Strategic Planning: What is (and isn’t) Competitive Advantage? - dummies

Strategic Planning: What is (and isn’t) Competitive Advantage?

By Erica Olsen

Often starting with what something isn’t is easiest. So your competitive advantage isn’t a list of your strengths. (Not to downplay strengths, because they’re important, too.) But if your competitive advantage list only comprises strengths, it’s not very competitive, now, is it? You have to be better than your competitors in order to have a competitive advantage.

In Creating Competitive Advantage: Give Customers a Reason to Choose You Over Your Competitors (Crown Business), author Jaynie Smith provides an example of what a competitive advantage isn’t.

A management team from a mid-sized financial services group reported that its competitive advantages included the following:

  • Good reputation in the community

  • Skilled staff

  • Outstanding team and well-respected leader

  • Knowledgeable

  • Strong client list and loyalty

  • Flexible and responsive

Blah, blah, blah. You’ve heard all this before. Can’t you say these things about almost any professional service firm? This list of strengths shows you why bulleting your strengths isn’t what comprises your competitive advantage.

A competitive advantage is something you do that’s unique. To compete, you must have a unique advantage. If you peek at the previous list, you notice that it doesn’t include unique qualities — basically anyone in business today needs to achieve that level of competency just to be in the game.

Specifically, a competitive advantage comes from leveraging a company’s unique skills and resources to implement a strategy that competitors can’t implement as effectively or copy. Read on to see how Jaynie Smith provides an example of what a real competitive advantage is.

When a financial services firm went through this process, it uncovered its competitive advantages. Here’s what it came up with:

  • Ranked in top 10 percent of money managers who beat Standard & Poor’s nationally

  • Fastest-growing American Funds money manager three years in a row

  • Only firm ever featured by American Funds in its advisory newsletter

That’s more like it! Wow! Doesn’t that say a lot more about the competitive advantage than a good reputation and a skilled staff? This transition from a general to specific, well-thought-out list is the one you need to make when explaining the competitive advantage of your organization or department.

Here are a few more examples provided by Jaynie Smith from businesspeople who answered the question, “What is my company best at?”

  • Sandy, owner of an interior design firm, determined she was best at increasing real estate developers’ sales ratio by 35 percent and was the only design team chosen by the top-ten luxury developers in the state.

  • A clothing manufacturer named Joe said he was the best at wearable clothing because “our clothes fly off the racks.”

  • The emergency service division of a county in Washington is the best at providing disaster management and response and recovery efforts for all agencies within its service territory because of its skilled people and emergency response equipment.