WHAT TO READ NEXT
Where did competitive advantage disappear to?
Competitive Advantage results when a strategy is put in place that differentiates an organization from another. Comparative advantage occurs when economies of scale provide a less costly way of doing something.
Comparative Advantage
Comparative advantage is an economic term used to signify when one firm can produce the same widget at a lower cost than another. This does not signify differentiation – it only provides a measure of cost efficiency.
Competitive Advantage
Competitive advantage is a concept that is rapidly disappearing in the context of today’s digital economy. It used to be that a disruptive new technology was a competitive advantage – one firm had it, the others did not.
However, given the varying degree of control in the intellectual property landscape around the globe, competitive advantage appears to be fleeting. It exists only for the time it takes a competing firm to develop a similar or improved technological offering.
Even in this regard, there are business strategies that low-cost competitors can undertake. They wait until the “pioneer” firm discovers or launches the technological offering and the low-cost firm comes in quickly thereafter and offers a comparative offering. This avoids the heavy costs associated with R&D and provides the low-cost firm with commercial runway.
Insight
In what feels like a long time ago, competitive advantage was a source of differentiation. But it no longer is.
Businesses have to find alternative methods of establishing competitive advantage that goes beyond technology; they need to consider system-wide differentiators that drive commercial growth and increased customer loyalty.
FEATURED INSIGHTS
How to build a strategic plan
