Good Strategy Bad Strategy 12: Using Advantage (Richard Rumelt)
Advantage is rooted in differences, not in similarities, that's why it's called USP (unique selling proposition). If it's not unique, if it's not exclusive, if everyone has access to it, then it's not an advantage. An advantage is a skill or resource that your opponents can't access.
In a standard business plan, the items discussed in this chapter would fall under the SWOT analysis. Figuring out your strengths and optimizing them to create opportunities for yourself. and then figuring out your weaknesses covering/shoring them up so your opponents don't use them to take you down. On the other hand, you must consistently investigate your competitors and exploit their weaknesses.
Competitive Advantage
Competitive advantage is important in business, even Warren Buffet doesn't invest in a business unless it has a demonstrable competitive advantage. Without a competitive advantage you're just another me too company, and you won't enjoy any loyalty from your customers. You'll compete on price alone, which means your profits will be very thin.
Rumelt defines competitive advantage as follows, "If your business can produce at a lower cost than can competitors, or if it can deliver more perceived value than can competitors, or a mix of the two, then you have a competitive advantage." He goes on to say, "For an advantage to be sustained, your competitors must not be able to duplicate it. Or, more precisely, they must not be able to duplicate the resources underlying it."
Provide More Value
Competitive advantage arises when you make it extremely expensive and extremely unprofutable for competitors to copy you.
Providing more value than competitors also gives you an advantage. You avoid being a commodity. And if you can increase the value without increasing costs, then you're really onto something. So now, looking at your business, what could you do to outpace them and create a competitive advantage for yourself?
The author warns us that possessing advantage doesn't automatically lead to increased revenue. But he does give insight into how you can increase your advantage and possibly increase your wealth.
How To Increase Your Advantage
1. By deepening advantage (widening the gap between cost and value. Reducing cost or increasing value, or both).
2. By broadening the extent of advantages (build on your strengths and minimize your weaknesses. Use your strengths to create even more strength).
3. By creating higher demand for advantaged products or services (grow the number of buyers, or the quantity purchased by each buyer, or the frequency of purchase by each buyer), or
4. Strengthening the isolating mechanisms that block easy replication and imitation by competitors (either create new isolating mechanisms or strengthen existing ones).
Irreplaceable
If they can't imitate you, they can't replace you in the eyes of your customers - they can't steal your market share. Even if they try, make sure that by the time they get to where you were yesterday, you're already 5 steps ahead. Keep them guessing. Make them play the catch up game. Make your advantage a moving target.
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