‘Firms obtain competitive advantages by implementing strategies that exploit their internal strengths, through responding to environmental opportunities, while neutralising external threats and avoiding internal weaknesses.’ (Barney, 1991)
So what first springs to mind when you hear the term sustained competitive advantage?
A competitive advantage which lasts for an extended period of time and last forever? Not quite!
A competitive advantage becomes sustained when current and potential competitors are unable to duplicate the benefits of the strategy that is implemented. According to Barney’s study, a firm must posses valuable, rare, imperfectly imitable and non-substitutable resource endowments to achieve a competitive advantage. Sounds a little complex right? Think again!
There are sooo many companies that enjoy a sustained competitive advantage in their industries and niches; and you don’t have to be ‘top dog’ at every level! If you can’t win with constant innovation or low price, you can win with speed and flexibility, for example:
Aldi: enjoy the competitive advantage of consistently low prices which continuously builds on brand loyalty. In the last year their market share has increased from 4.3% to 5%! They have also achieved a sales growth of 19.3%, hats off to Aldi!
Microso
ft: enjoy the competitive advantage of flexibility; their ability to make swift changes has allowed them to become the largest software company in the world. In the last year they have increased their profits by 6% from $20,403 to $21,729!
One of the best examples can be seen by taking a closer look at a company that is recognised and respected all over the world, The Coca Cola Company! Their competitive advantage is far from surprising; as identified by Barney’s study, positive reputations usually arise from historic incidents which are difficult to replicate. These long established views of the company are socially complex, and are therefore imperfectly imitable.
Way back in 1892, the sweet fizzy drink of Coca Cola was developed by a pharmacist. 123 years later and they are certainly still going strong, in fact it has become the world’s most recognised brand and is the most sought-after stock shares on the New York Stock Exchange. So how is this a sustained competitive advantage?
- Coca Cola are known for their secret recipe, which arguably tastes better than other cola drinks, it cannot be imitated!
- Their long established brand enables them to develop new products and re-invent old ones – Coca-Cola currently offers over 400 brands in 200 markets worldwide.
- Areas where other companies would not even consider delivering their products to are able to receive Coca Cola products due to their comprehensive distribution system. Taking the African continent as an example, it is far from unusual to see a small shop selling cold Coke in the middle of nowhere. Despite the remoteness of the location, Coca Cola is still popular and making sales.
- Worldwide recognition = worldwide customer base = a lot of customers! This coupled with their efficiently developed production techniques means that their manufacturing costs are a tiny fraction of their selling price. You know what that means? Very high profit margins, in other words, they’re ‘rolling in it’!
- With a net revenue growth of 1% and an organic revenue growth of 8%, there are certainly positive indications that the company has the right strategies in place to accelerate growth in their market.
The video below demonstrates how Coca Cola were able to utilise their popularity and connect with customers personally via their ‘Share a Coke with’ campaign.
I definitely didn’t see a ‘Share a Coke with Brigitta’ in my local supermarket, however Coca Cola anticipated the potential exclusion of those of us with unique and uncommon names and provided consumers with the option to create a custom made Coke bottle label; another competitive advantage!
Here is the recent #MakeItHappy campaign which aims to promote a friendly, safe and happy internet environment. Whilst their decision to respond to the environmental opportunity of helping to irradiate a negative internet presence and cyber bullying is yet another competitive advantage, this campaign also builds on the level of respect gained from customers and even competitors as it is such a worthy cause.
So as you can see, embracing a competitive advantage is a great thing for companies to aim for. It can certainly be argued that this goal lies in the hands of the manager/managerial team as well as the marketing team, as managers are able to analyse and understand the economic performance of a firms endowments.
So what’s the catch?
The proposed requirements to achieve a sustained competitive advantage, i.e. valuable, rare, imperfectly imitable and non-substitutable resource endowments, can generally only be expected by firms operating in heterogeneous and immobile industries. Even when a firm is the first to implement a strategy and gains the advantages of first access to distribution channels and the development of a popular reputation, where there are identical resources, competing firms can implement a parallel strategy in time. Whilst the first firm to do it will be remembered for doing so, once other firms catch on, it is no longer a sustained competitive advantage; especially if they do it better!
So it seems the only way to maintain a sustained competitive advantage is by possessing a unique firm resource such as Coca Cola’s secret recipe, or to be heterogeneous in terms of the resources you control within the industry.
But this does not reflect the majority of our modern markets! More and more sectors such as the music, communication, and automobile industries are stuck in an era where strategic advantages are quickly copied, technologies rapidly change, or times simply change and consumer demands move beyond the current supply.
So how can you get around this? One of the key issues is the widespread view that within-industry competition is the most significant threat. This is a dangerous view as it denies industries the chance to ‘branch out’, ultimately they are missing opportunities.
So is this the end of the concept of a sustained competitive advantage? In fact it is quite the opposite! Many practitioners and industry experts such as Professor McGrath stress that the future of successful strategies is actively changing and developing from the idea of a sustainable competitive advantage. In more and more markets, we are seeing industries competing with other industries, business models competing with business models even in the same industry, and entirely new categories emerging out of whole cloth.
A brilliant example of this can be seen in Richard Branson’s Virgin Group. Similar to Coca Cola, Virgin Group is one of the world’s most recognised and respected brands. However Virgin utilised their corporate reputation as leverage enabling them to break into new markets in completely different territories.
Virgin is a leading international investment group relishing in a range of sectors such as sectors mobile telephony, travel, financial services, leisure, music, holidays and health & wellness.
With over 50,000 employees worldwide, in 50 different countries, Virgin are in their element! Take a look at their history on Virgin’s story page to really understand how they managed to branch out into so many different industries.
So what have we learnt here today? In a nutshell, the traditional sustained competitive advantage concept is not the ‘be all and end all’ of a successful strategy. Firms need to embrace being innovate, take risks, and experiment, rather than falling into routines and habits after acquiring a false sense of security from a transient competitive advantage.
References:
Barney, J. (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management. 17 (1), 99-120.
Brooks, B. (2015). Aldi hits record market share as tesco posts best growth in 18 months. Available: http://www.thegrocer.co.uk/finance/results/aldi-hits-record-market-share-as-tesco-posts-best-growth-in-18-months/515053.article. Last accessed 27th Apr 2015.
Denning, S. (2013). It’s Official! The End Of Competitive Advantage.Available: http://www.forbes.com/sites/stevedenning/2013/06/02/its-official-the-end-of-competitive-advantage/. Last accessed 27th Apr 2015.
Martins, A. (2015). Examples of Companies with a Sustained Competitive Advantage. Available: http://www.mytopbusinessideas.com/example-companies-competitive-advantage/. Last accessed 27th Apr 2015.
Microsoft. (2015). Earnings Release FY15 Q3. Available: https://www.microsoft.com/investor/EarningsAndFinancials/Earnings/PressReleaseAndWebcast/FY15/Q3/default.aspx. Last accessed 27th Apr 2015.
The Coca Cola-Company. (2015). The Coca-Cola Company Reports First Quarter 2015 Results. Available: http://www.coca-colacompany.com/press-center/press-releases/the-coca-cola-company-reports-first-quarter-2015-results. Last accessed 27th Apr 2015.
Virgin. (2015). About Us. Available: https://www.virgin.com/about-us. Last accessed 27th Apr 2015.
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