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Competitive Advantage

Competitive advantage is the characteristics that differentiate one company from another. This difference helps the company to have a superior position to compete in the market. In other words, it is any attribute that makes a company more competitive and allows them to outperform its competition.

Excerpt from “What is Strategy” from Michael Porter, the leading expert in competitive advantage:

The myriad activities that go into creating, producing, selling, and delivering a product or service are the basic units of competitive advantage. Operational effectiveness means performing these activities better –that is, faster, or with fewer inputs and defects– than rivals.

But from a competitive standpoint, the problem with operational effectiveness is that best practices are easily emulated. As all competitors in an industry adopt them, the productivity frontier —the maximum value a company can deliver at a given cost, given the best available technology, skills, and management techniques— shifts outward, lowering costs and improving value at the same time. Such competition produces absolute improvement in operational effectiveness, but relative improvement for no one. And the more benchmarking that companies do, the more competitive convergence you have —that is, the more indistinguishable companies are from one another.

Strategic positioning attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company. It means performing different activities from rivals, or performing similar activities in different ways.