Understanding competitive advantage

Published on April 30, 2023   17 min
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My name is Andrew Ward. I'm a professor at Lehigh University and this talk is titled "Understanding Competitive Advantage".
Competitive advantage is the central concept in strategy. It's the concept which all other models and frameworks and concepts in strategy revolve around. But what does it actually mean to say that a firm has competitive advantage? How do we think about what that means? Is it an all-or-nothing, construct? Is it that firm A has competitive advantage, but firm B doesn't have competitive advantage? What would that mean? How could we say that a firm has a competitive advantage over another firm and yet that second firm continues to exist? They continue to make sales and they continue to have customers. What would that mean to say they don't have competitive advantage over the other firm? As we think about the construct of competitive advantage, it's best to think about it in terms of how it impacts individual transactions with customers.
Competitive advantage can be best understood at the transaction level. If we think about how firms are pursuing competitive advantage and what that means, it is all about engaging in profitable transactions with customers. We have to think about what leads to those profitable transactions and what leads at any given transaction to the customer choosing firm A over firm B. We can think about competitive advantage in that moment of the transaction. To say that in this particular transaction, firm A engaged in the transaction with the customer, firm B did not engage in the transaction with the customer. Therefore, firm A, for this transaction, had competitive advantage over firm B. Now that's not to say that the next time a customer is making a choice between firm A and firm B for a transaction, that customer doesn't choose firm B over firm A. In which case, in that particular instance, for that particular transaction, firm B would have competitive advantage over firm A. We can't really think about competitive advantage as being an all or nothing construct. We can't say that in all instances, firm A has competitive advantage over firm B because sometimes firm A may win that transaction, sometimes firm B may win that transaction. Competitive advantage is really the aggregate of the multiple transactions that the firms engage in with their customers. If a firm engages in a transaction, specifically a profitable transaction with its customer, it can be said to have had competitive advantage in that transaction against all other firms that might have been competing for that transaction or that the consumer was considering in making that transaction.