What Is Competitive Advantage?

futurelab default header

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.

Image courtesy

Original Post: http://neilperkin.typepad.com/only_dead_fish/2012/01/what-is-competitive-advantage.html