Why the concept of competitive advantage is central to the study of strategic management?

The concept of competitive advantage is central to the study of strategic managementbecause a firm’s strategy consists of particular actions to improve the way they perform as awhole.It is vital to not only improve, but to exceed your competition to gain a competitiveadvantage.According to Dess, Lumpkin, & Eisner (2008), there are “three generic strategies thata firm can use to overcome the five forces and achieve competitive advantage” (p. 158). Thethree generic strategies are overall cost leadership, differentiation, and focus.Overall costleadership “is based on creating a low-cost-position” (p. 158), which builds networkingrelationships giving a firm a leading advantage amongst its peers. “Differentiation requires a firmto create products and/or services that are unique and valued” (Dess et al., 2008, p. 158).Companies within the same realm of products have to create an item that will stand out from its

What is Competitive Advantage?

It is a truism that strategic management is all about gaining and maintaining competitive advantage. The term can be defined to mean “anything that a firm does especially well when compared with rival firms”. Note the emphasis on comparison with rival firms as competitive advantage is all about how best to best the rivals and stay competitive in the market.

Competitive advantage accrues to a firm when it does something that the rivals cannot do or owns something that the rival firms desire. For instance, for some firms, competitive advantage in these recessionary times can mean a hoard of cash where it can buy out struggling firms and increase its strategic position. In other cases, competitive advantage can mean that a firm has lesser-fixed assets when compared to rival firms, which is again a plus in an economic downturn.

What is Sustained Competitive Advantage?

We have defined what competitive advantage is as it relates to strategic management and the sources of competitive advantage differing from firm to firm. However, a firm can have a source of competitive advantage for only a certain period because the rival firms imitate and copy the successful firms’ strategies leading to the original firm losing its source of competitive advantage over the longer term. Hence, it is imperative for firms to develop and nurture sustained competitive advantage.

This can be done by:

• Continually adapting to the changing external business landscape and matching internal strengths and capabilities by channeling resources and competencies in a fluid manner.
• By formulating, implementing, and evaluating strategies in an effective manner which make use of the factors described above.

The fact that firms lose their sources of competitive advantage over the longer term is borne out by statistics that show that the top three broadcast networks in the United States had over 90 percent market share in 1978 which has now come down to less than 50 percent.

The Advent of the Internet and Competitive Advantage

With the advent of the internet, competitive advantage and the gaining of it has become easier as firms directly sell to the consumers and interlink the suppliers, customers, creditors, and other stakeholders into its value chain. Because of the removal of intermediaries, firms can reduce costs and improve profitability. Essentially, the internet has changed the rules of the game and hence sources of competitive advantage in this digital era are now about how well firms utilize the digital platform and social media to gain advantage over their rivals.

Closing Thoughts

Finally, competitive advantage has to be earned, gained, and defended as the preceding discussion shows. Hence, those firms that are agile and responsive to changing market conditions and whose internal capabilities are aligned with the external opportunities are those who would survive in the brutal business landscape of the 21st century. As can be seen from the characterization of competitive advantage, it is ethereal and subject to change and hence firms must always been on the lookout for newer sources of competitive advantage and be alert for competitors’ moves.

Authorship/Referencing - About the Author(s)

The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.

Why is competitive advantage central to strategic management?

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