Sustained Competitive Advantage

Many innovations provide substantial benefits to customers and society; however, only a small fraction of innovations provide the inventor or supplier with sustained competitive advantage.?? Why is this???

Innovative products or services require all three of the following features to provide sustained competitive advantage:?

• Valuable
• Rare
• Difficult to imitate

?“Valuable” means that customers strongly desire the innovation and hence will not readily redirect spending to the next shiny thing which comes around. ?“Rare” means that the innovation cannot be readily obtained from other suppliers or be reasonably substituted for.?? “Difficult to imitate” means others cannot readily replicate the innovation’s design, manufacture, or delivery.??

Patenting and trade secrets can deter direct copying; however, their value is often overstated.? Alternative non-infringing solutions, particularly in the realm of engineering, frequently can be found which give satisfactory results.? Moreover, aggressively defending patents and trade secrets in court can be quite expensive and time consuming.??

Often a more effective means to hinder competitors from imitating or obtaining equal benefit from an innovation is for a company to have assets which are difficult to imitate, regardless of being fully understood by competitors.?? These assets may involve:

• company size (i.e., economies-of-scale in manufacturing or application)
• access to low cost and/or high-quality feeds of limited availability
• extensive and well-functioning logistic chains
• loyal and effective staff
• consumer trust
• synergistic network of users (e.g., appeal to customer increases with size of user base)
• strong and long-standing relationships with partners

In my experience the most appropriate strategy to achieving sustained competitive advantage for a specific innovation depends on the company’s ability to: 1) excel in execution compared to competitors and, 2) establish barriers for others to benefit from the innovation as they themselves do.? The figure below defines the strategies.??

My observation is that excellence-in-execution is the most robust strategy to establish sustained competitive advantage -- even though others may use the same innovation.? This is because excellence-in-execution is surprisingly often hard to duplicate even if the best practices are publicly known.? Excellence is a complex interplay among staff experience, managerial skills, rigor in identifying and following best practices, and robustness of logistic chains.? ?The value of excellence-in-execution is amplified in the cases where economies-of-scale, assets of limited availability, or broad intellectual property rights can be leveraged.??

What are your thoughts and experiences on how sustained competitive advantage is achieved?

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Note:? For more on sustained competitive advantage see the article "Conditions For Sustainability Of The Organization’s Competitive Advantage” by V. Maksimova at https://ideas.repec.org/a/vrn/journl/y2014i4p38-51.html.