Sustainable competitive advantage

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Template:Wikify-date Companies that compete by selling similar products (or even substitutes) to the same group of customers constitute an industry. A company that is more profitable than its rivals is exploiting some form of advantage. The benchmark for profitability is the company's cost of capital. To consistently make profits in excess of its cost of capital - economic rent - the company must posess some form of sustainable competitive advantage (SCA).

A firm possesses a SCA when it has value creating processes and positions that cannot be duplicated or imitated by other firms that lead to the production of above normal rents. A SCA is different from a competitive advantage (CA). However, these above normal rents can attract new entrants who drive down economic rents. A CA is a position a firm attains that lead to above normal rents or a superior financial performance. The processes and positions that engender such a position (CA) is not necessarily non-duplicable or inimitable. It is possible for some companies to, temporarily, make profits above the cost of capital without sustainable competitive advantage.

A key difference between CA and SCA is that the processes and positions a firm may hold are non-duplicable and inimitable when a firm possesses a SCA. Hence a sustainable competitive advantage is one that can be maintained for a significant amount of time even in the presence of competition. This brings us to the question what is a "significant amount of time". A CA becomes s SCA when all duplication and imitation efforts have ceased and the rival firms have not been able to create the same value that the said firm is creating.

Analysis of the factors of profitability is the subject of numerous theories of strategy including the five forces model pioneered by Michael Porter.

In marketing and strategic management, sustainable competitive advantage is an advantage that one firm has relative to competing firms. The source of the advantage can be something the company does that is distinctive and difficult to replicate, also know as a core competency, for example P&G' ability to derive superior consumer insights and implement them in managing its brand portfolio. It can also be an asset such as a brand, e.g. Coca Cola or a patent, such as Viagra. It can also simply be a result of the industry's cost structure, for example the large fixed costs that tend to create natural monopolies in utility industries. To be sustainable, the advantage must be:

1. Distinctive
2. Proprietary

There are basically three types of assets that help build an SCA. These categories are exhaustive and include all of the company's SCAs.

1. Organization and managerial process

a. Coordination and integration: Coordination among teams in organization is key to organizational success. Interdepartmental coordination and resource sharing to reach a common goal is fundamental to creating "value". Integrating resources is key to the success of firms. Firms that are able to integrate resources see synergistic effects of resources coming together. b. Learning: Organizational learning is key to the success of a firm. It determines how a firm collects, distributes, interprets and responds to market based information collection and changes in the environment. These changes in the environment could be customer based changes, technological developments, legal and government restrictions. Firms have to develop robust market sensing and spanning capabilities to effectively collect information. Once they collect info they have embed this knowledge in the products they produce. c. Reconfiguring and transformation: The environment for firms is constantly changing and constant reconfiguring and transformation is key to forming SCA. A double loop learning and transformation is key to producing innovative products. Innovative capacity of a firm determines how it reacts and learns from market information.

2. Positions: market positions are the assets of a company. Most of them are self explanatory

a. Technological assets b. Financial assets c. Reputational assets d. Structural assets: The structure of a company can determine how it performs. The hierarchy of a company can influence its culture, procedure and routines.

3. Paths:

a. Path dependencies: At the birth of a company usually accompanied with certain orientations. The progenitor brings certain orientations and attributes that stay with the company for a long time. The path the company takes then determines the development of its competencies. b. Technological opportunities: technology development at a time can determine how a firm can exploit opportunities to form SCA. Very often we see the advent of several technological factors converging into a capability that forms a SCA. An example would the rise of companies such as Genentech at the turn of the previous century with the advent of gene mapping, significant developments in target selection and databases of previous studies and gene pools.

See also

• barriers to entry
• marketing
• strategic management
• marketing management
• core competency
• positioning
• marketing mix
• marketing plan
• Michael Porter
• strategic planning
• Strategy
• Synergy
• Porter 5 forces analysis
• value chainde:Wettbewerbsvorteil

es:Ventaja competitiva fr:Avantage compétitif it:Vantaggio competitivo nl:Concurrentievoordeel