COMPETITIVE ADVANTAGE

The ability to generate competitive advantage is seated in the capabilities and the resources, assets and skills that the firm can muster.

Value-creation in contemporary strategic management has evolved away from a tangibles-based approach to a process of conversion of intangible assets to tangible outcomes. Proof of this lies in the large disparities that exist between the market capitalization and the asset value of many companies. The additional value creation over and above the value of the physical and financial assets is attributed to intangible assets. These assets, also referred to as knowledge or intellectual capital, arise from the customer, employee, supplier and organizational dimensions and relationships. In the value creation process, contemporary competitive strategy should take into account the shift from physical and financial assets to intangible assets such as organizational, customer and employee. A more complete categorization of intangible assets includes the following: technology based (internal innovations); customer-based (sales capabilities and resources); marketbased (marketing mix elements); workforce-based (employee expertise and manpower development); contract-based (formalized relationships and arrangements); organization-based (management, policies and processes); and statutory-based (intellectual property). Your company should identify these intangible assets, set clear goals for them and manage their employment and development in order to increase their value contribution. They help to build sustainable competitive advantage, because they can represent barriers to imitation.

The goal of every strategy is to achieve sustainable competitive advantage, which will allow the firm to build customer equity by offering superior value. A sustainable competitive advantage is only possible if customers perceive a consistent difference between the firm’s offerings and those of the competitors, based on a lasting capability gap. Several factors such as the Internet, globalization, technology, the international power structure and regulatory forces, to name a few, amplify instability and unpredictability and change the nature of the economic playing field and the way companies define end implement their strategies. It is questionable whether sustainable competitive advantage is still relevant under these conditions and the viability and duration of any advantage is unpredictable. Management should structure and adapt their businesses to fast-moving windows of opportunity and evolutionary timing for future strategic moves.

The impact of dramatic change in the business environment begs the question how to deal with the dynamics of these changes and how to respond to the resultant opportunities and threats. An innovative approach as a framework that helps companies turn ideas into financial returns is used to launch new products, improve existing products or to exploit new opportunities and technologies. This involves the creating of flexibility to react fast to new challenges and making bets on innovative approaches to exploit opportunities. Management first has to generate as many optional, innovative approaches as possible to deal with various product/market situations and at the same time improve internal efficiency. Competitive advantage will, however, only be achieved if these decisions can be rapidly implemented through effective management processes. Research shows that innovation is an important source of competitive advantage and is critical to achieving strategic growth objectives. Innovative ideas underlie innovative strategies and the challenge is to identify and exploit sources of ideas that can serve as the point of departure for new strategic initiatives. Unbridled spending on innovative activities does not always bring the desired result in terms of sales, market share or profit growth and to achieve profitable innovation, it is necessary to increase the return on innovation investment.