Sustaining Competitive Advantage – Part 3

This is Part 3/3 of this article

(click here to go to Part 2)

The essence of the various strategies discussed so far is to create or add value to the products or services in order to give improved and or enough satisfaction to the customer so that the firm will gain a competitive advantage over its rivals. However, it is one thing for a firm to gain a competitive advantage and another to sustain the competitive advantage so gained. So when a firm is able to get a competitive advantage over its competitors, it becomes expedient to try to sustain this advantage.

Some of the ways to sustain the competitive advantage is by what is described as isolating mechanism. This is the application of forces like barriers of imitation which limit the extent to which a competitive advantage can be duplicated or matched or even possibly scrapped through the resource creation activities of other firms. Though similar in principle to the barrier of entry force, whereas the entry barriers protect profitability of an entire industry, isolating mechanisms sustain the competitive advantage of a single firm. For example legal barriers like trademarks, patents or intellectual property rights as in Microsoft’s case.

It could also be for the mere fact that the leading firm makes it difficult for the competitor to catch up with the firm’s technology because it entered the market earlier and it continues to research and might be able to move to a superior position by the time its competitors catch up. This is known as the early mover advantage. Because the business unit has entered the market earlier, the past success in the market is believed to sustain the firm.

Nevertheless, no matter how discrete the strategy adopted to gain the sustainable competitive advantage or enough satisfaction that the customer may get as well as the mechanisms put in place to sustain the competitive edge, simple economics has proved that man’s needs are insatiable and with the information technology age, there is an improved dynamism in business that products and services can become obsolete before they even reach the next user.

The question is can the firm continue to create more economic value than its competitors now than then?

Now with the advent of information systems and technology, this traditional way of competitive advantage or competitive edge has, therefore, taken a different turn. Information gathering and I mean a competitive information gathering in deed can to some large extent make a difference to a firm’s position in an industry and for that matter affect its competitive advantage one way or the other.

A good and recent example is Asda installing radio frequency identification (RFID) system, a device which could be used to scan bar codes of incoming goods which could save Asda $8.35 billion annually through improvement in its supply chain management. Fortune, Wal-Mart keeps the change, November 10,2003pp 23.

Firms can either use their own database or an informational gathering software to track its operations and get the required information like inventory, customers, and trends of competitors’ performance and about the fast moving products to formulate their strategies or form what is known as information partnerships for the purpose of sharing information to gain competitive or strategic advantage; and even link their systems with some competitors to achieve synergies.

This is becoming important as a result of the fact that competition in the business world today is not only within a particular industry one operates but can also be cross-competition with people in other related industry like universities and publishers competing due to forward and backward integrations. Baxter Healthcare International is known to offer medical supplies from its competitors and office supplies through its electronic ordering channel to its customers. By doing this the firm increases its customer base as well as loyalty of its customers is enhanced.

At this juncture, the statement that “there is no such thing as a sustainable competitive advantage” can be considered in relation to the circumstances that happened in Sears, which used to be USA’s largest retailer until Wal-mart overtook it after a diversification strategy went bust in spite of the fact that it (Sears) has been heavily computerized with more expenditure going into information technology and networking than all other non-computer firms in the United states apart from Boeing. So why couldn’t this huge amount spent in computers and networking been able to give them the competitive edge over its rivals? Is it due to the fact that the hardware alone is not sufficient to provide the information needed unless it is integrated with the appropriate software? Sears did exactly that.

Trying to reinvent itself, Sears started to explore almost all strategies including low pricing strategy, delayering, improved marketing ploys as well as embarking on a $4billion five-year store renovation to make the stores more attractive. All to no avail.

Then Sears noticed that, its merchandise buyers do not have reliable information on precisely what customers were buying at each store. Management was relying on 18 separate systems that often gave conflicting and redundant pricing information. They could only view a division’s daily performance. This was not good for a firm of Sears’s stature. Sears later tightened its grips over the business once again by building a larger database involving the consolidation of information on transaction records,90 million households,31million Sears’ card users, their credit status, and other related data.

The database houses the company’s Strategic Performance Reporting System (SPRS).Now Sears’ 1,000 buyers and managers know what hot-selling merchandise to replenish right away. This competitive information gathering to some extent helped turn around Sears. Its store sales started rising and planned to join partnership with AOL to boost its online business by targeting AOL’s 21 million customers by developing content for AOL on subjects such as how to build a deck, tips on home decorating and other home improvement topics; and also move its suppliers to an electronic ordering system similar to that described for Baxter Healthcare, by linking its computerized ordering system directly to that of each supplier to eliminate paperwork completely for an improved flow of goods into its stores.

As previously discussed, if a firm can keep or maintain its lead on creating value, leveraging strategic assets for example access to efficient distribution channels, maintain market position and may be low cost advantage then it can be said to have a sustainable competitive advantage. This is absolutely not possible in this dynamic business world. The most difficult part of this is that the firm must create more economic value than its competitors every now and then. Will its competitors be looking on without doing anything?

Microsoft for example is spending billions of dollars to develop its own search engine that will be incorporated in both its online service MSN and its new operating system due in 2006 to combat Google’s dominance in the search engine industry. (Fortune, 22 December 2003pp 17).

In my own opinion based on the discussions above, if really sustainable competitive advantage is the persistence of a firm’s ability to outperform its industry, then suffice it to say that, as much as gathering and use of competitive information as illustrated in the Sears’ story above can give a firm a (sustainable) competitive advantage, it is really difficult if not impossible to sustain any competitive advantage for a very long time. This is so because of the rate of technological changes, changes in business strategies, and the fact that customers’ loyalty can wane and affect sales leading to a fall in market share and thus competitive advantage. Boeing was overtaken by Airbus in the aviation industry at some time. Sears’ leadership was taken away by Wal-mart.

In spite of the availability of choice of the five generic strategies, it is supposed that the onus of their success rests with management and how the technology and the information gathered are blended for use. This is so because a careful monitoring and evaluation constantly and the right identification and proper timing of a particular segment are keys to the success of these strategies due to market dynamism.

REFERENCE

• Can Sears reinvent it? A case study taken from London South Bank University IS.
• Davenport, T.H; Prusak, L. (1998) Working Knowledge: How Organizations Manage What They Know. Havard Business School Press, Boston, Ma.
• Laudon, K.C; Laudon, J.P. (2004) Management Information Systems: managing the digital firm, 8th edition, USA: Pearson Prentice Hall.
• Scholes, K.and Johnson, G (1999) Exploring corporate strategy, 5th Edition. London: F.T Prentice Hall.
• Sheila,C.Main Article: Knowledge Management, issue 18,2004
• Yogesh, M. B. The Company, – What Really is Knowledge Management? Crossing the Chasm of Hope. Gartner Group Inc.,October 1996

Source by John Whonderr-Arthur, Ph.D. Esq