What is a competitive advantage?
A competitive advantage is whether the firm is able to do things better than its competitors resulting in a cost advantage or the ability to charge a premium price. The resources that the firm has may for example allow the company to provide a level of service that is superior to competitors, giving customers a specific reason to choose the firm over others.
Underpinning the competitive advantage is the resources of the firm – the tangible and intangible things that allow the company to operate. The different resources allow different companies to compete in different ways. Having rare resources that few other firms have can thus provide a basis for a competitive advantage – you can attract customers to your firm because based on being able to do certain things better than competitors.
What is meant by a temporary advantage?
When we consider the resource position of a company, some of the advantages that the company has may only be momentary advantages. Other firms may be working on similar areas, and able to develop comparable resources to catch up.
This is what a temporary advantage is – an advantage that the company currently has, however unlikely to last. Possibly the company was the first to develop a particular technology, but it is expected that other firms will be able to develop a similar one in the coming few years. The company may be able to enjoy a temporary advantage due to its currently superior position, but should other firms catch up, then this temporary advantage will disappear. Over time, the temporary advantage is likely to turn to competitive parity once competitors have caught up.
How is a sustainable competitive advantage different from a temporary advantage?
While a temporary advantage may provide an advantage for a short period, a sustainable advantage is one that can persist over many periods. It is difficult (or impossible) for other firms to be able to imitate the resource or to substitute it with an alternative approach. This is important because long-term success requires that the company is able to maintain elements that are unique. If other companies are able to quickly catch up, then success is only momentary. Thus, long-term advantage requires some consideration of what makes it difficult for other firms to be able to imitate the position of the company.
Using the VRIO framework to example the sources of temporary and sustainable competitive advantages
The VRIO framework is one approach for assign whether firms have resources that provide the basis for temporary and sustainable advantages. The framework systematically examines whether each of the resources of the firm is valuable, rare, hard to imitate or substitute, and whether the firm is organized to capture the value.