book.chapter Our competitive position

There are essentially three main types of sustainable competitive edge in business - privileged access to resources, customer preference for a particular brand, and production efficiencies from economies of scale. The first step in devising the optimal strategy is grasping what barriers prevent rivals from securing the same edge as current leading players. Market leaders' advantage stems from some mix of lower costs competitors can't match, exclusive customer access and loyalty, and much greater size conferring cost efficiencies. Firms can deter new entrants via aggressive pricing and superior service. Though proprietary technology offers temporary gains, rivals typically catch up. Customer allegiance requires high switching costs - new players must offset those. With economies of scale, a firm several times larger than its rivals has lower per-unit costs, allowing healthy profits at price points leaving others struggling. Scale advantages decline as markets expand, but still pack a punch alongside customer captivity. The right strategy depends completely on the type and extent of edge. With no advantage, focus intensely on efficiency - the most profitable firm wins. Conventional wisdom says differentiate, but that rarely works alone - barriers to entry matter more. Branding has limits too - few translate it into exceptional profits. Barriers and advantages describe the same thing: incumbents' unique capacity. Last movers often temporarily benefit, but true edge requires barriers. Local conditions confer more durable advantage than global ones. Efficiency means controlling costs, generating returns on capital, maximizing bang for buck in key spending areas, and lifting productivity. Good management closes the performance gap between what's possible and actual. Gains come not just from pushing boundaries but better employing resources. With long-term efficiency gains, outstanding results emerge. Losing this focus causes problems. Producing at costs below market prices is essential - inefficient commodity firms fail. Differentiation raises costs that can be fatal if those functions lag rivals. For commodities, efficiency means controlling production costs. For specialized offerings, it requires cost control and marketing efficacy. Genuine edge means rivals can't replicate something. "Barriers" and "advantage" describe the same idea: newcomers briefly benefit then face their own new entrants. Lasting edge links to specific regions and product areas, not general superiority. Firms start locally, cement dominance, then expand geographically and into related product lines - replicating their niche advantages. Global success grows from local roots. As services assume economic centrality once held by manufacturing, local production and consumption present more opportunities for sustainable edges based on intimately knowing specific markets and strengths. Very few companies dominate globally, but focused firms rooting strategy in local advantage can still thrive. Management attention is the scarcest resource - it should fuel a tight strategic direction, not diffuse discussions. Key is distinguishing strategic decisions involving others' reactions from tactical choices reliant on the firm's execution. This difference illuminates effective strategy.