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.