Building competetive advantage


Building competitive advantages is a function of strategy—corporate strategy and competitive/marketing strategy. In fact, as a strategic planning process competitive advantage and synergy constitute one of the five basic constituents of corporate strategy.

It remains the responsibility of the corporation to endow the firm with the competitive advantages required for the survival of its business. Therefore, firms in their corporate and competitive strategy, incorporate the moves that would result in the creation of the desired competitive advantages.

It is interesting that while competitive advantage is needed or strategy to work it is strategy that creates competitive advantage. Strategic decisions and actions cumulatively lead to competitive advantage building. For example, corporate level strategic decisions on acquisitions, mergers, alliances, fresh investments, technology-up-gradation etc are all steps that would result in competitive advantage building. Strategy, thus, not only uses competitive advantage, but also creates it.

Firms build competitive advantage using different routes such as:

* Benchmarking
* Value chain analysis (analyzing one’s own and competitors’ value chains)
* Innovation in any function
* Integration
* De-integration/outsourcing
* R&D
* Supply chain expertise (lower input costs)
* Strength in marketing channels
* Mergers and acquisitions
* Strategic alliances
* Creation of entry barriers
* Product differentiation
* Brand dominance

Using core competence as anchor for competitive advantage:

Benchmarking is somewhat similar to inter-firm comparison. It helps the firm know the best performance standards in the industry and secure a model for emulation. However, in benchmarking, companies go a step further than inter-firm comparison and trace the best practices industries and across countries, gathering thereby still higher standards for emulation. Many firms also encourage their internal departments to benchmark against one another and upgrade their own performance. So, benchmarking has a much larger scope than inter-firm comparison.

Benchmarking can be described as the process of improving one’s performance by locating benchmarks/standards and replicating them in one’s own organization. McKinsey & Co views benchmarking as a skill, an attitude and a practice that ensures excellence, instead of mere improvement. The firm measures how much it needs to improve to be at the highest possible level of performance and then sets about achieving that level. In other words, benchmarking helps increase competitive capabilities.

Analyzing other players and locating the best practices is the first in benchmarking. The firm then identifies and quantifies the performance gap—the gap between its own performance and the benchmark. And finally, bridges the gap. This externally oriented approach makes people in the firm aware of the distance they have to travel in achieving excellence. It has an eye-opening effect on them.