Understanding a sustainable competitive advantage
A sustainable competitive advantage is the goal of strategy – to have an advantage over other firms that you are competing against that persists across time. It is sustainable because other firms lack the ability to imitate or substitute this competitive advantage.
Recognizing resources underpin your competitive advantage
Underpinning a sustainable competitive advantage is the resources that the firm has. Resources that are both valuable and rare provide the basis of competitive advantage. Having rare, valuable resources allow companies to do things that their competitors can not. These value and rare resources may thus provide the basis for customers to choose your firm over competitors.
What makes a resource provide a sustainable advantage?
While value, rare resources may provide a competitive advantage, whether this advantage is sustainable or not however depends on whether other firms are able to overtime develop that capability. If competitors can recognize your basis of advantage and can imitate or substitute those resources, then your competitive advantage may only be temporary in nature.
Having a sustainable competitive advantage over a temporary advantage results from the challenges that make it difficult to imitate or substitute. If for example companies can work out how you are performing the activity, or there are legal barriers such as patents that prevent imitation, then you may have a competitive advantage that is sustainable in nature.
What is the time frame considered?
When considering whether the competitive advantage is sustainable, we typically are considering a relatively long timeframe – but not infinite. The reality is that with sufficient time or resources, it is possible to imitate or substitute almost all resources. So we are not considering whether it is impossible to imitate or not, but rather, is this an advantage that is likely to persist beyond the short term. Is this something that is likely to be an advantage in 10 years time for example?
Using the VRIO framework to identify souces of sustainable competitive advantage
The VRIO framework is a systematic approach for examining whether a resource is likely to give a sustainable competitive advantage. The analysis considers on a resource-by-resource basis whether the resource is valuable, rare, hard to imitate and substitute, and finally whether the firm is organized to capture the value. Only if these conditions hold will the resource provide the basis for a sustainable competitive advantage.