An ideal business environment is characterized by competition, among other factors. It through competition that a company may prove to be more successful than others in its particular scope of operation (Campbell, B. A., Coff, R., & Kryscynski, D., 2012). Typically, a more successful business in a competitive environment always has something that enhances its operations that its competitors lack. That is evident in most of today’s business organizations where companies identify their strengths over their competitors and use the identified aspects to win clients. The identifying of these positive and relatively unique aspects is what makes a company achieve or gain a competitive advantage. This essay discusses the concept of competitive advantage and the issues related to it as well as its relevance in the present competitive environment in which most businesses are embedded. The essay will also cover the significance of the concept of competitive advantage in strategic management.
Competitive advantage is by definition the superiority in performance of a company or a business relative to its competitors in an industry (Porter, M. E., 2008). The superiority in performance can also be achieved if it is above the performance average of the particular industry. In more simplified terms, competitive advantage is anything that a business does better than its competitors. The advantage is mostly achieved by offering greater value to consumers in form of products as in reasonable prices or benefits that justify the prices offered or both. The extent to which the performance superiority extends determines the degree to which a business can enjoy the competitive advantage in the market. Essentially, for a company to compete favorably in a market, it needs to have at least one competitive advantage. If it does not have one advantage over competitors or cannot seem to identify one, competitors outperform the company forcing it to exit the market.
Importance of Competitive Advantage in Strategic Management
Competitive advantage is not only beneficial to customers but also to organizations. In organizations, consumer advantage leads to increased sales and returns as well as expansion of the market share. Additionally, competitive advantage is also useful in the strategic management set up. The importance attached to the concept in strategic management is as follows:
Firstly, competitive advantage is a major factor in strategic management in relation to labor. A quality and effictive labor force are part of a strategic management set up. Such a labor force is mostly achieved through a competitive advantage. A company with a successful strategic management niche differentiates itself from competitors through the ultimate development of a corporate culture, an effective mission statement and human resource department (Doz, Y., & Prahalad, C. K., 2013). Job benefits including those of bringing pets to work, breaks and telecommuting among others are some of the ways corporations use to establish competitive edges. One of the strategic management goals of a business is to hire and retain top talent and as such, companies with a competitive advantage bent to labor as a resource in strategic management get to have a labor force made up of top talent teams and individuals.
Competitive advantage also enhances operations related to strategic management by influencing the marketing aspect of a business. Competitive advantage can be developed by brand development, which can be effected through the design a logo assumes, the aesthetics of a product and the colors used in the packaging of the product. Brand development fosters strong brand recognition and heightens competitive advantage. Efforts invested in branding range within the reasons consumers spend more resources on the acquisition of products similar and identical in function. Stores go through considerable efforts to differentiate themselves from their competitors. For example, stores such as Abercrombie & Fitch, Bloomingdale and Hallmark are known to use fragrances to enhance the shopping experience for their customers. That is because some smells increase the amount time a customer spends in the store by averagely forty percent. In addition, competitive advantage can be termed as the heart of marketing strategy (West, D., Ford, J., & Ibrahim, E., 2015). That develops from the notion that any successful strategy is a fabric of the advantage. Successful businesses develop strategies around the area that the business identifies as an area or distinctive competence.
Additionally, companies whose competitive advantage lies in resource allocation get to enjoy benefits in their procurement needs. Such companies are more likely to buy materials for figures less than those spent by competitors are. Strategic management effects the procurement of items at cheaper costs using different methods such as buying materials in bulk, engaging in long-term contracts, using overseas vendors and negotiating for lower prices (Harmon, P., n.d). Moreover, strategic management helps managers identify regions that generate high-cost savings contributing to effective and economical resource allocation.
Large companies are able to establish a competitive advantage in their logistics through strategic management. Logistics related to the management strategy of a supply chain pertain to how a company gets to transport products and manage its operations. For example, unlike a small scale retailer, a large scale retail store can be awarded discounts on inventory, shipping and even production of goods (Campbell, B. A., Coff, R., & Kryscynski, D., 2012.). Strategy relating to logistics also covers space allocation and warehousing, stock updates as well as order processing and returns.
Issues Organizations Face in Trying to Achieve and Sustain Competitive Advantage
Achieving and sustaining competitive advantage can sometimes be hectic and problematic for organizations and businesses. Organizations face various issues in their quest towards obtaining a competitive advantage. Some of these are discussed below:
Organizations may find it expensive to achieve a competitive advantage. In a market that is made up of both big and small organizations operating in the same industry, either of the two organizations may find it difficult to develop an aspect that differentiates them from the other competitors and an option for development might prove to be expensive for nearly all the organizations involved (Pallante, M.D., 2010). The pinch of expensiveness is best felt by the smaller organizations who find it especially difficult to develop aspects that the larger companies cannot. Additionally, there are aspects of competitive advantage that small organizations can develop and may seem impossible for larger companies to develop and adopt.
Moreover, sometimes an organization may succeed in developing a competitive advantage over its competitors and fail to maintain or sustain it as required to remain superior. Some projects are difficult to sustain and may lead to the organization making losses they would have evaded had they not developed the project. Such a case would be that of a small café introducing grilled chicken servings in order to achieve competitive advantage over its competitors (Peteraf, M.A. & Barney, J.B., 2006). If the new menu does not attract the right customers to exhaust the servings, the café will be forced to terminate the dish. If the café continues preparing the dish, and no customers show up, it ends up making losses since much of the food will be put to waste. In such a case, it is difficult for the café to sustain the competitive advantage over competitors who do not serve the specific dish.
Changes in technology are one other issue that organizations face while trying to achieve competitive advantage. In the modern world, technology and expertise changes by the day, which means a company that has its competitive advantage resting on technology services and functions, may find it difficult to sustain it and keep up with the trends. Better technologies are mostly more expensive than earlier versions and organizations may find it difficult to acquire the newer versions. Sustenance may even be more problematic in a case that involves a competitor acquiring a more recent and expensive technology, thus shifting the competitive advantage to them (Porter, M. E., 2008). In addition to this, small organizations find it difficult to adopt expensive technologies adopted by their larger counterparts, and this prevents them from outperforming their competitors.
Organizations are excelling with their already established and achieved competitive advantage, and as time goes by, may face issues relating to customer preferences. A good example is that of a company that achieves a competitive advantage that is largely based on low-cost products, and sustains it by investing in cost-cutting raw materials that are somewhat of low quality. Gradually, as time goes by, consumers may need products that are of high quality regardless of their costs (Boxwell, R.J., 1994). With time, the low-cost business might cease to be as profitable as before since consumer needs have changed. Such was the case with Dell, a computer manufacturer based in the US. Initially, in the 1980s, the company boasted of cost leadership and was more popular and successful than any other PC producer. Later, in the late 1990s, the trend changed, and Dell’s sales fell. Many of Dell’s strong points had been adopted by other companies and what Dell offered as a competitive advantage was regarded as add-ons for a standard PC. With that happening, Dell was not regarded as special anymore and had nothing that stood out, not even the low price since other such as Acer, Gateway and emachines offered PCs at low prices.
Lastly, organizations later realize that competitive advantage does not always lead to more returns. The rules in business competitions are not clearly defined and are subject to change at any given time, and there are little or no referees. As such, organizations that are obsessed with competitive advantage are outdated. The virtual and untimely changing of rules as mentioned above can well be illustrated by a case of BlackBerry, a handset manufacturer. In 2011, BlackBerry boasted of its competitive advantage – the superior and handy email capability of their devices – and stayed oblivious of the growth and development of applications and tablets from competitors from Apple and Android.
Relevance of Competitive Advantage Today
Competitive advantage in today’s world may not be as effective as it was in the preceding years. Today, business models cannot be treated and referred to as stone tablets that are expected to last for years. That is because business models in the present world are more perishable than they were in the twentieth century. Any developed competitive advantage is short-lived. That can be evidenced by the reports that every two weeks a company is removed and replaced with another on the S&P 500 and the average expected lifespan has reduced to less than twenty years from sixty years. In the present and changing world economy, competitive advantages are more of transient than sustainable (Denning, S., 2013). The perishability is mainly brought about by the fact that there are more disruptions, and the world is made of foundational concepts such as five forces – Threat of new entrants, threat of substitute products, competitive rivalry, and bargaining power of suppliers and buyers – and core competencies that make the competitive advantages lose their meaning. In this regard, a new set of assumptions is needed on how the world works as well as new strategies to compete and still achieve even when competition is transient.
On the other hand, there are areas that competitive advantage is relevant and benefits the involved organizations. The competitive advantage takes the form of models as in substitutes and customer loyalty. For instance, iPhones and other products from Apple, although expensive, compete favorably with other handset manufacturers such as BlackBerry and Samsung among others. The same is also seen with McDonalds and Burger King.
In summary, competitive advantage does not necessarily mean success in business. That is because there are countless businesses that do not identify with competitive advantages, but can be termed as successful. On the other hand, businesses have failed and incurred losses despite having a competitive advantage. Developing competitive advantage is especially necessary for business and as well as other aspects of the human life such as education and sports among others. To gain competitive advantage, one must set out to do things differently and distinctively for the purposes of increasing and improving value. Lastly, while the ends from which competitive advantage is sourced are many, competitive advantage always amounts to a differential or a cost advantage to the organization.
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