In today's cut-throat business environment, your competitive advantage may not give you much of an edge for long. To ensure you're always one step ahead of the competition, having the means to sustain your competitive advantage can make all the difference.
In a previous post, we looked at preparing yourself for new competitors when they enter your category. In this post, we've rounded up what you can do for a sustainable competitive advantage.
Check out the full presentation below.
Let's look at sustainable competitive advantage. This may be the most important section ever. Sustainable competitive advantages are harder and harder to find and harder and harder to maintain. So how do we define it? There are really only two ways that you can define this.
- Being able to deliver more value than your competitors can, or being able to deliver the same value cheaper.
- Do you have some systemic business advantage that allows you to deliver more value at a cheaper cost?
How Do You Create a Sustainable Competitive Advantage?
Here's a great example. For over fifty years, IKEA has been dominating and they use something called the chain link system. Now IKEA had a big idea, which was being able to not just sell furniture, but also manufacture and sell their own.
The new idea was they could save a few bucks by getting customers to assemble it themselves. Now that was a pretty big idea, but what they did was to actually link together the design with world-class designers. They've actually managed to get huge scale in the manufacturing process as well as with the stores which once again have huge scale.
IKEA holds massive inventory. The ability to shop online or go in-store to get it and then controlling their own delivery as well, in some situations means that for any competitor you've got to have all these things working together. To date, nobody has done it and IKEA seems to be getting further and further ahead. And when IKEA turns up in your neighbourhood and you're a small furniture store, you start to worry.
Just Ask the Harvard Business Review
So what does the Harvard Business Review have to say about sustainable competitive advantage? There was a wonderful article that came out recently where they looked at 25,000 listed companies between 1966 and 2010. Then they reviewed those companies to remove the element of luck.
Well, how do you do that? You do a calculation of return on assets and then make sure that people sustain it - return on assets performance over a minimum of ten years. Once you take luck out of it, it's actually very interesting what they've found. Out of the 25,000 companies, they picked the top 300 and out of those top 300, they distilled the business lessons that make a difference.
1. Better before cheaper
You need to be able to have a brand advantage, a style advantage or functional excellence or quality much more than you do a cheap price. The businesses that win are leading on style and innovation.
We see a whole list of innovation companies in there. Everything from 3M, one of the world's greatest innovation companies, through to WD40, a single, unpatented innovation that's had success for year after year after year.
2. Revenue before cost-cutting
Then it's about revenue before cost-cutting. We saw the 1980 surge of the management consultant. Cutting the heart out of business to get short-term results, it doesn't work. We need to think about dollars in through the door and maintaining our value before we cut costs. You cut costs too much, you cut the innovation pipeline and you cut the heart out of business.
3. See points 1 and 2
If you get better before cheaper right and if you get revenue before costs right, you actually win.
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Editor's note: This post has been republished with new data.