Innovation Management
Professor: 朱大中
Student: Sonny Minx (M987Z261)
Bui Thi Thuy (M987Z204)
Topic: “What is the difference between a strength, a competitive advantage, and a
sustainable competitive advantage?”
Warren Buffett is often referred to as the world’s greatest investor. If you were to ask
him for some advice, he would say to invest in companies that have a sustainable competitive
advantage. Creating such a valuable asset is a necessary task for any company that intends to be
successful.
There is a process for reaching this point and it begins with identifying and exploiting the
strengths.
Once those strengths have been harnessed, the development of a competitive
advantage can be initiated. Continued refinement of these resources can lead to single or
multiple sustainable competitive advantages that will set the company apart from the competition
and hopefully return profits for the future.
Further explanation of a strength, competitive advantage and sustainable competitive
advantage will illustrate the types of resources that can be identified when evaluating a company.
Strength
A company’s strengths are its resources and capabilities that can be used a basis for
developing a competitive advantage. Examples of such strengths include:

Patents

Strong brand names

Good reputation among customers

Cost advantages from proprietary know-how

Exclusive access to high grade natural resources

Favorable access to distribution networks
Competitive Advantage
When the company profits exceed the industry average, they are said to possess a
competitive advantage over their competitors. The objective of a business strategy is to achieve a
sustainable competitive advantage. Michael Porter, a famous economist, identified two basic
types of competitive advantages: cost advantage and differentiation advantage. A competitive
advantage exists when the company is able to deliver the same benefits as its competitors do but
at a lower cost (cost advantage) or deliver more benefits than the competing products offer
(differentiation advantage). Therefore, a competitive advantage enables a company to create a
superior value for its customers and higher profits for itself.
A resource-based view emphasizes that a company utilizes its resources and capabilities
to create a competitive advantage that ultimately results in the creation of superior value. The
diagram given below (Figure 1) combines the resource-based and positioning views to illustrate
the concept of a competitive advantage.
Fig. 1 A Model of Competitive Advantage Analysis
Resources
Distinctive
Competencies
Cost advantage or
Differentiation
Advantage
Value
Creation
Capabilities
According to the resource-based view, in order to acquire a competitive advantage, the
company must have resources and capabilities that are superior to those of its competitors.
Resources refer to the company-specific assets that are useful for creating a cost or
differentiation advantage and are something that a few competitors can acquire easily; patents
and trademarks, proprietary know how, established customer base, company’s reputation, and
brand equity are some examples of such resources. Capabilities refer to the company’s ability to
utilize its resources effectively; for example, the ability of a company to launch a product in the
market earlier than its competitors. Such capabilities are embedded in the organization’s routines.
The company’s resources and capabilities together form its distinctive competencies. These
competencies enable innovation, efficiency, quality, and customer responsiveness, all of which
can be leveraged to create a cost or differentiation advantage. Competitive advantage is achieved
by using resources and capabilities to deliver either a lower cost structure or a different product.
Superior value is achieved through lower costs or differentiation. To achieve a competitive
advantage, the company must perform value creating activities such that an overall value
superior to that of its competitors is created.
Sustainable competitive advantage
Sustainable competitive advantage is the unique position that an organization develops in
relation to competitors that allows it to consistently outperform them. This suggests that
advantages can only be achieved by establishing a clear and favorable differentiation from
competitors. This difference must be tangible and measurable, and it must be able to be
preserved over time. Competitive advantage is meaningful only if it is felt in the marketplace;
that is, the differentiation must be perceived as an important buying criterion to a substantial
customer base. Such an advantage will be sustainable, only if it cannot be imitated. In essence, a
gap in the capability underlying the differentiation must distinguish the producer from its
competitors; otherwise, competitors can duplicate or eliminate the differentiation at will. In order
to create such a gap, the organization must deploy its unique combination of skills and resources
to exploit environmental opportunities and neutralize threats.
These include the recruitment, selection and appraisal of sustainable competitive
advantage is the focal point of your corporate strategy. It allows the maintenance and
improvement of your enterprise's competitive position in the market. It is an advantage that
enables business to survive against its competition over a long period of time
A company possesses a sustainable competitive advantage when it has value-creating
products, processes and services for their customers that cannot be duplicated or imitated by its
competitors.
The difference between strength, a competitive advantage, and a sustainable competitive
advantage:
Having a competitive advantage, even a sustainable one, does not necessarily mean that
you or your customers are aware of it. So there is a need to create an offer or positioning in the
market that clearly states your competitive advantage.
Competitive advantages are partially sustainable if the company is able to continuously
upgrade the quality of its competitive advantages
Gradual Erosion of a Sustained Competitive Advantage

To be a source of sustainable competitive advantage, resources must be Rare, Valuable,
Durable and Inimitable

Rare and valuable resources may yield a competitive advantage, but that advantage will
not be sustainable if the company is incapable of keeping the resources or if other
companies can imitate them

A positive brand image can be a rare and valuable resource, but it requires ongoing
investment to sustain it or else it will erode


Assess which strengths have potential to be sustainable competitive advantage
•
Rare
•
Valuable
•
Durable
•
Unique
Competitive advantages are shielded from imitation for long periods of time and
imitation is costly

Competitive advantages are sustainable in slow-cycle markets
The creation of the sustainable competitive advantage is necessary if a company wishes
to be profitable and stand out from the competition. Companies that exhibit this type of
advantage include Apple, Intel, Motorola and a variety of others in technology and
manufacturing.
The advantage, if maintained, will lead to an enviable position in the
marketplace and long returns on human and capital investment.