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0:00
Hello and welcome to this series of
introductory talks on business strategy.
My name is Robert Grant.
I'm a professor of strategic management
at Bocconi University in Milan, Italy.
I'm also the author of
Contemporary Strategy Analysis,
a leading strategic management textbook used
in business programmes throughout the world.
0:23
Competitive advantage plays a
central role in business strategy.
It is the critical link between strategy and a
firm's performance in relation to its goals.
It is through out-competing its rivals
that a firm is able to attain its goals.
However, every firm
has a strategy,
but not all firms achieve
a competitive advantage.
What determines whether a strategy is successful
in achieving an advantage over competitors?
The key characteristic
of a successful strategy
is that it aligns a firm's
strengths in resources
and capabilities with key success factors
within the firm's industry environment.
My goals for this talk are for you to
understand what competitive advantage is,
to appreciate how cost and differentiation
are sources of competitive advantage.
Finally, to recognize the dynamic
character of competitive advantage.
I will begin with the nature
of competitive advantage,
then we shall look at the sources
of competitive advantage,
namely cost and
differentiation advantage.
We will go on to consider the dynamic
aspect of competitive advantage.
1:31
What is a competitive advantage?
The notion of competitive
advantage is straightforward.
It is a firm's ability to
outcompete its rivals.
This is revealed in
superior performance.
But what performance measure do we use to
identify and measure competitive advantage?
Traditionally, competitive advantage is
equated with superior profitability.
A firm has a competitive advantage if it sustains
a higher level of profitability than its rivals.
However, this may be
too narrow a measure.
A firm may forgo profit to
expand its market share.
For example, Amazon.
For its first 20 years of
existence, Amazon made losses.
Yet it would be difficult to
argue that it did not have
a competitive advantage
in e-commerce.
Or a firm may be
a not-for-profit.
Again, it would be difficult
to argue that Wikipedia does
not have a competitive advantage
in online encyclopedias,
despite the fact, of course, that
Wikipedia does not make any profits.
Hence, a broader definition of competitive advantage is
the firm's ability to create more value than its rivals.
This takes account of customers' willingness
to pay rather than actual revenues.
