The concept of competitive advantage originated with marketing theorists, but it is really applicable to all types of strategy. Basically it is defined by what you have that your competitor does not that is important in the particular situation or environment in which you are competing.
The Theory of Competitive Advantage
Usually marketing theorists talk about a “sustainable” competitive advantage. However, it’s clear you don’t need to “sustain” forever — only until it is unimportant to reaching your goals in the situation in which you are competing. For example, if you have a competitive advantage because you have a software programming genius on your staff who suddenly quits and becomes a stockbroker, this may not be so important if he already wrote the program which is going to put you in the preeminent position versus your competition for the foreseeable future. His presence need not be sustained forever to maintain an advantage over competitors. Similarly, a candidate running for president may have a competitive advantage because he (or she) has a war chest of campaign funds superior to other candidates. During the campaign, he would like to sustain that competitive advantage, but once the election is over, the candidate, win or lose, moves on to other things. It is no longer necessary to sustain that particular competitive advantage for the election.
However, the concept itself of competitive advantage is valid because it affects what you can ultimately offer your customer in performance, price, service, variety or some other attribute. In the case of marketing, it is clear that without some reason, no customer is going to prefer you over the competition. It is your competitive advantage that is the rationale for that preference and results in creating or maintaining a customer.
You May Already Have a Competitive Advantage
Many times you may already possess competitive advantages in many, if not most of your undertakings, although you may not realize it. Over the years, it’s become clear to me that in every setback or problem the seed of an equal or greater advantage can be found — you just have to look for it.
I’ve heard this concept attributed to multibillionaire W. Clements Stone who passed away not long ago at the age of 100. As a young man Stone had founded an insurance agency that didn’t issue policies of its own – it sold other companies’ insurance. He personally trained his salesmen and they did well — maybe even too well. They began to outsell the salesmen from an insurance company whose policies represented most of Stone’s agency’s business. The salesmen of this insurance company complained to their management about the competition Stone’s salesmen who were also selling this company’s policies. Eventually these complaints reached the company president of this insurance company.
Stone was on vacation when he received a telephone call from an assistant in his agency. The president of the insurance company had left a message that Stone’s salesmen would be prohibited from selling the firm’s insurance at the end of the week. Since this represented the majority of Stone’s sales, the effect would be to put him out of business. As you might imagine, this brought considerable apprehension to Stone’s salesmen. They couldn’t imagine an alternative other than Stone’s bankruptcy. However, Stone realized that somewhere in the disaster was the seed of an equal or greater benefit — a competitive advantage he previously had never realized — all he had to do was find it.
First he told his salesmen not to worry. The, as soon as Stone recovered from the initial shock, he called the insurance company president and asked if he would see him the following day. The president of this insurance company agreed. Stone caught a plane and mentally prepared, went to see this man. At the meeting, Stone convinced the president to give him a little more time. He won a reprieve until the end of the month. By then he knew what he was going to do and started taking action to do it. Stone decided that the only thing to do was to start his own insurance company and sell his own policies, which he did.
It seems strange to consider potential loss of a significant part of a company’s business a competitive advantage, but in this case, it was. Until then, Stone had never thought about starting his own insurance company. However, not being able to selling this other company’s insurance forced Stone to think differently and to start his own insurance company. This company eventually took him from being merely well off to becoming a billionaire.
The recent democratic debates provide an example of another type of competitive advantage that was already present in the situation. Howard Dean, the former front-runner attacked Senator Kerry, who now led the democratic pack of candidates.
“None of Kerry’s health care bills passed,” said Dean. “The trouble with Kerry is that he is a Washington insider.”
Rejoined Kerry, “Governor Dean’s comments show that he doesn’t understand Washington at all. It takes a Washington insider to be the kind of president that gets things done, an outsider who doesn’t understand the system can’t do very much.”
Note that both candidates had competitive advantages in this debate and in the competitive situation in general, but that these advantages are complete opposites: Dean that he is a Washington outsider, with no “baggage” from working in the federal government; Kerry that he is a Washington insider and therefore knows how the system operates and how to make it work.
This is true in many situations. A disadvantage may be an advantage if looked at another way. Do you remember the presidential debates of twenty years ago when Walter Mondale, the democratic candidate challenged Republican President Ronald Reagan who was running for his second term? The democrats had attacked Reagan as being a nice person, but getting too old for the job.
During the question and answer part of the second debate, someone asked Reagan if he thought that a candidate’s age should be a factor in the election. In his “aw shucks” manner, Reagan answered: “Absolutely not. I won’t take advantage of my opponent’s youth and relative inexperience.” Even Mondales laughed. Mondale may have had youth as a competitive advantage, but Reagan had age!
