer can suggest that the use of the product/service solves and un-intended solution. For example a design software tool is also utilised by a manufacturer to automate batch image production. Whilst the image creation software is substitutable, the secondary function of automation could be non-substitutable for the customer. Non-substitution can therefore be created in a number of ways, not just from having a unique product or service that no other company has access to. For example Google is not the only search engine available on the market. However you could argue Google makes itself non-substitutable by providing the most amount of search results with the easiest user experience perception.
Maintaining sustained competitive advantage: Continued sustained competitive advantage is not guaranteed, as your company innovates so do your competitors. After achieving an advantage, the organisation has a responsibility to facilitate continuous evaluation and innovation to maintain competitive advantage. Companies that were a success yesterday but are failing today are examples of where competitive advantage has been lost. Sustained competitive advantage is therefore transient and so is your internal and external environment. Technology evolves, legislation changes and new products emerge. Products such as the fax machine, the mini disc player or even the iPod are now redundant as the market has evolved to find new ways to meet the market’s needs and reach the end customer.
Evaluating your company: Embarking on your journey to identify your company’s sustained competitive advantages can be a daunting task. However if you follow the VRIN framework and take time to explore and reflect on the space your company occupies within the market, areas of competitive advantage will begin to emerge.
Internal or External competitive advantage: Sustained competitive advantage can be found from within the company or externally. As a consultancy we encourage our clients to consider not just the market environment but to analyse and reflect upon existing core skillsets that when combined with a product or service can create a unique market offering.
- As a manufacturer, a machine innovation could mean that your company is the cost leader in delivering a specific product.
- A company that can provide a unique set of packaged services that no other company is able to match.
- Staff members include market leaders in a specific product that are seen as industry ambassadors.
- Are there any gaps in the market that the company’s current resources could operate within?
- Are the company’s current products/services unique?
- Are there any pending threats that are going to force your company to adapt and innovate?
Questions to ask:
- Ask the staff what they perceive as the company’s sustained competitive advantage. - It is possible that you will get varied and surprising responses.
- Ask your customers what they believe is unique about your company.
- What is your vision? Where does the company want to lead within the market?
- Does your company sell its products as a combined packaged offering or as individual products?
- How does your company monitor the marketplace and engender innovation?
Summary: A core competency provides a sustained competitive advantage but the core competency can emerge from both internal and external innovation. To identify a core competency remember Barney’s VRIN framework and ask:
- Is it valuable?
- Is it rare?
- Is it imitable?
- Is it non-substitutable?
If others within the industry are already extensively offering the product/service then your solution is not providing a sustainable competitive advantage and will be affected by the market forces of supply and demand.
The VRIN framework complements the PESTLE framework and can be a good starting point for re-evaluating your company’s strategic position. Like all frameworks, the VRIN structure can be viewed as over simplified, however it will provide context for a wider organisational discussion and prompt awareness of present company strategy.
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