Competitive Advantage

Competitive advantages are strengths and strategies that keep a company ahead of its competitors. It is hard to measure competitive advantage and harder to maintain it. Some competitive advantages are fleeting. The successful companies are those that leverage their competitive advantage successfully and repeatedly.

As understood by us in the above example the competitive advantage that the cyrptoses enjoy is a direct outcome of its natural habitat and hence the circumstantial gain over its rivals. Cryptoses has strategically positioned and tactically planned its competitive advantage that even though its fleeting, its competitive advantage is repetitive and successful. The other name for this sort of competitive advantage could be opportunistic competitive advantage. In the case of business firms also it cannot be denied that there are many opportunistic organizations that ride piggyback on a more powerful organization and enjoy many advantages merely because they are in some way associated with the parent firm. However many times if such firms adhere to the crpytoses methodology, then they endanger their tenacity to maintain their profile if the parent firm fails. A classic example to this could be of Saturn and GM. Saturn has a competitive advantage over others cars by being associated with GM, this gives Saturn the opportunity to rely on only one source (GM) for its resources (Suppliers, Technology, Management) and hence it is the only American car which has fixed price. Years of repetitive and successful competitive advantage of this partnership may stand a threat to Saturn's existence on failure of GM. Contradictory the competitive advantage, enjoyed by cryptoses by affiliating with sloth does not seem to create any threat for survival or existence on extinction of sloth. It is one of the best type of competitive advantage a business could achieve, short live yet repetitive, dependent yet independent. But exact replication of such a competitive advantage is rare.

A sustainable competitive advantage usually has one of three characteristics:

1. Privileged access to customers.

2. Size or momentum within the market.

3. Restraints on competition.

An excellent example for use of information technology for competitive advantage would be airline reservation systems. Today, most airlines make more money from their reservation systems than they do from actually flying passengers. For example, American Airlines' reservation system consistently accounts for more than 50 percent of the company's total revenues. Sabre, American's reservation system, was the first its kind. It was expensive to develop and when it came on-line, competitors filed lawsuits claiming that it gave American an unfair advantage; it also sent them scrambling to develop their own systems. The initial competitive edge that Sabre provided has continued into the 1990s - roughly three out of five tickets issued to air travelers are booked through Sabre. Sabre system had competitive advantage as it exhibited restraints on competition by being early player in the market, the market size was big and with deregulation the momentum was high.

Sources of Competitive Advantage

* External Sources:

* Customer Relations:

* Brand loyal customers

* Long-term relationships

* Barriers to brand switching

* Legal:

* Patents & trademarks

* Tax advantages

* Zoning laws

* Global trade restrictions

* Supplier Relations:

* Agreements & relationships

* Internal Sources:

* Product Related:

* Brand equity; Exclusivity

* Quality & features

* Price Related:

* Costs/economies of scale

* Promotion Related:

* Image, budget, salesforce

* Distribution Related:

* JIT, EDI, location

* Other:

* Management; R&D

The nature and period of competitive advantage can be well explained by Diffusion Theory

The figure explains that a business enjoys maximum competitive advantage when the base of competition is low. The more one meets the customers expectations the greater is his advantage. This is possible either when one is an early entrant or

enjoys prime position in one of the above mentioned sources. But nothing lasts for ever, as the market matures there are new entrants and it posses a threat to the competitive advantage.

(fig. 2)

Gradually with the time competition starts meeting the customer expectations and the competitive advantage tends to reduce. Example - As the company that created the spreadsheet for PCs, Lotus led the way through much of the 1980s with its 1-2-3. But Lotus did not foresee the success that Windows would have and failed to develop a version of 1-2-3 for it until 1991. By then Microsoft's Excel had moved in to dominate the market.

The duration of the competitive advantage is subjective, it depends on impact by the competitors affecting the source of competitive advantage. Microsoft Corporation is in a class by itself when it comes to exploiting the source for competitive advantage. IBM chose Microsoft in 1980 to write the operating system for its new personal computers. Microsoft produced DOS for IBM and then licensed it to more than 100 companies turning out IBM clones. Since it knew more than anyone else about the operating system for PCs, Microsoft had a head start on applications software like word-processing and spreadsheet programs. Over the years its applications programs became leaders. In the mid-1980s, Microsoft developed the Windows operating system, giving PCs some of the power and ease of use that had been associated with Apple computers. Microsoft continued to dominate the software industry as it built applications for Windows.

The graph shows that with increase in time Bases of Competition increases and competitive advantage decreases.