Sustainable Competitive Advantage

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Description of Sustainable Competitive Advantage. Explanation.




Definition Sustainable Competitive Advantage (SCA). Description.

If a company makes a profit in excess of its Cost of Capital, it is probably able to do so because it has achieved a Competitive Position that offers some kind of an 'edge' over its current or potential rivals. To achieve such a temporary competitive edge is hard to do, and typically takes the successful formulation and execution of a business strategy. The 3 factors that can provide such a Competitive Advantage were famously described by Porter: Cost Leadership, Differentiation, and Focus. A different  approach was provided by Treacy and Wiersema in their Value Disciplines: Operational Excellence, Product Leadership and Customer Intimacy.

But to develop a competitive advantage into a sustainable competitive advantage is even harder to do, because this means that the company must possess value creating things or capabilities that cannot be duplicated or imitated by other firms (Competitive Defendability), nor can they be made redundant by developments in the environment (Environmental Consonance). Therefore SCA could be defined as the prolonged benefit of formulating and implementing some unique value-creating strategy not simultaneously being implemented by any current or potential competitors along with the inability to duplicate or imitate the benefits of this strategy and the absence of threatening market developments.

Sources of Sustainable Competitive Advantage.

In 1988, Day and Wensley mentioned two categorical sources involved in creating a competitive advantage: superior skills and superior resources (financial, physical, legal, human, organizational, informational, relational). Since then many  authors have elaborated on the specific skills and resources that can contribute to a SCA. Barney (1991) states that not all firm resources hold the potential of SCAs; instead, they must possess all of four attributes: Valuable, Rare, Imperfectly Imitable and Non-Substitutable ("VRIN"). See Resource Based View of the Firm.

Prahalad and Hamel suggest in 1990 that firms combine their resources and skills into Core Competences, loosely defined as that which a firm does distinctively well in relation to competitors. Therefore, firms may succeed in establishing an SCA by combining skills and resources in unique and enduring ways. 

Also called sustained competitive advantage.

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