In a nutshell, a competitive advantage is gained by having what competitors dont have and doing what competitors dont do.A company can gain a competitive advantage by differentiating itself significantly to the extent that its products and/or services are a better offering in the customers product mindset than what the competition have to offer.Take for instance wine. Why does chardonnay produced from grapes grown in the Yarra Valley taste different from a chardonnay whose home is in Burgundy, France?
There are a number of ways a winemaker can change the taste of their wine. One way is by micro-oxygenating a red wine before bottling, which means introducing small amounts of oxygen which ages wine so that a young wine tastes like a mature one in 3 years instead of 10.
But the answer to the unique taste comes down to soil and climate.
With soil an expert winemaker will tell you that the best soils for growing grapes are the least fertile and rockiest soils.
Soils filled with gravel drain easily, dont hold water at the roots of the vine and so the grapes dont become filled with water, diluting flavours.
Like how different soils affect the taste of wine, in business strategy, a competitive advantage is gained by being different, unique and having resources and capabilities that cannot be easily copied to gain the same advantage.
By definition resources are the productive assets of the firm and capabilities are what the firm can do.
A good strategy will have the right resources and capabilities to be different.
For example to successfully play golf you need to know which golf putts are suitable for different scenarios
Same with business strategy.
Now resources are broken down into tangible, intangible and human resources.
Tangible resources can be easily identified, such as financial resources and physical assets.
Intangible resources are largely invisible, such as brand names, trademarks and intellectual property like patents and copyrights.
Human resources are the productive assets that employees offer such as their skills and built up company knowledge.
Once we have identified the organisations resources, we then ask two questions:
Firstly what opportunities are available to economise on their use?
It may be possible to use fewer resources to maintain the same level of business or use the same amount or resources to take on a greater level of business.
For example an accounting system designed to improve the control of cash and receivables will allow a business to operate with lower levels of cash and liquid financial resources.
A BA working on such an accounting system could then see how it relates to the organisations overall strategic plan and how with the new system it will be using less financial resources to support the activities of accounts receivable.
Secondly can we capitalise on the existing assets?
We might be able employ our existing resources better so that we get the most out of them.
A good example is an organisation promoting an employee to a higher position as the previous position may not allow the employee to reflect their true potential.