Understanding competitive parity
The idea of competitive parity is that you are equal with your competitors. You neither have an advantage, nor a disadvantage relative to them. Potentially you are doing things in exactly the same way, or you have an alternative approach that enables you to perform the activity. But in essence, the approach that you are taking is comparable with other firms.
We can think of competitive parity at two levels – the broad firm level and also at the resource level:
Competitive parity at the firm level
Competitive parity at the firm level relates to how well your company is performing relative to other firms in the market – do you have a competitive advantage that is allowing you to achieve an elevated level of returns relative to other firms, or is your approach achieving similar financial performance – i.e., competitive parity.
Competitive parity at the resource level
We can also think of parity at the resource level – do you have resources that are comparable with others (i.e., have parity with other firms), or do you have unique rare resources that provide the basis for a competitive advantage. This distinction is key in the resource-based view of the firm, which explains differences in firm performance as being associated with differences in the underlying resources and capabilities that underpin the firm. The VRIO framework is an approach to consider at the resource level whether the resource provides competitive parity or competitive advantage for the firm.
It is important to note that while some resources may provide parity, others may provide a competitive advantage. In fact, a firm will likely need many resources that all firms in the industry have (i.e., giving them parity on those dimensions), even if there are some resources where the company is able to achieve a competitive advantage from.