What Is Competitive Advantage?

Terminology like competitive advantage, differentiation and value creation tend to get overused in businesses. This HBR piece on the work of Michael Porter from Joan Margretta who worked with him for almost 20 years succinctly captures how often such terms are misappropriated ("Competitive advantage, for example, is often used to mean 'anything we think we're good at'. Any plan or program is called a strategy. Managers confuse differentiation with being different…most companies think they have a strategy when they don't"). It pulls together a list of Porter insights that are so pithy I'm going to re-produce them in full:

1. Competitive advantage is not about beating rivals; it's about creating unique value for customers. If you have a competitive advantage, it will show up on your P&L.
2. No strategy is meaningful unless it makes clear what the organization will not do. Making trade-offs is the linchpin that makes competitive advantage possible and sustainable.
3. There is no honor in size or growth if those are profit-less. Competition is about profits, not market share.
4. Don't overestimate or underestimate the importance of good execution. It's unlikely to be a source of a sustainable advantage, but without it even the most brilliant strategy will fail to produce superior performance.
5. Good strategies depend on many choices, not one, and on the connections among them. A core competence alone will rarely produce a sustainable competitive advantage.
6. Flexibility in the face of uncertainty may sound like a good idea, but it means that your organization will never stand for anything or become good at anything. Too much change can be just as disastrous for strategy as too little.
7. Committing to a strategy does not require heroic predictions about the future. Making that commitment actually improves your ability to innovate and to adapt to turbulence.
8. Vying to be the best is an intuitive but self-destructive approach to competition.
9. A distinctive value proposition is essential for strategy. But strategy is more than marketing. If your value proposition doesn't require a specifically tailored value chain to deliver it, it will have no strategic relevance.
10. Don't feel you have to "delight" every possible customer out there. The sign of a good strategy is that it deliberately makes some customers unhappy.

I'll admit there were a couple here that made me do a mental double-take (in a good way). I'm curious to know what everyone here thinks of them.

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Comments

[Tim]

A great thing to post Neil. It does offer some clarity on not seeking those quarterly results if in the end it adds nothing to bottom line. I'm not sure about 6 and 7 - I think 7 in the end contradicts 6 especially in the current economic climate - "adapt to turbulence" suggests dealing with lots of change.

And I say economic climate because change is so all encompassing I think to circumscribe it under the "business" banner misses the point. Something I think our political leaders in the UK have failed miserably to address today. "Competition is about profits" if it is that stark then I cannot see where a "moral capitalism" fits in. Either its "tooth and claw" devil take the hindmost or social relations intermediated by new technology will breakdown fundamental barriers to change: economic, cultural and the law.

[John]

A strategy is not a strategy if it isn't predicated on a sustainable competitive advantage - I wish marketers and agencies would just get their heads round that one.

And 6 and 7 aren't contradictory, they refer to different stages of a business's development.

6 says you decide what you're better at than everybody else and assume that people want and you go for it (and do it better than anyone else). If you're right, you make out like gangbusters.

7 refers to the fact that if you're wrong then you have no choice but to change direction and because you had a definite direction in the past, you can clearly define what your new direction is.

The current economic climate is irrelevant, economic climates have and always will be uncertain, especially in respect of your individual business (that's why so many ventures fail).

[neilperkin]

i guess my take on 6 (having written a lot about agility) is about the importance of vision and purpose, which is no less important to a business, even if you change how you decide to get there. The point about predictions in 7 really resonates for me - the time and effort invested by businesses in attempting to predict the future (often based on data from the past which may be irrelevant) in order to gain some kind of certainty which is often ill-founded

[John]

Agree with you totally about prediction - all too often, it's just another form of arse covering.

[Cindy Barnes]

Music to my ears Neil. My working life is spent helping companies create their strategic value propositions (point no. 9), and writing about this. This is NOT a bit of messaging work, it almost always involves a re-design of their business processes and their customer engagement strategy leading to an improved customer experience. Only when you've done this can you begin to think about how to articulate it.