Competitive Advantage

• When a firm sustains profits that exceed the

average for its industry, the firm is said to
possess a competitive advantage over its rivals.
• The goal of much of business strategy is to
achieve a sustainable competitive advantage.
• Distinctive competencies are the firm-specific
strengths of a company.
• Valuable distinctive competencies enable a
company to earn a profit rate that is above the
industry average.
• Resources are the firm-specific assets useful for creating a cost or
differentiation advantage and that few competitors can acquire easily.
Example:

• Patents and trademarks * Buildings

• Proprietary know-how * Plant & M/c
• Installed customer base * Equipment
• Reputation of the firm * Money
• Brand equity * Assets

• Capabilities refer to the firm's ability to utilize its resources effectively.

(Depends upon the way individuals interact, co-operate & make decisions
within an organization)
• The firm's resources and capabilities together form its distinctive
competencies.
• These competencies enable innovation, efficiency, quality, and
customer responsiveness, all of which can be leveraged to create a
cost advantage or a differentiation advantage.
DISTINCT COMPETITIVE ADVANTAGE
RESOURCES

1. Superior Efficiency LOW COST

2. Superior Innovation +
3. Superior Quality DIFFERENTIATION
4. Superior Customer Responsiveness

CAPABILITIES
The distinctive competencies of an organization arise from its:

Resources (its financial, physical, human, technological, and

organizational assets), and
Capabilities (its skills at coordinating resources and putting them to
productive use).
Competitive Advantage
Low Cost
Differentiation

In order to achieve a competitive advantage, a company needs to

pursue strategies that build on its existing resources and capabilities
and formulate strategies that build additional resources and
capabilities (develop new competencies).
 The source of a competitive advantage is
superior value creation.
• To create superior value, a company must lower its
costs or differentiate its product so that it creates
more value and can charge a higher price, or do both
simultaneously.

• The durability of a company's competitive advantage

depends on :

- The height of barriers to imitation

- The capability of competitors, and
- Environmental dynamism.