Strength, Competitive Advantage,
and Sustainable Competitive
Advantage
Presented by:
Bui Thi Thuy
Sonny Minx
Do you know this man?
He is Warren Buffett. Sometimes called the
Oracle of Omaha, he is regarded as the
World’s Greatest Investor.
His company, Berkshire Hathaway, has
performed consistently for decades and has
been named “Most Respected Company”
Berkshire Hathaway is a holding company
that conglomerates many other high
performing companies into one. The value
created and returned to shareholders is
second to none.
What is his secret?
• Every year at the Berkshire Hathaway
shareholder meeting, thousands of people
flock to hear Buffett speak.
• And every year, he reminds investors of the
same simple rule…
Invest in companies that possess a Sustainable
Competitive Advantage
First things first
Before discussing the concept of Sustainable
Competitive Advantage (SCA), let’s discus how a
company can reach that point.
The SCA is something that develops in a company
that allows them to consistently outperform their
competitors.
And it all begins with the strengths of 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:
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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
Building on the strengths, it is possible to
develop a competitive advantage.
When profit exceeds the industry average, a
company is said to posses a competitive
advantage.
Competitive Advantage
As defined by Michael Porter, there are two basic
types of CA:
1. Cost Advantage
2. 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).
Competitive Advantage
Cost advantage
Competitive
advantage
Differentiation advantage
How to create CA
In order to acquire a competitive advantage, the
company must have resources and capabilities
that are superior to those of its competitors.
Resources are 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.
How to create CA
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.
Their resources and capabilities together form its
distinctive competencies. The innovation,
efficiency, quality, and customer responsiveness
that result can be leveraged to create a cost or
differentiation advantage.
The Result
When these capabilities are used to deliver a
lower cost structure or a product with
superior value, a competitive advantage is
achieved.
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.
SCA
Competitive advantage is meaningful only if it is felt
in the marketplace. The differentiation must be
perceived by customers as a reason to purchase.
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.
Maintaining SCA
• 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
Gradual Erosion of a Sustained
Competitive Advantage
Some
companies that
exhibit SCA
Sustainable Competitive Advantage
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.
Q&A