Competitive Advantage – A State of ‘Nirvana’ | Trade Samaritan

Competitive Advantage – A State of ‘Nirvana’

The concept of competitive advantage was introduced in 1985 by Michael Porter a great writer and a teacher. The fascinating part of Theory of Competitive Advantage is that it can not only be applied to business scenarios but can be implemented in our personal life to make an outstanding career progression.

 We encourage our readers to keep career progression in mind while reading this article and apply this theory in their personal life.

In order to rise above the competition and surrounding factors which are detrimental to growth one has to develop and demonstrate competitive advantage. In this article we will discuss the framework on which the theory of competitive advantage is based and we will do so with the help of examples. This theory is modern and addresses concerns around growing competition and threats.

A firm is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential player.

It is of paramount importance to note that the strategy should be able to create ‘value’ not being delivered by any present or future player. What is that one value I have which other players don’t have? How can I add value to job and deliverable which other candidates cannot?

Companies as well as individuals take wrong decisions, make losses, succumb to competition and fail however there are a few who have been winning the game (business) consistently namely Apple, Microsoft, Google, Walmart and Coca-Cola. Research and analysis indicates that the primary factor behind their success is the ‘Competitive Advantage’ these companies have over their past, current and in most cases even on their future competitors. Most of the areas today be it industrial or individuals have a number 1 followed by number 11, 12 13… as the number 1 is actually number 1 to 10. This one company or person keeps all its competitors at bay.

Roger Federer, Sachin Tendulkar, Michael Jordan, Pele, Don Bradman, Bill Gates have secured all the positions between Number 1 to 10 and the next best is directly placed on number 11!

Ability to develop a competitive advantage and to successfully execute if for a long  period of time is rare. In legal terminology a company is a ‘going concern’ and that means in order to be successful it is required to execute competitive advantage for a never ending period of time. This Theory of Competitive Advantage is perhaps the most modern and real world theory that shapes the strategy and core competency of businesses and people.

Why and how did the strategy of competitive advantage become so important?

In order to answer this question let us take a look at yet another framework created by Michael Porter known as ‘Five Forces’ of an industry which drives the companies to develop competitive advantages. We have applied these five forces to people and career progression.

Five Forces Michael Porter

As we can see there are 3 horizontal forces; threat of new entrants, rivalry within the industry and threat of substitutes. And there are 2 vertical forces (supply chain); bargaining power of suppliers and buyers. Business environment is fierce and aggressive and hence in order to make profits companies have to constantly innovate and offer something to the customers which others are not offering or offer the same product or service at a lesser cost. And the companies who are able to do this successfully and consistently are said to have a Competitive Advantage.

Competitive forces shape strategies which results into competitive advantage.

Apple has conquered the market by a very strong and unique control over hardware, software and services.  It has developed a unique value chain by owning the chip manufacturing. The standards are very strict and operate in a controlled environment with zero tolerance when it comes to hardware, software and services.

Its competitors have been working hard however have not succeeded in designing an eco system as close knit and controlled as Apple.

Secondly the devices of Apple integrate with each other for data transfer and other functionality so magically and efficiently that the consumers end by buying the entire product line ranging from an iPod, iPhone, iPad, Mac and Mac Air. Consumers seldom pick a non-Apple product and almost always go after the Apple products one after the after, they swear by their Apple products.

The framework of Porter’s five forces is complex, it varies from industry to industry. For example in an Airline industry the threat of new entrants is not high but there are substitutes and suppliers such as Boeing and Airbus have monopoly and can exercise their powers. This can instantly affect the profitability and the market share. Whereas in FMCG (Fast Moving Consumer Goods), all of the five forces are strong and play an equal part in driving the businesses in and out of the industry. In the short run these forces pose a different challenge as compared to the long run. It is a challenging environment and very few are able to do this successfully and consistently.Businesses are required to adopt;

  1. efficient business, production, marketing and delivery models,
  2. upgrade the product’s life cycle,
  3. develop core competencies in each of these areas and
  4. gain a competitive advantage over all the forces at the same time.

There are very few businesses and people who have attained this state of what we have decided to call a state of business ‘Nirvana’.

Apple has attained a state of business ‘Nirvana’, it does not have to worry about the substitutes or the suppliers and have managed to keep the consumers hooked thereby making it impossible for the new entrants. This particular theory is very close to the real world and has been studied and analyzed by numerous experts and analysts. It takes in to account various constraints and obstacles faced by companies and individuals in the process of their progression. Every individual is special and can use this theory to his/her advantage by strategizing and conquering the five forces depicted in the diagram and adding a unique value to their current project or prospective job. One must always play to win!