A competitive advantage could simply be defined as the advantage or ability a company has over its rivals in the industry; or the ability for a company to outperform its industry rivals.
It is said that a company has a competitive advantage when it has the capabilities or means to push its competitors out to strive for customer benefit. This applies internationally or locally as well as to both services and products. Thus, a sustainable competitive advantage is the sustained enterprise used by the company despite competitors or potential participants’ efforts to copy or acquire it. Sustainability therefore requires that strategic assets are not readily available to others and imperfectly mobile. This will be considered later.
Porter (1990) states that although not all nations are at the forefront of competition, the home country that constitutes the competitive advantage is the starting point for a company’s competitive advantage and also from which it is to be maintained. However, creating competitive advantage, no matter what the endeavor is, must be a management choice, and it must really fit to achieve results. It should be noted here that competitive advantage can usually be traced to one of three roots:
Superior resources, superior skills and superior positions.
Competitive strategy is one of the ways in which a company relates to its environment by competing with other companies that are also trying to adapt within the operating environment. It is with this aspect – the competitive strategy, that if properly selected and implemented, the company provides a competitive advantage over its rivals.
It should be noted here that the prescriptive approach to strategic planning emphasizes the importance of the organizational environment as a source of threats and opportunities and the need for effective responses from the organization whose survival was to be ensured and the success achieved. The answer is formulated later in a plan that formulates major decisions on access to new markets or the development of new products and services guided by set goals. Under the influence of Porter’s writers in the 1980s, the emphasis shifted from the plan to the selection of a suitable generic strategy to place the business unit in its competitive environment. Porter, who argued that the environment poses threats and brings opportunities than with trends and events, suggested that the environment could be analyzed using the five cancer analyzes to identify the issues affecting the level of competition in an industry; and then a strategy to combat it is developed.
The resulting strategy, which he referred to as generic, separates some strategic opportunities that the company may possess:
Cost management: the company could position itself as offering a low cost product as a standard price, ie. cost management strategy. Costs are reduced at each element of the value chain. Manufacturers can take advantage of a larger margin than their competitors. Toyota is a good example of an organization that produces low-quality cars combined with a brand and marketing skills to use a pricing strategy.
It could offer a product that was different from that offered by competitors. Ie differentiation. This allows companies to make prices less sensitive and focus on value, generating a relatively higher price and a better margin. Although additional costs will be incurred in differentiation, this may be offset by the increased revenue generated by sales.
By focusing on a small but well-defined part of the market, e.g. A specific purchase group or product area or geographical area. Also known as a niche, this is usually suitable for a small company, ie. focus strategy.
Generic competitive strategy, usually used after competitive analysis or in response to competitors’ advantage, is defined as the basis on which a strategic business unit (SBU) can gain or counteract competitive advantage in its market. (Johnson and Scholes, 5th ed.)
Based on Porter’s (1980) generic competition strategies, Bowman et al argue that organizations gain competitive advantage by giving their customers what they want or need better or more efficiently than competitors, making it difficult for competitors to emulate. This was later developed into five generic strategies that would be used in this discussion. Thus, the generic competition strategies are the basic activities that an SBU seeks to achieve a lasting advantageous position in its environment and gain the benefit of stakeholders by meeting the expectations of buyers, users or other stakeholders.
The following are Bowman’s five generic competitive strategy options and examples of organizations that used them to gain competitive advantage: no frills strategy, low cost strategy, hybrid strategy, focused differentiation strategy and added value or differentiation strategy.
In short, a no-frills strategy combines a low price, low perceived added value and targets a price sensitive market. No frills strategy is now a popular strategy with low cost airlines Easy Jet and Ryanair seeking to enter the aviation industry to compete with like Virgin and is a determining factor in the market. This therefore gives the company the necessary competitive advantage over its competitors who charge a higher price. This strategy is a success because there may be a segment of the market that overlooks the low quality of the product, provided it fulfills the same purpose.
To achieve the competitive advantage that uses no fill, strategy revenue must increase and the product must really be price sensitive. Easy Jet frills strategy seems to be going well as a result of the cost-saving techniques they use. For example, no ticketing, no ticketing agents, no food or drink for the flight for customers as well as the short-haul flight. Now, almost all supermarkets in the UK are not using any frills strategy by introducing their own brands, whose prices have been reduced to attract customers to gain a competitive edge.
The next generic strategy is the low cost strategy. This strategy pursues a lower price than applies to the market while trying to maintain a similar value of product or service to those offered by both competitor. There is the potential for price wars among competitors, and in the long run, consumers are likely to lose out, as companies may not be able to sustain the strategy at lower price and good value. Despite the price war and low margins, there are some suggested ways in which a cheap pricing strategy can create a company’s competitive edge. The market segment must be low-price sensitive, and SBU also has a cost advantage over its competitors.
In practice, the lower pricing strategy usually created by lowering operating costs alone does not provide the company with competitive advantage if the company is unable to maintain it in the long term as there are now more companies coming to market due to low or no access barriers such as small capital requirements and also how efficient the staff can be.
Hybrid Competitive Strategy seeks to achieve differentiation and a price lower than that of competitors simultaneously. This is not an easy strategy to pursue because differentiating a product or service involves some money and increases costs, the same as the low price seeks to reduce. This strategy is well suited for the DIY industry, as those like Robert Dyas cannot stop the competition. The success of this relies on providing unique, more efficient products or services to consumers while operating at a lower cost to lower their price below the industry level. The success of this strategy can be further enhanced if the company has economies of scale and can increase sales volume more than its competitors, thereby reducing its basic costs as a result. Asda’s George brand is an example of a generic hybrid strategy in an SBU.
Another strategy is differentiation strategy. This seeks to deliver products or services that are completely different from those of competitors by adding features that are valued by consumers. The main goal of using this is either to maintain market share or increase market share relative to its competitors. A clear example of this is the aircraft manufacturer’s Airbus wider aircraft bodies, cockpits designed for use in more than one aircraft and electrical rather than mechanical flight controls.
These features have helped Airbus win customers like New York-based Jet Blue; Although Jet Blue is staffed with former Boeing employees. (Fortune, Europe edition, November 22, 2003; pp34) This strategy could be used to gain a competitive edge, which is its ultimate goal by investing more in R&D, unique design and features. The marketing-based approaches to good marketing communication (eg advertising of products or services) and the branding ability to win consumer loyalty. (Example Airbus)
The fifth generic competition strategy is the focused differentiation strategy that seeks to provide high perceived value; to justify a significant price premium usually to a selected market segment. It is usually adopted to counter or compete with others in seemingly similar segments. This can therefore be argued that focused differentiation is only an extension of one of the four strategies considered so far, depending on the competitors in this new segment, who are usually middle income and high income earners. A compelling example is the introduction of Lexus in 1989 by Toyota to compete with other luxury brands of the BMW and Mercedes Benz new series.
In order for the focused differentiation strategy to be used to gain a competitive edge over competitors in the industry, the business unit must find ways to make production more efficient in order to pass on the savings to customers. The business unit must identify new segments and must also be prepared to aggressively create a new market segment where it is assumed that the first moves will receive a huge advantage. Again, Toyota is proud of this by being the first to introduce a brand, Scion, specifically for young buyers in January 2003, which was a success and the introduction of hybrids in 1997 that sold 127,000 far more than Honda. (Hybrid uses two engines and is environmentally friendly.) (Fortune, Europe edition, December 24, 2003; p. 57).
The essence of the various strategies discussed so far is to create or add value to the products or services to provide improved and or sufficient satisfaction to the customer so that the company gains a competitive advantage over its competitors. However, it is one thing for a company to gain a competitive advantage and another to maintain the competitive advantage thus obtained. So when a company is able to gain a competitive advantage over its competitors, it becomes appropriate to try to maintain that advantage.
Some of the ways to maintain the competitive edge are by what is described as the insulation mechanism. This is the use of forces such as imitation barriers that limit the extent to which a competitive advantage can be duplicated or matched, or even possibly scrapped through other companies’ resource creation activities. Although similar in principle to the barrier of access, whereas the access barriers protect the profitability of an entire industry, isolation mechanisms maintain a competitive advantage of a single enterprise. Eg. Legal barriers such as trademarks, patents or intellectual property rights as in Microsoft’s case.
It may also be for the fact that the leading company makes it difficult for the competitor to obtain the firm’s technology because it entered the market earlier, and it continues to investigate and possibly move to a superior position at the time competitors catch up. . This is known as the early mover advantage. Because the business unit has entered the market earlier, the past success in the market is assumed to maintain the firm.
No matter how discreet the strategy adopted to gain the sustainable competitive advantage or the satisfaction that the customer can get, as well as the mechanisms put in place to maintain the competitive advantage, simple economics have proven that human needs are insatiable and with the information Technology Age, there is an improved dynamic in business that products and services can become obsolete before they even reach the next user.
The question is, can the company continue to create more economic value than its competitors now than then?
Now with the advent of information systems and technology, this traditional method of competitive advantage or competitive advantage has therefore taken a different turn. Information gathering and, I believe, competitive information gathering can, to some extent, make a difference to a company’s position in an industry and, for that matter, affect its competitive advantage in one way or another.
A good and recent example is the Asda Radio Frequency Identification System (RFID) installation, a device that can be used to scan bar codes for incoming goods, which could save Asda $ 8.35 billion annually through improving its supply chain management. Fortune, Wal-Mart retains the change November 10, 2003 23.
Companies can either use their own database or information gathering software to track its operations and obtain the necessary information such as inventory, customers and trends for competitors’ performance, and the fast moving products to formulate their strategies or form so-called information partnerships with it. purpose of sharing information in order to gain a competitive or strategic advantage; and even connect their systems with some competitors to achieve synergies.
This becomes important as a result of competition in business today not only within a particular industry one operates, but also can be cross-competition with people in other related industries such as universities and publishers competing because of the forward and backward integration. Baxter Healthcare International is known for offering medical supplies from its competitors and office supplies through its electronic ordering channel to its customers. By doing this, the company increases its customer base, as well as their customer loyalty improves.
At this point, the statement that “there is no such thing as a sustainable competitive advantage” can be considered in relation to the circumstances that occurred in Sears, which was previously the United States’ largest retailer, until Wal-mart overtook it after a diversification strategy went bust. despite the fact that it (Sears) has become highly computerized with more information technology and networking expenses than all other non-computer companies in the United States except Boeing. So why couldn’t this huge amount of use in computers and networks give them competitive advantage over its rivals? Is it because the hardware alone is not sufficient to provide the necessary information unless it is integrated with the appropriate software? Sears did exactly that.
Trying to reinvent itself, Sears began exploring almost every strategy, including low pricing strategy, procrastination, improved marketing ploys as well as embarking on a five-year, $ 4 billion store renovation to make stores more attractive. All to no avail.
Then, Sears noted that its merchants do not have reliable information on exactly what customers are buying in each store. Management relied on 18 separate systems, often providing contradictory and superfluous pricing information. They could only see a division’s daily performance. This was not good for a company with Sears status. Sears later tightened its grip on the business by building a larger database that involved consolidating transaction records information, 90 million households, 31 million Sears card users, their credit status and other related data.
The database contains the company’s strategic reporting system (SPRS). Now Sears’ 1,000 buyers and executives know what hot-selling merchandise needs to be replenished right away. This competitive information gathering helped to some extent turn Sears around. Its store sales began to rise and planned to join AOL to grow its online business by targeting AOL’s 21 million customers by developing content for AOL on topics such as how to build a tire, home decor tips and other home improvement topics; and also move its suppliers to an electronic ordering system similar to that described for Baxter Healthcare, by linking its computer ordering system directly to that of each supplier to eliminate paperwork completely for an improved flow of goods into its stores.
As previously mentioned, if a company can maintain or maintain its lead in value creation, leverage strategic assets such as access to efficient distribution channels, maintain market position and can be a low advantage, it can be said to have a sustainable competitive advantage. This is absolutely not possible in this dynamic business world. The hardest part of this is that the company has to create more economic value than its competitors sometimes. Will competitors be watching without doing anything?
For example, Microsoft is spending billions of dollars developing its own search engine that will be incorporated into both its online service MSN and the new operating system due in 2006 to fight Google’s dominance in the search engine sector. (Fortune, December 22, 2003 p. 17).
In my opinion, based on the discussions above, if truly sustainable competitive advantage is the persistence of a company’s ability to outperform its industry, suffice it to say that as much as gathering and using competitive information as illustrated in Sears’ history above can give a business a (sustainable) competitive advantage, it is really difficult, if not impossible, to maintain any competitive advantage for a very long time. This is the case due to the frequency of technological changes, changes in business strategies and the fact that customer loyalty may decline and affect sales leading to a decline in market share and thus competitive advantage. Boeing was overtaken by Airbus in the aviation industry at one point. Sears’ management was taken away by Wal-mart.
Despite the availability of choice of the five generic strategies, it is believed that the work of their success rests with management and how the technology and information gathered are mixed for use. This is because careful monitoring and evaluation of constant and correct identification and correct timing of a particular segment are the keys to the success of these strategies due to market dynamics.
Can Sears reinvent it? A case study taken from London South Bank University IS.
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