Competitive Advantage

Jack Welsh, former Chairman & CEO of GE, once remarked:

"If you don’t have competitive advantage, don’t compete!"

Jay B. Barney in the book "Gaining And Sustaining Competitive Advantage" wrote:

"A firm is said to have a sustained competitive advantage when it is implementing a value-creating strategy not simultaneously being implemented by any current or potential competitors and when these firms are unable to duplicate the benefits of this strategy."

When there are only a finite number of unique products and services, how do different companies sell basically the same things at different prices and with different degrees of success? Competitive advantage is simply the reason customers choose to buy from you instead of someone else.

While many business strategists emphasize the tremendous value of cultivating a competitive advantage – some even go so far to claim that a sustained competitive advantage is one of the greatest predictors of success – few business leaders have a firm grasp of the concept. A recent survey of over 1000 CEOs found only two who could clearly articulate their company's competitive advantage – the other 99.8% were only able to offer vague and imprecise generalities.

The best way to learn a concept is to understand the key critical attributes of that concept. After studying hundreds of examples of competitive advantage, one can assert that the key critical attributes of competitive advantage are:

Not Claimed By The Competition
Difficult To Duplicate
Sustainable
Matters To Your Customers
Is True

Let’s examine each one of these.

Not Claimed By The Competition

It is important that the competitive advantage not be claimed by your competitor, otherwise it is simply a strength. The difference between a strength and a competitive advantage is that a competitive advantage is something you have that your competitors lack. Many restaurants, for example, can serve fried chicken, but only Kentucky Fried Chicken has that unique, secret recipe of herbs and spices that gives Kentucky Fried Chicken its distinctive taste that no competitor can match.

Difficult To Duplicate

A good competitive advantage is difficult to duplicate – otherwise you won’t have that competitive advantage for long. Unlike the secret recipe of KFC, most competitive advantages cannot be reduced to a single item, but usually consist of a collection of items that taken together provide uniqueness and deter duplication.

Sustainable

A good competitive advantage is sustainable – this means that you can consistently deliver it over time. This rules out things like special offers.

Matters To Your Customers

An attribute of your business that is unique, but doesn’t matter to your customers is not a competitive advantage. Value is determined by the market.

Is True

One shouldn’t need to state this, since it should be obvious, but a competitive advantage must be true. Deception is not appropriate here and will backfire in the long term.

Objective And Quantifiable

While not necessarily a critical attribute, this is something that should be considered. If you say "we offer quality service", what is meant by quality? Who gets to define quality? On the other hand, if you state that "we offer a 100% money back guarantee and last year less than one half of 1% of our customers requested it" – that is objective and quantifiable.

“Our staff is very knowledgeable” is subjective and arbitrary – a cliché. Whereas, “All our staff have a minimum of fifteen years of experience, twice that of our nearest competitor” is objective and quantifiable.

Well-known examples of Competitive Advantage include:

KFC taste
Macintosh technology
Federal Express service

Entrepreneurs starting new ventures and business professionals running established ventures are well advised to develop a competitive advantage for your venture. Don’t Compete Without It!