How to develop Your Competitive Advantage

Whether we like it or not, we live in a very competitive environment. Regardless if this is on the professional level or inside the workplace or whether these are companies going up against each other in various industries, competition is everywhere. Just look at our natural inclination, we love to compare ourselves with someone whether we’re aware of this or not. And comparison breeds competition and it does not necessarily have to be known by the person or entity we’re competing against, for the most part, this is unconscious and we may not also be fully aware of it but nevertheless, we set ourselves to a higher standard by placing a benchmark or a model that we want to compare our attributes, achievements with in order to have this so-called competitive advantage.

Having a competitive advantage means you should not only be aware of your strengths but also of your weaknesses. In the same manner, knowing also the strengths and weaknesses of your rivals whether they are direct or indirect competitors. In the words of the great military general, Sun Tzu, “If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.” One of the most accurate and the measurable definition of competitive advantage states, “A company has a sustained competitive advantage when its strategies enable it to maintain above-average profitability for a number of years.” 

An example is proper here. Retail giant, Walmart has been able to outperform its closest rivals, Kmart, Costco, and Target. Started in 1962, Walmart has grown to become the world’s largest corporation that it even inspired other retail giants, supermarkets and groceries all over the world including our very own SM supermarkets.  In fact, it is not only large but it is also profitable. In 2008, the company earned a return on invested capital of 14.5%, better than its well-managed competitors, Costco, and Target which earned 11.7% and 9.5% respectively. Walmart’s consistent superior profitability and competitive advantage are based on a number of strategies. One of them is putting up a Walmart store in almost every suburban location in the U.S. where its closest rivals had overlooked. Aside from which, it put up a logistics center across the country, where it is designed to deliver needed supplies and goods to its Walmart retail stores within its 250 miles radius daily.

Because of this, it became more efficient by cutting on the logistics and delivery costs as well as inventory ordering and carrying costs which translated into bigger profits for the company. And with the logistics center, Walmart also invested in information technology, supply chain management, and human resources that the company became not only an innovator in the retail business but also a cost leader – since operating costs and expenses became lower, they can afford to lower or reduce their selling price offering to customers and still earn a huge profit. They were hitting two birds with one stone, profitability and market share, as more and more people shopped at Walmart because of its low prices.

The business model which Walmart did is based on the idea that costs can be lowered by replacing a full-service retail format with a self-service format and a wider selection of products sold. This gave them the competitive advantage over its rivals and upon seeing it, Kmart, one of its closest competitors, implemented the same “self-service” format into its operations. Sensing that it could give them also the competitive advantage it needed to compete with Walmart, they modified their structure and adapted the self-service format. However, somewhere along the way, it did not drive down their operating costs significantly neither did it deliver the expected profitability and market share. This was due to the fact that Kmart’s infrastructure and organization is not suited to such strategy as Walmart undertook. It was like a square peg trying to fit in a round hole.

The above depiction of a failure to adopt the strategy of another seems to be a common occurrence among organizations trying to imitate the competitive advantage of another with dire results. As with this common occurrence, we have come up with three (3) ways in order to cultivate competitive advantage:

Operate From Your Core Competencies – Your core competencies is what the company is all about. Its purpose of existence and should be aligned with the mission and vision of the company as well as its philosophy and core values. It is what makes the company unique and gives them a competitive advantage despite other companies vying for the same lucrative position.

Walmart’s founder, Sam Walton, envisioned his company as a retailer for the masses. He promulgated low-cost products so that more and more average income to below average income people would be able to afford it. However, in order to achieve his vision, he saw that this could only be done if his company operated near peak efficiency since operating at this level or at least near this level would mean lesser to almost no wastages, thereby driving down cost and that would afford him to lower his selling price which would become his competitive advantage.

Recognizing this, he needed to formulate strategies with his team geared towards lowering costs. From there, they were able to come up with the technology that would ensure to give them a low-cost structure and competitive advantage which has also become their core competence. Kmart did not fit in with this strategy initiated by Walmart even though they were moving in the same industry and even incurred losses and losing its competitive advantage along the way. Why? Because Kmart has different core competencies and adapting the strategy of another just because it has worked well for them may not be the best route. Recognize strategy is only a means to achieve the company’s objectives which are linked to the core organization’s philosophy and not an end to itself. It can change depending on the circumstances and strategies which are not linked to the company’s core competencies and values could prove disastrous.

Cultivate the Periphery – It is not a question whether do we have a competitor or not but a question on where do our competitors come from? In basketball, the point guard should be aware of the whole topography of the playing court such that when he shakes off a defender obstructing his path and penetrates to their half-court towards the goal and then sees another defender in front of the basket waiting to block his shot, he suddenly made a quick pass to an open teammate on the right baseline which was almost a perfect play except, that out of nowhere an opposing player intercepted the ball as they lost possession which cost them the match. It’s all part of the game as they say. And the losing team could not protest that they did not see the opposing player stole the ball from them and demand it was not a fair play. The point guard, who did all the right moves until the ball got intercepted from their team, was not just responsible for the opposing players that he sees but also that which he did not see.

In the same manner, if a competitor in business that we are vaguely aware of or have no idea whether it exists, takes some business away from us whether directly or indirectly at our expense and gains the competitive advantage, we could not cry “foul.” We either have a competitor out there or we just refuse to see. Even the great retail giant, Walmart, whose position as a retail store magnate has already established, had fallen into this want of periphery when another giant online retail store, Amazon, has taken over the retail business making its CEO, Jeff Bezos, the richest man in the world. This is just one of the celebrated cases, but there are multitudes out there who have succumbed to the competition simply because they were not able to see it coming thereby losing their competitive advantage and competition in this sense, need not necessarily be another company but it could be anything such as technology or an external threat and in some cases, even that same company in itself could be its worst enemy.

You are only as good as your Last Performance –  A lot of big companies, such as the giant retail store, Walmart, have succumbed into their own myth by having that aura of invisibility and the belief that they could maintain their competitive advantage and position as a retail king indefinitely. However, the retail business would never be the same again when game-changer Amazon redefined the rules. This should serve as a reality check not just for giant companies like Walmart, which is a global brand but it should also be a reminder or lesson to every organization that exists in every industry, especially now that the competition has become global and more and more companies are not just competing locally, but globally as well. This should also keep us humble because you’ll never know who’s going to emerge as another titan of a particular industry or even create another industry that might indirectly compete with our own.

Avoid the temptation of basking in one’s glory when you have tasted some triumph in your endeavor. Consider that there are also other people who may have contributed to your undertaking and some prayers, timing and luck have also played. In this way, we can resist grandiose thinking and imagine as if we have the golden touch. The reason why people and organizations fail is that when they experience some victory, people within their circles would praise them for their accomplishment and this would confirm their self-belief that they are near omnipotence. Grandiosity can be beneficial to some extent because it motivates the company to stretch their goals further but taken into extreme, they would have an inflated sense of self-concept and imagine their “legendary status” which would place them out of touch with reality thereby losing their competitive advantage.

It should instead, motivate us to look further and see our performance with an impartial eye, looking at the possible chinks in our armor and how to improve on our weakness instead of getting drunk with the belief that we’re naturally gifted. We should also seek other people who could evaluate rationally and seek suggestions since they are in a better position to see things that might have escaped our attention due to our superiority bias. Thus, we could enhance further and cultivate our competitive advantage. Even Microsoft chief, Bill Gates, the second richest man in the world said, “Whether we will make them obsolete (product) or somebody else will.”  It’s a continuous process and great companies don’t become stagnant but continue to re-invent not just their products or service but their organization as well.

 

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