DEVELOPING A COMPETITIVE STRATEGY - COMPETITIVE ADAVANTAGE IS NEVER PERMANENT:

"There are only two sources of competitive advantage: the ability to learn more about our customers faster than the competition and the ability to turn that learning into action faster than the competition."- Jack Welch!

One of the biggest mistakes that successful companies make is to become fat, dumb and happy. Look at the retailer Kmart. Both Kmart and Walmart were founded in 1962. 20 years later, Kmart was actually bigger than Walmart yet by 2000 Walmart would far outdistance Kmart.

One of the biggest mistakes that successful companies make is to become fat, dumb and happy. Look at the retailer Kmart. Both Kmart and Walmart were founded in 1962. 20 years later, Kmart was actually bigger than Walmart yet by 2000 Walmart would far outdistance Kmart.

Barely five years later, facing an onslaught from Apple and Samsung, Nokia was struggling to survive and had to sell itself to a richer parent such as Microsoft.

“Your competitive advantage must be perceivable, promotable, and something the market will pay for.” - Brian Tracy

The dire alternative was to keep withering away and die. As the Kmart and Nokia examples vividly illustrate, competitive advantage is never permanent. Every company must always be on the lookout for four types of disruption. Each type of disruption can pose a potentially serious threat to competitive advantage.

• However, viewed proactively, each can also represent a major opportunity. Disruption of type one can occur because of a structural change in the demand-side environment. Customers may become more or less affluent.
• There may be demographic changes such as the population becoming older or having fewer children.
• Changes in demand-site environment change the relative importance of dimensions along which competitive advantage matters. Consider growing affluence in China.

For most daily goods such as toothpaste, most customers are now looking for more than just the basic functionalities such as cleaning the teeth. They also want added functionalities such as keeping gums healthy, making teeth whiter. Disruption of type two can occur because of a more determined, smarter and faster improvement in key capabilities by one or more competitors.

The unseating of Kmart by Walmart represents just this type of disruption. In the first two decades, Kmart grew more rapidly by focusing on urban markets while Walmart was busy with slower and more challenging growth in rural markets.

However, its rural markets focus forced Walmart to become much smarter than Kmart at supply chain management. When the former turned its attention to urban markets in the 1980s, Kmart found itself seriously handicapped.

Its cost structure was significantly higher and it was powerless to fight back against Walmart's consistently lower prices.

#. Japanese Car Makers Pay Up to Grab U.S. Market Share:

Disruption of type three can occur when new and more capable competitors from another market decide to enter your territory. This is what happened to GM, Ford and Chrysler when the Japanese started entering the US car market in the early 1970s.

Until then, the American car companies were doing very well competing with each other with roughly similar capabilities. However, since the entry of Toyota, Nissan and Honda into the US market, the much greater reliability and the lower cost of their cars has proved to be a long-running nightmare for the American players.

“The ability to learn faster than competitors may be the only sustainable competitive advantage.”- Arie de Geus

Finally, disruption of type four can occur when there is a radical change in technology. This is what happened to Nokia which did not anticipate how the emergence of broadband mobile technologies such as 3G and 4G would transform the potential capabilities of handheld devices.

What possible risks does your company face regarding each of the four types of competitive disruption? On a proactive basis, how might your company unleash each type of disruption on your competitors? In some, change is the only constant out there. One should never ever become complacent.