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The unique skills and assets a company has to outperform its rivals are the sources of competitive advantage. The competitive advantage results from implementing a value creating strategy that is not implemented simultaneously by its competitors. The strategy attains sustainability if the competitors are unable to erode the strategic advantage the company has over them. The skills and resources underlying the company’s competitive advantage must sustain the duplication. The advantage should be such, that the duplication of product or service does not lead to the duplication of the efficiency of its operations and processes.
The requirements for a resource or a skill to be of a source of sustainable competitive advantage are: It must be valuable It must not be imitable It must be rare as compared to its competitors It must not have any strategically equivalent substitute A resource or skill is said to be valuable if it contributes in formulating a strategy to improve its efficiency. If a resource or skill is posessed by a large number of companies then it is not a source of Strategic competitive advantage.
The companies product or service should reflect the differentiating factors that are key buying criteria to the customers.
If the key buying criteria changes over period of time, the sustainable competitive advantage would depend on how well the company influence the key buying criteria or adopt to the changes. Competitive advantage is expected to lead to superior performance indicated by financial ratios. The barriers to imitate the firms resources are bound to decay, there is a need to constantly monitor and invest in the present source of advantage and also invest in other potential sources of advantage.
Many companies experience profits during the heydays but are not able to sustain it over a period of time. The main reason for this is the lack of solid internal framework. One of the companies which were able to sustain the profits it made during the good times of 1990’s over years was Dell. It was able to do so due to its sustainable competitive advantage such as vertical integration which means using internet to replace company’s physical components with information, tailoring manufacturing of its products as per the customers need and providing real value customer service. By providing such facilities the end users were directly linked to the manufacturer. This helped Dell in maintaining symbiotic relationship with its customers.
By customizing orders the customers received tailored products as per their requirement which in turn also saved time and cost for the company. Another such company which evolved as a leader in the industry over a period of time is Hewlett Packard. The sustainable competitive advantage that HP has which made it grow into a big multinational company is integrating critical opposites, where it has created an environment that celebrates individualism and at the same time is also wholly supportive of teamwork. The employees get engaged in cross cultural teams and are also evaluated on the basis of their individual performance and achievements.
It has succeeded in creating a balance between team work and individual creativity. It also has an advantage in terms of developing cross-functional individuals where the employees move through six functional areas throughout their career. Thus to survive in the competitive environment and grow over a period of long time a company should distinguish itself through assets and skills which are not imitable, valuable and rare as compared to its competitors. This will result in having a sustainable competitive advantage in the market. The company should also have barriers placed to avoid the duplication of its skills and resources. Finally it should reinvest continuously in these skills and resources and also in other potential sources so as to maintain the competitive advantage.
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