Sustainable Competitive Advantage
This article will focus on the origin, purpose and advantages of sustaining competitive advantage. Because of its importance to the long-term success of firms, sustainable competitive advantage (SCA) has emerged as a hot area to research. Porter's Five Force model will be discussed as well as the concepts of market orientation and business networks. In order to sustain a competitive advantage, organizations must complete a SWOT analysis on its strengths, weaknesses, opportunities and threats to its competitive position. This assessment will assist the organization in developing offensive and defensive strategies to minimize the attacks from competitors.
The importance of sustainable competitive advantage (SCA) to the future success of firms has made it a hot area of research (Hoffman, 2000). SCA evolved as a result of competition. Alderson (1965) was one of the first to acknowledge that an organization should strive to create unique attributes in order to differentiate itself from its competitors so that it has a competitive advantage with consumers. Other pioneers (Hamel & Prahalad, 1989; Dickson, 1992) built on Alderson's work by acknowledging that organizations surpass the performance of their competition by developing new ideas that will keep them a step ahead. Also, during this time period, other researchers (Hall, 1980; Henderson, 1993) argued that the uniqueness of a firm is what will allow it to thrive in a competitive environment. The work of these gurus is what led to the concept of sustainable competitive advantage.
The idea for the SCA concept was first introduced in 1984 by George Day. In one of Day's writings, he implied that there were certain types of strategies that could help an organization "sustain the competitive advantage." Porter (1985) moved the idea to a concept by describing the types of competitive strategies an organization should possess in order to achieve long term SCA. One of Porter's major contributions to this area is the Five Force Analysis model.
This model lists five key areas that marketers and strategic planners should evaluate when analyzing the competitive environment. The five forces are (1) threat of entry, (2) the power of buyers, (3) the power of suppliers, (4) the threat of substitutes, and (5) competitive rivalry. Each force has a list of questions to be answered such as:
- Threat of Entry
- Are there any benefits associated with bulk purchasing?
- How much will the latest technology cost?
- Do the competitors have a stronghold on most of the distribution channels?
- Are there any cost advantages not associated with the size of the company?
- Will competitors retaliate?
- Will new laws weaken the company's competitive position?
- How important is differentiation?
- The Power of Buyers
- Are there any large players in the market (e.g., chain restaurants)?
- Will the large players have the support of small suppliers (e.g., companies such as Home Depot receiving flowers from local nurseries)?
- Is the cost of switching between suppliers low (e.g., a conference coordinator switching from Hertz to Avis)?
- The Power of Suppliers
- Are the costs high for switching suppliers?
- Is the brand powerful (e.g. Cisco)?
- Is there a possibility of the supplier integrating (e.g., banks offering insurance)?
- Are the customers fragmented so that they have limited bargaining power?
- The Threat of Substitutes
- Is there a product-for-product substitution (e.g., cell phones instead of land lines)?
- Is there substitution of need (e.g., lighter textbooks reduce the need for chiropractic care)?
- Is there a generic substitution (e.g., for insurance purposes, getting a generic prescription versus a brand prescription)?
- Can we do without the product (e.g., fast food because it can lead to obesity)?
- Competitive Rivalry
- If there is a strong chance of entry, competitive rivalry will be high. There is a threat of substitute products as well as suppliers and buyers attempting to take control of the market.
The formal definition of SCA did not surface until 1991. Barney (1991) defined sustainable competitive advantage as when an organization is implementing a value creating strategy that is not being implemented by any current or potential competitors and when the competitors are unable to duplicate the process" (102). Coyne (1986) expanded on the formal concept by adding that consumers must be able to perceive a difference between competitors' products in order for SCA to be present. If an organization can predict what will occur in its industry over time, a competitive advantage is created. The competitive advantages are sustainable if the competitors decide not to compete for the market share.
SCA is discussed in the marketing and strategic management disciplines. Both fields of study reference the approach as a concept focusing on how one firm has an advantage over other firms. The sources of the advantage are known as core competencies. Core competencies imply that the organization has an advantage that is distinct and unique to that particular firm. The organization usually has a brand or patent which separates them from the competition. For example, Pepsi is a known brand and recognized as one of the top cola companies. Through media and conversation, society has participated in the ongoing battle between Coca Cola and Pepsi. There are certain attributes for each product, which is why each product has developed a loyal customer base.
Core competencies consist of the characteristics which allow a business to recognize competitive advantage. Organizations have found that obtaining competence mastery is as important as securing market position and achieving market power. Since there are many tasks and activities in a business and competencies associated with the tasks, many businesses have focused on competencies that primarily affect their competitive advantage. It is impossible to attempt to work on all of the activities. There isn't enough time and resources.
Core competencies are not constant. They tend to change as the organization changes. Therefore, it's important that the competencies are flexible and not etched in stone. As a business changes so will the core competencies. Hamel and Prahalad (1989) identified three factors which are necessary to developing a business's core competencies. The factors focus on the specified achievements of the core competencies and any business. The factors are:
- Provide potential access to a wide variety of markets -- the core competencies support the creation of new products and services.
- Focus on the perceived value with which a customer measures a product -- the core competencies allow a business to deliver products based on customer preference.
- Makes it difficult for competitors to duplicate -- the core competencies create something within a company that other competitors cannot imitate. There is a sense of uniqueness.
The concepts of market orientation and business networks have been linked to the process of creating and maintaining SCA. Market orientation refers to the intangible focus on customers and competitors as well as the formation of business networks that foster relationships and strengthen strategic planning (Hoffman, 2000). These networks allow for information exchange and core competencies...
(The entire section is 3568 words.)