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7 Examples of Sustainable Competitive Advantage

        posted by , April 04, 2013

Competitive advantage decays.

As painful and challenging as it can be for a business to build a competitive advantage — that advantage is often fleeting.

External change such as competition, markets, business models, environment, customer preferences and technology deprecate your competitive advantage with time. In business, what works today won't work tomorrow.

Another reason that competitive advantage decays is that firms tend to copy each other. If you develop a successful product, it will quickly be mimicked. If you develop a effective marketing technique it will be copied.

Sustainable competitive advantage is something you do better than any other firm that's not likely to decay.

Definition: Sustainable Competitive Advantage

Sustainable competitive advantage is a lasting ability to outperform all competition in a particular area or industry.

As elusive as sustainable competitive advantage is, it's easy to think of examples.

1. People

The knowledge and abilities of your people is the source of most competitive advantage.

If you hire a modern day Thomas Edison who pumps out ground shaking innovation after ground shaking innovation (as long as you hold unto the employee) that's a sustainable competitive advantage.

This scales to organizations big and small. Your people are typically your greatest competitive asset. Products come and go — a team that can repeatedly design products that wow your customers is sustainable.

2. Culture

Sustainable competitive advantage is all about your ability to innovate and change.

You may have a highly talented team. However, if they don't work together towards a common mission that's unlikely to translate to a sustainable competitive advantage.

Negative office politics and resistance to change will cause your competitive advantage to rapidly decay.

Your culture is the way your team works together to focus their energies towards common goals.

Firms that enjoy a culture of aggressive change, positive teamwork and innovative spirit tend to maintain and build upon competitive advantages.

3. Processes

If you can manufacture shiny-blue-widgets faster and cheaper than anyone else — this may represent a sustainable competitive advantage.

Superior processes can be difficult for your competitors to emulate.

In some cases, this is because processes happen behind closed doors. However, even public facing processes such as customer service are difficult for firms to copy.

Some firms have good relationships with customers that continue decade after decade. Other firms have combative relationships with customer that continue until the firm goes bankrupt.

4. Knowledge

The secret of business is to know something that nobody else knows.
~ Aristotle Onassis
General knowledge is widely available on the internet. However, much of the world's industry specific knowledge is locked up in the knowledge management systems of firms.

You can't read on the internet how to design, produce and sell aircraft. It requires a great deal of knowledge that's difficult to obtain. In many industries, know-how is a big barrier to entry. There's no public manual for how to start an investment bank or robotics company.

The great thing about knowledge is that it helps you change. It's sustainable as long as you continuously improve it.

5. Technology

Firms weave together technologies to support innovation, production, processes and customer relationships. In large firms, these technologies stacks become extremely complex.

Firms that effectively architect and govern technology may enjoy a significant competitive advantage over firms that struggle to develop technology capabilities and efficiencies.

6. Capital

Capital investments can represent a sustainable competitive if you own unique capital that no one else can buy.

If you own a railway that cuts across hundreds of kilometers of urbanized land — it's almost impossible for anyone to build a competing route. This represents a competitive advantage that's so strong that it may be considered a monopoly in certain cases.

On a less grand scale, retail or hotel locations can represent sustainable competitive advantages. If you buy land next to the most popular beach on an island — you may be able to consistently outperform hotels located near less attractive beaches.

7. Sustainability & Sustainable Competitive Advantage

Business change isn't always predictable. However, once in a while a giant trend comes along that makes or breaks everyone. Sustainability is one such trend.

Sustainability is the capacity for humans to endure given the growth rate of population and economic activity.

Governments and markets have begun a complex process of aligning sustainability goals with economic goals.

If you create shiny-blue-widgets and sell them for $1 that may be sustainable. However, if your production process does $40 damage to the environment per widget, that's not sustainable.

The future will favor firms that have a neutral or positive impact on the sustainability of the planet.

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