Competitive advantage is what makes one supplier better than other suppliers. It is an advantage over competitors gained by offering consumers greater value, either by means of lower costs or by providing greater benefits and service that justifies higher prices. The objective in strategy is to develop a sustainable competitive advantage, one that cannot be easily replicated by competitors. If it can be quickly replicated by competitors, then it is not an advantage.

If a business is unable to develop a sustainable competitive advantage, it is doomed to be a commodity supplier, able to compete only on price but without a cost advantage to back it up. Without a defined, sustainable competitive advantage, businesses will generally be low profit, low return companies and constantly struggling to compete.

Companies may develop a competitive advantage that is based on either a cost advantage or a differentiation advantage. The cost or differentiation advantage might apply to an overall market or to a specific segment of a market (i.e., a focus strategy). These advantages can be built upon various elements.

A cost advantage can be built upon the following:

• Operational excellence or expertise – An organization might have the ability to design processes and manage their operation in such a way that their costs are below what competitors are able to achieve.
• Access to lower cost inputs – An organization can be positioned, located, or associated with some source that provides lower cost raw materials, capital, or labor.
• Know how – A company might have special knowledge, either patented or trade secrets, that enable it to produce at a lower cost than competition.

A differentiation advantage is always based on better meeting customer needs and can be built upon a wide variety of elements that might include the following:

• A technology advantage that enables a company to provide product or service benefits that other competitors are unable to offer.
• An innovation advantage that enables a company to stay one step ahead of the offerings of competitors.
• An agility or adaptability advantage that enables a company to react more quickly to changing customer needs.
• An information or market awareness advantage that enables a company to more fully comprehend the needs of customers and provide a package of products and services that is more highly valued.
• A brand name or market image that provides an advantage over competitors.

Companies develop a competitive edge when they produce attributes that allow them to outperform their competitors. As mentioned above, a competitive advantage must represent a benefit to customers, meeting their needs, and represent a value beyond that available from competitors. The strength of a sustainable competitive advantage determines the ability of a business to achieve a stable or growing market position and a price that contains a level of profit that other competitors are unable to achieve.

Does your strategic planning process identify your business’ sustainable competitive advantage and how to achieve it?