Competitive advantage occurs when a firm is using a strategy that is currently not being currently implemented by any of its present and potential competitors. Sustainable competitive advantage continues to exist after the efforts by competitors to copy tat advantage continues to exist after the efforts by competitors to copy that competitive advantage have ceased. That means, the inability of competitors to copy the strategy makes for a sustainable competitive advantage. It is difficult to sustain a significant competitive advantage over a time without periodically revisiting the firm’s identity and purpose. For instance, reducing costs is not a true strategy because it simply provides a breathing space for the organization to formulate an appropriate strategy. The length of time over which a firm can maintain its competitive advantage is dependent on: –
- Replicability: how easy it is for the competitors to duplicate it.
- Transferability: how easy it is for the competitors to acquire the same resources and capabilities.
- Transparency: to what degree can the competition tell what a firm is doing strategically.
- Durability: how long can the firm keep its competitive advantage.
The most important resources of a firm are those that are durable, difficult to identify and understand, not easily duplicated, and in areas over which the firm has clear control.
Sustainability of competitive advantage depends on the following characteristics of the critical resources involved: –
- The resources need to be valuable to the firm in exploiting opportunities and neutralizing threats.
- The resources should be rare and of such a nature that they cannot be reproduced individually.
- The resources should be imperfectly imitable because of casual ambiguity, which: (a) might be due to the historical conditions of its occurrence; (b) makes it difficult for others to see the linkage between the resource and the benefit; and (c) makes the resource socially complex due to corporate culture.
Coyne suggests that the durability of competitive advantage depends on some “capability gaps” that exist between firms. These gaps are: –
- Business System Gaps: often found in organizational structure and its people.
- Position Gaps: resulting from past decisions, from being a fast mover, or from the acquisition of a precious resource.
- Regulatory Gaps: resulting from some governmental limitation on the extent of competition allowed in the industry.
- Organizational or Managerial Gaps: when superior leadership results in the recognition of trends and adaptation to change earlier than the competition.