June 2023 – What is competitive advantage?

Sustainable Advantage

When competitive advantages start to diminish companies need new ones to carry them forward. Think of BlackBerry vs. Apple. Apple launched the iPod, then the iPhone, then the iPad. However, BlackBerry didn’t anything new in their pipeline.

What is competitive advantage? If you ask this question to a group of participants, you’ll hear something like “what we do better than others” or “something that we do differently than our competitors”. These statements are partially correct. However, they are missing a key component. A competitive advantage is something that a company does better or differently than competitors, but customers value it. A company can’t assume a new product or service will succeed in the marketplace just because it’s different/better/cheaper/etc. the customer has to value it.

According to Pankaj Ghemawat, Global Professor of Management and Strategy at NYU[1], competitive advantages come in two forms contestable and sustainable. Contestable advantages are those that can be easily duplicated (for example: price, cheap labor, etc.) These can give a company an edge for a short time. But, in order to outperform the competition companies, need to focus on Sustainable advantages (for example: scale, experience, know-how, culture, network effects, etc.) According to Ghemawat, these fall into three categories: size in the targeted market, superior access to customers/resources, and restrictions on competitors’ options.

In a PriSim Business Simulation course, participants are split into teams that define/execute their simulated company’s strategy. The challenge is to manage and improve a business for several simulated years in a competitive marketplace. At the end of the competition, some teams perform better than others. Success, just like in the real world, comes down to the teams’ competitive advantages.

Our courses highlight what happens with any competitive advantage over time. Competitors catch up, markets/customers change, and/or leadership becomes complacent. If teams don’t adapt to the ever-evolving marketplace they lose their edge. Think of Blackberry and Borders vs. Apple and Amazon. The last two had continuous competitive advantages to help carry them forward.

In the end, the difference between a contestable and a sustainable competitive advantage is a matter of time and degree. The benefits from any competitive advantage diminish over time. “Sustainability is greatest when based on several kinds of advantages”. What are you doing today so that when your current advantages begin to diminish you have new ones to carry you into the future?

[1] Pankaj Ghemawat Sustainable Advantage [online]