Creating Competitive Advantage

NextLevelObject's highest achievement is helping our clients create a sustainable competitive advantage. A sustainable competitive advantage is an advantage that one company has over others in an area of the marketplace that customers consider important. Examples include product quality, product price, quality of service, speed of delivery, level of innovation, variety of choice, etc. Critically, the advantage is considered sustainable only if competitors consider it very difficult if not impossible to mitigate the advantage (they have to spend a lot of money, spend a lot of time, or both).

A sustainable competitive advantage should always be considered in the context of scope. A sustainable competitive advantage can be applied to countries, governments, companies, non-profits, NGOs, departments, business processes, etc. For instance, the United States has enjoyed a sustainable competitive advantage in the areas of innovation and technology since World War II. Only with great effort and a great deal of time have other countries begun to compete with the U.S. in this area. Likewise, a democratic form of government provides a country a competitive advantage over a government run by a dictator. Taken to the company level, Walmart's ability to procure on a massive scale gives it a competitive advantage. Intel's ability to innovate gives it a competitive advantage. Toyota's operational superiority is what keeps its market share growing.

For a large company's board of directors, a competitive advantage is usually in the context of the entire corporation. The board and the CEO think about how to increase profits by being more competitive, overall, than the competition. However, a sustainable competitive advantage can also be developed at the business process, organizational, or technology level. Very small companies can also develop a competitive advantage. Maybe they achieve the advantage by knowing their customers better than anybody, or perhaps by making a part to an exact specification cheaper than anyone else.

Developing a sustainable competitive advantage is a time consuming and expensive process. It also requires the business leaders in the company to be passionate. To create such an advantage, the business leaders must be true believers, and instill that passion in all its employees. If it's for real, things get very focused. All of a sudden management knows where to invest and where to disinvest. Management re-thinks its incentive systems, its business processes, its organizational structure, and its balance sheet. Clarity and focus are the biggest winners in a company of true believers. Since most companies are run by smart people the results eventually (not always quickly) come as the company develops a reputation for excellence and performance. After that, it's off to the races.

So why don't more companies develop a sustainable competitive advantage:

  • Most companies don't even think in terms of competitive advantage. Most companies think in terms of customers and competitors and doing their best to react to both. Even when a company is thinking strategically, it's usually in the context of a new sales channel or new cost cutting initiatives. Companies rarely think in terms of how to get a long term advantage over their competition.
  • Companies have a hard time deciding whether they should even attempt to develop a sustainable competitive advantage. Cost and time are big issues to confront, but there is something even more fundamental. Being the best at something in your marketplace assumes you know what your marketplace wants. Most companies aren't quite sure what their customers want and value. It also assumes the company knows its competition. That's not easy to do. Companies are complex organisms that don't stand still. For many companies it's all they can do to understand themselves, much less the competition.
  • Most companies don't know what it means to have a sustainable competitive advantage. Some managers think this means beefing up the sales force, or putting more operators at the help desk. If that's what they're thinking, they're missing the point.

The bottom line is that there are many obstacles to developing a sustainable competitive advantage. The rewards, however, can be enormous. Not just financially but also in how easy it becomes to hire, to advertise, and to get better terms from suppliers. With patience, commitment, and a well developed plan, the likelihood of your company reaping these rewards is high.