The concept of competitive advantage

Competitive advantage is achieved when an organisation is able to outperform its rivals in an industry or market. It can be temporary or sustained depending on the uniqueness of the resources and capabilities that the organisation possesses or controls. The four conditions that a resource or capabilities must meet to create a competitive advantage for the organisation include them being valuable, rare, inimitable, and non-substitutable. These are the four areas that strategic managers single out and seek to enhance for purposes of securing the competitiveness of their organisations.

Value means that the cost of acquiring a resource is lower than the benefit that comes from it. The cost in this case also refers to maintenance costs. If a capability costs more to purchase and maintain than its benefits, then such a resource is not valuable. The benefits can be quantifiable or subjectively determined. Quantifiable value is where the actual costs and benefits can be computed and compared. For instance, a factory plant’s value can be determined by comparing the savings it brings to the organisation in terms of reduced cost of production with the cost of purchasing and maintaining it. Efficient equipment can also have their values determined by comparing the savings related to energy efficiency or reduced labour costs with the actual cost of purchasing or maintaining the product. Effective strategic planning should entail ensuring that an accurate means of gauging the cost and value of resources is established and its accuracy reviewed frequently.

Determining the value of a resource or capability is more complicated where non-financial or unquantifiable measures are involved. For instance, where a resource is maintained solely for purposes of maintaining a certain image, it becomes unclear on the extent to which it contributes to the image and how this translates into actual financial benefits that can be gauged against the cost of acquiring and maintaining it. The issue of value is therefore relatively subjective and dynamic; requiring the strategic managers to regularly diagnose their resources and capabilities with a view to shedding off those whose cost to the organisation cannot be justified.

Rarity refers to a resource not being easy to find. The organisation that has resources or capabilities that are rare are able to use them to serve customers better than their consumers. The contribution of these rare resources is, however, dependent on whether it is possible to imitate or substitute. An imitation is something similar to a given resource and can deliver as well as it can. A substitute is a different resource or capability which can function as well as the resource substituted. In other words, a resource could be rare but this rarity contributes to competitive advantage only when it is inimitable and non-substitutable. Where the latter conditions are not satisfied, the rare resource can only give the organisation a temporary competitive advantage where things are in its favour for as long as the imitations or substitutes have not yet been discovered and put into good use.