Who wants to achieve a competitive advantage? Virtually every company would be delighted. But realizing and maintaining a market advantage is not easy. It often requires much more than business as usual. Did you ever consider how sustainability (and all it entails) helps achieve competitive advantage?
What is competitive advantage?
In business-speak, competitive advantage describes traits that allow a business to outperform its competitors. These attributes may include access to natural resources, unique capabilities, and/or innovative products or services. All of these can yield an advantage.
According to Michael Porter, an authority on competitive strategy and advantage, there are two basic types of competitive advantage:
Cost advantage means a business is able to offer products and services equal to or better than their competitors, but at a lower cost.
Differentiation advantage means a business is able to deliver better products and services because they surpass or differ from competing products.
Resources and competencies to create competitive advantage
Competitive advantage is achieved by using resources and capabilities such as brand equity, reputation, or speed to market. To develop a competitive advantage the business must have resources and capabilities (e.g., efficiency, quality, innovation, or customer engagement) that are beyond those of its competitors. Without this preeminence, competitors can easily replicate, and any advantage would quickly evaporate.
The diagram below combines the resources/capabilities and cost/differentiation positioning to illustrate the concept of competitive advantage and value creation.
How are sustainability outcomes considered a competitive advantage?
There are a wide range of ways that sustainability initiatives and outcomes can lead to a competitive advantage and value creation. Sustainable businesses realize operational efficiencies and cost optimization. They also realize differentiation advantage by delivering exceptional products, services, and processes that do not harm the environment or society. Some even deliver in a way that enhances (or benefits) people and the planet.
● eliminate environmental, social and governance risks and negative impacts
● create cost savings through greater operational and resource efficiencies
● improve and develop new products and services that garner customer loyalty
● enhance the ability to enter new markets and more potential sources of revenue
● boost the ability to attract, retain, and incentivize employees (talent)
● yield greater employee productivity, satisfaction, and engagement
● gain access to capital looking for sustainable investment opportunities
Altogether this leads to a stronger brand and greater pricing power. Early adopters of sustainability initiatives are likely to gain a competitive advantage over their peers. This makes it difficult for competitors to catch up especially as leaders continuously improve.
In terms of competitive advantage, sustainability is a real differentiator.
To bring these ideas alive let’s look at a real world example.
CASE IN POINT: IKEA
IKEA is a good example of a company that is achieving competitive advantage through sustainability objectives and initiatives. As sourced from IKEA’s FY14 Sustainability Report and an article entitled IKEA increases minimum wage for US workers (SB 2014) here are but a few of their goals and achievements:
➢ Energy, Carbon, & Waste. IKEA has a goal to be 100% renewable by 2020. Nearly 90% of their US buildings are outfitted with solar panels significantly reducing their carbon footprint. In FY14 80% of its waste from US stores was recycled or turned into energy. It strives for zero waste to landfill wherever possible.
➢ Products. IKEA’s Sustainable Life@Home program aspires to lead people to a more sustainable lifestyle at home. It provides affordable furnishings that help people save energy and water and reduce waste. For example, it has made its LED bulbs more affordable by almost cutting the price in half.
➢ Employees. All of IKEA's US retail locations adopted the new minimum wage structure. IKEA believes that this is both “the right thing to do” and “makes good business sense”. It also feels that “a focus on employee satisfaction also allow them to better serve customers and contribute to overall business success.”
➢ Community. While working on global level, IKEA also aspires to be a good neighbor in local communities. For example, it planted some 50,000 trees in Asbury Park, New Jersey where it helped restore an urban forest devastated by Hurricane Sandy.
In the words of Steve Howard, Chief Sustainability Officer, IKEA Group: “We’re going all in to transform IKEA into an even more sustainable business that’s fit for the 21st century. We made great progress in FY14, but we’ve got a lot more to do. We have a huge opportunity to make a positive difference for people and the planet, and when we all work together, there is no limit to what we can achieve."
Altogether IKEA's sustainability oriented business strategy is helping it sustain a competitive advantage by building a stronger brand and greater pricing power. At the same time it is striving to do better for the planet, people, and prosperity.
The end game: keeping a competitive edge with sustainability
Businesses that sustain a competitive edge with sustainability are continuously looking for ways to achieve and secure enduring value. This means they focus on the things that can really make a positive impact or difference.
They hone their competencies through a long-term sustainability vision and planning. This includes sustainability “stretch” goals (e.g., 100% renewable energy or zero waste).
They achieve and retain leadership positions across all sustainability dimensions: environmental, social, economic, and governance. These are supported by strategies and leading practices that continually add value and take a long view.
They maintain a corporate culture built on values by investing in and engaging employees, suppliers, and partners. They encourage ideas from stakeholders at all levels.
They are not afraid to learn from and share lessons learned. They continuously create new opportunities and continuously improve.
This is what it means to sustain a competitive advantage through a sustainability edge.
To support this idea, Sustrana has developed an online platform designed to help businesses create and manage a strategic sustainability program. This includes making the business case for sustainability; that is, one that creates value and a competitive advantage.