There are some firms which happen to be lucky and get overnight success but such examples are few and far between. In order to achieve long term success, companies have to acquire necessary skills and resources in order to compete with others who have been in business for decades. The value creation for companies, and long term growth largely depend upon these competitive advantages which they can only acquire after hears of experimentation and hard work.
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Companies Must Consider Factors Beyond Profits for Sustainable Competitive Advantage
1.
2. he value creation for companies, and long term growth largely depend upon these
competitive advantages which they can only acquire after hears of experimentation and
hard work. While government policies can protect firms from unexpected changes
occurring in the market, they must learn how to maintain sustainability as the governments can
change exposing companies to unforeseen dangers.
It is not easy at all to identify
or define resources or skills
which bestow an
unsurpassable competitive
advantage to a certain
company. Most often,
organizations use signals like
Key Performance Indicators,
customers’ feedback, sales
growth and market shares to
determine what they need to
do to compete with others
more successful companies.
These factors are a good
indication of whether a firm is
performing better or worse
than its competitors but there
are still many common pitfalls
which they need to avoid at
any cost.
For example, some
organizations use profits as an
indicator of competitive
advantage but most often, this
strategy could lead them to
disaster instead of success.
Profits are not a good
indication of where you are
better than your opponents. If
we also include opportunity
cost and replacement cost in
the profit rather than analyzing
it purely in accounting terms,
we come to the conclusion
that profit statements are often
misleading and don’t present
the true pictures of company’s
competitive advantage and
how sustainable it is.
Therefore, it is imperative for
business firms to consider
other dimensions of
sustainability. For instance,
companies must invest in such
area of their business which
can offer a sustainable cash
flow in the long run. Instead
of just looking at profits, they
must identify the reasons
responsible for those numbers
and figures. In this regard, the
two most important of the
reasons that ensures
sustainable competitive
advantage are Size and Time.
However, size cannot
determine alone whether your
organization has a competitive
advantage or not. There are
many tools which can help
you analyze how good you are
as compared to others. For
example, an organization has
to be efficient in order to get
competitive advantage. For
that matter, it must scale the
economy properly and have
some savings. Similarly, if an
organization is present in more
T
3. markets, it will definitely earn
bigger profits. Large
organizations also offer more
learning opportunities to their
employees and all these
factors combine to make an
organization more efficient.
Big organizations usually have
better bargaining power when
it comes to dealing with
buyers as well as suppliers.
As far as Time is concerned,
first movers always have some
absolute pre-empt advantages.
They have the keys to open
the market, enter the market
and close the doors behind
them. They can legally forbid
others to follow their footsteps
and this is one of the biggest
source of competitive
advantage in some countries.
Furthermore, in some
businesses such as oil and gas,
cable distribution and rail road
networks, it is physically
impossible to catch the first
mover due to extremely high
costs. Finally, the phenomenal
success of first movers will
force others to mentally
concede the defeat and stop
pursuing them in the market.
Similarly, followers might
have to spend triple the
amount of time and money to
get where the first mover
already is and this is called the
relative advantage. However,
it sometimes also becomes a
disadvantage for them because
others can simply copy their
products, services or the way
of working and make a name
for themselves. Therefore, if a
company is really willing to
spend money and time, it can
outwit the first movers and in
some cases, eliminate them
from the market as well.
However, it is usually very
difficult for the rest of the
pack to imitate the success and
profits of the first movers
because they enjoy some
exponential market
advantages. For instance, they
have an established fan base
and their products are used
and accepted throughout the
world, MasterCard, Visa and
American Express being
typical examples. It is
virtually impossible for other
credit card companies to
penetrate this particular
market and achieve the level
of success these companies
have enjoyed and same is the
case with other markets. Once
a company gets late, no matter
it is small or large, it will be
extremely difficult for it to get
to back to the race and win it
as is the case with Nokia.
4. Below is the link of MILE blog where you can find Dr. Karel Cool’s webinar
video:
http://blog.mile.org/do-you-have-a-competitive-advantage-and-how-
sustainable-is-it/
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