Monday, November 21, 2011

What does *not* give your company a *long run* competitive advantage?

Almost all the organizations frame their strategy to have a long run competitive advantage. There are many supporting factors which are debatable if they add competitive advantage to the strategy or not. The question arises when the organization have multiple options but cannot have all of them included in their strategy. I would call such factors business enablers which could give a short run competitive edge but could not become business drivers in long run.

Financial Resources

Most of the firms and investors feel that companies which with a good cash flow has a competitive advantage on other growing firms. Having good amount of working capital definitely gives a competitive edge in short term but that can easily be achieved by a planned growth and the competitor firms can also invest in resources at some point of time. Hence, firms cannot compete based on strength of financial resources.

Technology

There are hundreds of examples where technology has helped business to sustain and grow but there are no examples where technology drives the business strategy of the company. Let us take an example from Silicon Valley itself: Facebook has a business model of “making the world more shared and connected”. Website is just a platform that they use to achieve their goals and it is equally available to their competitors. In future, Facebook might try some other kind of technology to implement their strategy and achieve the business goals. One of their competitors, Google+ also has an equally well or may be better technology but the business goals are different and that is what they are competing on. Even if Facebook tries to offer a new technology feature, it would not gain them a long run competitive advantage based on that because other platforms would easily be able to catch up with that technology.

Costs and Prices

Companies have been competing based on prices since years, but none have been able to sustain a competitive advantage over the others based on costs or prices. It does not mean that reducing costs and prices are not important, but they are important for survival in market. Many times, consumers go to a firm not because they are offering cheap products or services, but because of the overall experience the company offers. This experience is achieved by a good fit between distinct activities of the organization and not based on costs or prices.

Tangible Assets

This category includes the facilities and long term tangible assets that a company carries. They do not create competitive advantage because other firms can easily establish similar kind of asset network in more or less time. All that a firm can get is an early mover advantage for acquiring tangible assets and not a competitive advantage.

Employees and Customers

Human resources are of key importance to an organization and consumers are at the centre. But this is a generalized fact which applies equally well to all the organizations and industries. Having an employee friendly environment or consumer friendly products and services are necessary parts of a business strategy. They do not fetch any competitive advantage because all the companies are doing it or going to it soon. For example, some companies claim to be passionate about satisfying their consumer needs which every company is or can be.

Keeping the theory of competitive forces by Michael Porter valid, technology, tangible assets, financial and human resources are necessary for sustainable growth of a company but are not key to competitive advantage.

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