A competitive advantage is simply the answer to: “What is your organization best at?” Your competitive advantage is what your organization does or potentially could do better than similar organizations. One result of a well-developed and executed strategic plan is to develop a unique competitive advantage. It is what you do best that draws customers/constituents to use your products and services instead of those of others. Successful organizations deliberately make choices to be unique and different in activities that they are really, really good at and they focus all of their energy in these areas. A sustainable competitive advantage(s) is the foundation, the cornerstone of your strategic plan. Successful companies strive to create an advantage that continues to be competitive over time. Throughout the planning process you will need to evaluate every part of your plan to determine whether it supports or detracts from this.
We have identified 6 simple steps to guide you in identifying your sustainable competitive advantage.
Questions to Ask:
- What are you and your people deeply passionate about?
- What motivates us to do our business?
- What is our current business?
- What business are we really in?
- What is the purpose of our business? Why does our business exist?
Note: If the owner is answering this question, he/she needs to move it past himself.
This answer needs to not just include profit.
- What unique skills (not a person), resources, capabilities, and assets set our company apart in the marketplace?
- Can these skills and resources be used to create value in the marketplace?
If yes, how are these skills and resources used now to create value? If no, what can we do?
- What is our company best at relative to our competitors? What can we be best at in the market?
- What is our primary revenue driver? How do we make money?
(i.e. profit per customers, profit per customer visits, profit per employee, profit per order)
- What are your strengths?
- What are you best at relative to your competitors?
- What are my company’s competitive advantages?
- Are these competitive advantages necessary to be successful in your industry?
- If you don’t have competitive advantages relevant to your marketplace, what can you do to develop these?
Sustainable Competitive Advantage
- How difficult will it be for competitors to match, offset, or leapfrog the expected advantages? Is it difficult to imitate?
- How quickly does this resource depreciate? (???)
- Do or will my customers see a consistent, superior difference between my product/service and those of my competitors?
- Does it build a company reputation and recognizable industry position?
- Can a unique resource be trumped by a different resource?
- Can the activities involved in creating the competitive advantage be constantly improved?
Porter, M.E. & Kramer, M.R. (2002). The Competitive Advantage of Corporate Philanthropy. Harvard Business Review. 12, Vol. 80, Dec.2002. Retrieved March 28, 2003 from the World Wide Web:
The Competitive Advantage of Corporate Philanthropy, (2002) article appearing in the Harvard Business Review advocates that companies should use philanthropy as a means to create a social impact, which in turn improves its competitiveness, rather than to use philanthropy as a form of advertising to promote visibility or company image. When philanthropy is thought of in a strategic way, charitable contributions can be used to improve the quality of the business environment in the locations in which the companies operate. Improving that business environment affects a company’s potential competitiveness.
The argument presented is that competitiveness depends “on the productivity with which companies can use labor, capital and natural resources to product high-quality goods and services” (p.2) and that productivity depends on educated, safe, healthy and reasonably motivated workers. Investments in the environment in which the workers live and work promotes an environment that is conducive to high productivity. By analyzing the elements of what the authors refer to as the competitive context (the quality of the business environment), corporations can identify where to apply social and economic value that will most enhance its competitiveness. The elements of competitive context that should be analyzed are education and training, local quality of life (which attracts employees to a location), and the quality of supporting industries and services in the vicinity.
The example of strategic philanthropy presented by authors Porter and Kramer is Cisco’s commitment to funding the Cisco Networking Academy which operates classes in more than 9000 secondary schools, community colleges and community-based organizations. The company has invested $150 million in bringing network technology and training to the classroom to almost half a million people. Other companies such as Sun Microsystems and Hewlett Packard have partnered with Cisco by adding information technology and Web design classes to the Academy’s curriculum. Cisco stands to gain substantially from this improvement in the competitive context. It has received international recognition for the program and the employees are proud of it. The company has also increased the pool of potential candidates for employment in its business environments, and those of its partners. This example is proof that philanthropy can reap strategic benefits by improving competitiveness.
Superior Firm Performance – Better Customer Relations Competitive Advantage – written by Howard Olsen
The competition for the consumer’s pocketbook is intensifying, and the consumer is becoming more discriminating in his/her purchasing activity. As such there is need of a dynamic business philosophy-one that permeates the entire enterprise and focuses it on the marketplace and the customer. This quote from Sam Walton (founder of Wal-Mart) succinctly states the thought-
There is only one boss-the customer-and he or she can fire everybody in the company by spending his or her money somewhere else.
The Marketing Concept, cornerstone of business for half a decade, is the philosophy that espouses- a business should be focused on satisfying the customer’s needs and wants better than their competitors by providing superior value.
How does an organization truly accomplish this feat? By implementing market-oriented behaviors. Market orientation is defined to be:
The organization-wide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence across departments, and organization-wide responsiveness to it.
Thus, being market oriented is a three-dimensional behavior of generating, disseminating, and responding to intelligence about the customer and the attendant marketplace. This marketplace information is couched in a broader external context (e.g., competition, regulation), which affects the current as well as the future needs and preferences of the customer. The implementation of the Marketing Concept philosophy is a process that can be measured, guided, and specifically established. This process, however, is not a “one size” fits all. Market Orientation activities need to be suitably tailored for each firm and its attendant situation and environment.
The concept of market orientation is based upon the premise that such activities enhance business performance. In addition, the market-oriented activities of a firm help create a sustainable competitive advantage through superior value for its customers. This advantage is necessary for the creation of continuous superior performance for a business. Numerous studies in the United States have quantitatively demonstrated the positive relationship between a market oriented firm philosophy and organizational performance.
Two studies have shown that Market Orientation has a cause and effect relationship with Firm Performance.
Benefits of a Firm Being Market Oriented
- Brings focus to organizational efforts.
- Helps define corporate vision.
- Influences decision making.
- “True” concern for the customer, not just “lip service.”
- Forces increased efforts in planning, such as, what markets to pursue, what marketing tools to use.
- Better positioning decisions for products and services.
- Overall the firm becomes more competitive.
- Enhances success for marketing programs that are implemented.
Additional Benefits for Survey Participants
- A benchmark will help respective businesses assess themselves against a general business segment average. This process will be extremely helpful in developing efficient and effective firm strategy.
- How these behaviors individually relate and affect firm performance will be invaluable information for managers. In other words, there might be a benefit for a firm to stress different aspects of market orientation activities over the other ones.
- Empirical testing of a firm performance composite measure will enhance managers’ understanding of how to evaluate various strategies that they may implement.
- The employee related benefits of a market orientation would be better understood. Generally a market orientation provides focus for the employees, as they better understand their role within the company. In other words, the reason for their employment is more than making a profit for the owners. A firm that can augment the employees’ esprit de corps and organizational commitment should be more successful.
- Businesses in North America lose on the average 20% of their customers every year. A market-oriented business can more skillfully manage customer interactions to reduce this loss, increase customer retention, and increase the magnitude of each purchase.
Step one in the strategic planning process involves defining the company’s current business, mission, and vision. The company’s business is defined by making an assessment of the organization by asking some key questions regarding the company’s reason for existing.
A company’s present mission is defined as what a company is currently seeking to do for its customers. A mission statement defines the company’s purpose and answers the question “What is our business and what are we trying to accomplish on behalf of our customers?” The company’s future strategic vision is defined by formulating a picture of what the company’s future business makeup will be and where the organization is headed. It answers the question “What will our business look like in 5 to 10 years from now?”
“What Customer Needs is Our Company Uniquely Qualified to Meet?”
(Current core competencies)
If you don’t have a competitive advantage, you won’t compete. Jack Welsh
You do not merely want to be considered just the best or the best. You want to be considered the only ones who do what you do. Jerry Garcia
Defining Our Current Business
In defining our business we need to ask:
- “What customer needs do we feel deeply burdened by?”- You may feel burdened by many things. This question helps you distinguish between those needs you should address and those you shouldn’t.
- “What customer needs is our company uniquely qualified to meet?”- This question helps you distinguish between those needs you should address based on your core competencies.
A core competency is something a company does well relative to other internal activities. A core competence is central to a company’s competitiveness and profitability. A core competence can relate to demonstrated expertise in performing an activity, to a company’s scope and depth of technological know-how, or to a combination of specific skills that result in a competitively valuable capability. Typically, core competencies reside in a company’s people. They tend to be grounded in skills, knowle3dge, and capabilities. A core competency gives a company competitive capability and thus qualifies as a genuine company strength and resource (Thompson, p.108).
Making an Assessment of our Company
An organization exists to accomplish something. At first, it has a clear purpose or mission, but over time its mission may become unclear as the organization grows, adds new products and markets, or faces new conditions in the environment. When management senses that the organization is drifting, it must renew its search for purpose. (Kotler p.48-49). We need to think through what we are doing, why we are doing it, and what we must do.
Coming up with a definition of what business an organization is presently in is not as simple as it might seem. For example: (Thompson Strickland, p.30)
” Is America Online in the computer services business, the information business, the business of connection people to the Internet, the on-line content business, or the entertainment business?”
” Is AT&T in the long-distance business or the telephone business or the telecommunications business?”