Top Four Implications for Competitive Advanatage

6 March 2009 at 7:58 am Lasse 3 comments

| Lasse Lien |

I recently blogged my top-three list of consequences of the financial crisis for firm boundaries. Here is my top-four list of consequences for competitive advantage. They are to be read as broad-stroke changes on the margin, and with a ceteris paribus clause.

1. Valuable: Kind of obvious, but cost-based advantages increase in value compared to differentiation-based advantages as prices fall and demand converges on no-frills offerings.

2. Rare: Cost-based advantages will be more contested, as competitors respond to demand changes by de-differentiating (cf. #1).

3. Imitable: Time-consuming imitation processes become less likely, as firms become more impatient and risk averse.

4. Substitutable: Advantages based on branding and product development will become more vulnerable to substitution from advantages based on scale and process development.

Now, who has a list of implications for intra-firm organization and management?

Entry filed under: - Lien -, Strategic Management.

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3 Comments Add your own

1. Andre Sammartino | 8 March 2009 at 5:52 pm

Does your ceteris paribus clause extend to assuming no competitors fail?

Because allowing for the attrition and consolidation of competitors will have a strong impact on rarity. This may serve to increase the rarity of some differentiation-based advantages (counterbalancing the decline in demand?)

Similarly the de-differentation you posit may have a similar impact. The rush to low-cost approaches (which I would describe as a very dangerous shift when there are such strong ‘winner-takes-all’ elements in that competitive domain), may leave those sticking to their original differentiated advantages no worse off due to the gulfs in the competitive space that have opened up.
2. Warren Miller | 9 March 2009 at 12:34 am

I think #3 s/b inimitable. Imitable is not an implication of C.A.; inimitable (or, better, imperfectly imitable) is.

Similarly, I think that non-substitutable is #4, not substitutable.

Of course, that spells out the VRIN framework.

FWIW, I like VRIO (Organizationally Aligned) much better. It was the “O” that kept Xerox from capitalizing on the wonderful technological breakthoughs (WYSIWYG, GUI, bitmap graphics, ethernet, etc.) @ its PARC facility. These screw-ups were described in vivid detail in a 1988 book, Fumbling the Future. The “O” also reminds us of the twin pillars of C.A., incentives and alignment.
3. Lasse | 9 March 2009 at 8:02 am

Warren, the Idea was indeed to link it to the VRIN framework, so I have no problem with renaming #3 and # 4 to match the source exactly. I thought about including the VRIO-O, as you suggest, but ran out of time, so I closed with a call for others to supply it instead.

Andre, I think we agree. My top 3 list was intended as descriptive, not normative. I think that for many firms, de-differentiation is not the optimal answer, yet I think the broad picture will be the one described.