Sustainable Competitive Advantage
The word “sustainable” has taken on a lot of new meaning in the last few years. Apart from prevailing through time, it is now highly connected to environmental friendliness in particular and to any solution which uses resources in a mindfully careful manner. A good example here is tree felling in the paper-production industries where now companies do this almost everywhere at the same rate at which replacement trees are planted and grown.
And just as the word sustainable has shifted its meaning, this has breathed new life into the term “sustainable competitive advantage”. In years gone by this simply referred to any strategies or activities in which an organization engaged which could be repeated year after year so as to enjoy continued success (usually in revenue or profit generation or shareholder returns). Sustainable competitive advantage also meant any actions which acted as an effective barrier-to-entry to competitors in the market.
Sustainable competitive advantage historically thereby occurred when an organization could outperform its competitors with better products or services or had better materials, access to better trained/skilled people, or better technology, for example.
So in this new more “green-conscious” world let’s break down these three individual words:
- “Sustainable” now means over the very much longer term – and not just the near term.
- “Competitive” now means the ability to effectively offer a solution to a given problem or need in the market alongside other offerings.
- “Advantage” now means not only to be measurably better in general but also to maintain any gap on a continual or ongoing basis.
In an overall sense a more modern definition of the whole term sustainable competitive advantage might therefore be:
While creating a sustainable competitive advantage in this new and more inclusive and “green” way is not easy, the following list describes some of the strategies that best-practice organizations are employing to create it:
1. Building Brand Loyalty. Although brands had little currency as little as 100 years ago, in today’s fast moving and wide-reaching internet age, brands have enormous potential power (to create sustainability). This is because customers will often remain with a brand they have loyalty towards, even though the company does not offer the cheapest or most effective product or service. The sustainable approach here is therefore to cement the relationship between customers and product or service by creating real value over the long-term (keeping the brand offering fresh according to customer input).
2. Protecting Product/Services. For a sustainable competitive advantage in a world where copying and emulation are rife, product and service protection are critical. This may be achieved formally through copyrights, trademarks and patents and informally by associating the organizations’ brand with the quality of the products and services supplied.
3. Innovating on a continual basis. While the same product(s) and service(s) could be churned out for years and even decades by some organizations in the past (and change or innovation was not as necessary) in today’s world customers want innovation to occur regularly to keep products/services fresh and up-to-date. This is a significant cultural shift, to more openness and creativity, for many organizations but can quickly threaten sustainable competitive advantage if not addressed seriously.
4. Building broadly based networks of people. In the past, stable groups of people, operating in slow to change departments and divisions, in many cases were all that was needed to supply products and services year in and year out. In the modern day however, the skills and experience needed to manage change and to innovate are reliant on networks of people – some inside and some outside the organization. These networks of people need to be grown and nurtured over time so that people can be called upon to make their input whenever needed.
5. Taking a longer-term strategic view. The vast majority of organizations in the past (if they planned at all) looked at strategy in a one year time frame (with a few perhaps stretching this to 3 years out at most). In today’s world, building any kind of sustainable competitive advantage means taking a 5, 10, 15, 20 or even 25 year time perspective when it comes to strategic planning and thinking about what the organization can be doing now in order to exist successfully well beyond the career of the current managers.
Sustainable competitive advantage has changed its meaning in recent years to incorporate environmental friendliness issues and the need to make the best use of our resources (whatever they may be). Organizationally this means taking a much longer time perspective and thinking carefully about each of the five strategy categories described above.