Competitive advantage occurs when a firm is using a strategy that is currently not being currently implemented by any of its present and potential competitors. Sustainable competitive advantage continues to exist after the efforts by competitors to copy that advantage continues to exist after the efforts by competitors to copy that competitive advantage have ceased. That means, the inability of competitors to copy the strategy makes for a sustainable competitive advantage. Achieving sustainable competitive advantage is critical for companies since it is the only way to be successful in business. With a sustainable competitive advantage, businesses may expect higher employee retention, higher product margins, more sales and a stronger focus on the company as compared to their competitors. It is difficult to sustain a significant competitive advantage over a time without periodically revisiting the firm’s identity and purpose. For instance, reducing costs is not a true strategy because it simply provides a breathing space for the organization to formulate an appropriate strategy. The length of time over which a firm can maintain its competitive advantage is dependent on: –
- Replicability: how easy it is for the competitors to duplicate it.
- Transferability: how easy it is for the competitors to acquire the same resources and capabilities.
- Transparency: to what degree can the competition tell what a firm is doing strategically.
- Durability: how long can the firm keep its competitive advantage.
The most important resources of a firm are those that are durable, difficult to identify and understand, not easily duplicated, and in areas over which the firm has clear control. Sustainable competitive advantage is challenging to achieve since what works now may not work tomorrow. As a result, achieving sustainable competitive advantage is vulnerable to market volatility, economic circumstances, and other social factors. Various dynamic elements of the market should be mentioned. When compared to AMD’s market share, for example, Intel’s computer chip division was extremely lucrative (another processor making company). However, AMD has gained market share at the expense of Intel because of the former’s technical superiority. AMD improved the quality of its products and set them apart from Intel’s, resulting in increased market share for the company.
Sustainability of competitive advantage depends on the following characteristics of the critical resources involved: –
- The resources need to be valuable to the firm in exploiting opportunities and neutralizing threats.
- The resources should be rare and of such a nature that they cannot be reproduced individually.
- The resources should be imperfectly imitable because of casual ambiguity, which: (a) might be due to the historical conditions of its occurrence; (b) makes it difficult for others to see the linkage between the resource and the benefit; and (c) makes the resource socially complex due to corporate culture.
Coyne suggests that the durability of competitive advantage depends on some “capability gaps” that exist between firms. These gaps are: –
- Business System Gaps: often found in organizational structure and its people.
- Position Gaps: resulting from past decisions, from being a fast mover, or from the acquisition of a precious resource.
- Regulatory Gaps: resulting from some governmental limitation on the extent of competition allowed in the industry.
- Organizational or Managerial Gaps: when superior leadership results in the recognition of trends and adaptation to change earlier than the competition.
The secret to firm success is developing a sustainable competitive advantage. It’s the driving force behind a company’s sharper focus, more revenue, improved profit margins, and higher customer and employee retention than its rivals. Buyers will put the greatest value on it when seeking to buy a company since it is the primary generator of long-term business value. If firm don’t have a durable competitive edge, firm run the danger of becoming just another “me too” company that struggles along and produces subpar results. Most small companies lack the market share and purchasing power to successfully compete on pricing and are too tiny to serve all consumers in a market. This means that small companies must create a competitive advantage based on offering more than the competition in a particular market segment in order to be successful.
First mover advantage is a crucial concept that is often brought up. The first entry in a new market has an advantage over other rivals that join the market later. However, although being the first to market may provide firm an edge in the beginning, this advantage is not long-term unless it is accompanied by one of the three kinds of benefits described above. Google and Facebook are two excellent instances of this. Despite the fact that none of these businesses was a trailblazer, they today command a large share of their respective industries.
It’s simpler for firm consumers to comprehend why they should part with their money and give it to you rather than your rivals when firm sustainable competitive advantage is used in firm sales and marketing. As a result, company employees have an easier time selling firm goods or services, since they know their promises will be kept. They’re aware that the whole company is working to safeguard and profit on the sustainable competitive advantage.