Tag Archives: competitive advantage

The 6th Dimension of Competitive Advantage

high jump photoThe previous blog entry is incomplete.

There is a sixth dimension for ever-increasing competitive advantage. This sixth dimension is a firm’s capabilities to improve. Along this dimension, there is an infinite supply of possibilities, thus firms do not compete in a state of scarcity. However, a firm must provide the environment and the tools conducive to sustainable improvement.

A firm’s culture (accepted behavioral norms) must support all employees in their pursuit of the implementation of improvement ideas. And improvement methods must be ingrained in daily habits at all levels of the firm from the frontline to the executive suite. All employees should be “on alert” to continually seek out, find, and implement improvements with positive financial benefits. A firm has the accountability to establish channels for the thousands of improvement ideas to be vetted, integrated, and executed with a high degree of coordination.

The truly advantaged firm develops or adopts innovative ways to improve at least one step ahead of its competitors. The concept of first to market applies here. The first among industry competitors to successfully implement an effective improvement method will gain significant advantage. The first to find the holy grail, a truly sustainable improvement method, will achieve long term sustainable advantage.

So, 6 dimensions exist for ever improving competitive advantage not just 5. The sixth being the capability to improve in advance of all others.

Ever-Improving Competitive Advantage: Hitting the 5 Dimensions

Mario Andretti Watkins Glen 1974A firm exists in competitive environments along several key dimensions. Each dimension (or metaphorically, a competitive marketplace) has its own set of competitors acting in their own self-interests. In each dimension, the players compete for scarce resources (customers, marketshare, industry profit share, people, investments, etc.). A firm improves by increasing its competitive advantage along each dimension. These 5 key dimensions are:

  1. Customers
  2. Financial capital
  3. Talent
  4. Extended value chain or value network
  5. Community

A modern approach to improvement:

  • Covers all dimensions simultaneously.
  • Is integrated, holistic, sustainable, high impact, and a whole slurry of other buzzwords
  • Allows improvement ideas from everyone within a firm to fit somewhere, which draws in full participation (“Full Force Improvement”)
  • Has a goal to enable a firm to constantly ever increase its competitive advantage (as in any Olympic athlete who continually strives for better performance)

To gain ever-increasing advantages, a firm must be, or must be perceived to be, more attractive than the competition.

  • Customers
    • This is what people usually think of when they hear competitive market.
    • A firm competes with other firms in the same industries.
    • More attractive offerings (products, services, innovation)
    • More attractive value proposition (benefits versus cost)
    • More attractive long term relationship
  • Financial capital
    • Here the firm competes for limited investment dollars from investors and creditors
    • Competitors include those seeking any number of investment alternatives for investors: stocks, bonds, commercial paper, cash, etc.
    • Gain advantage by providing more attractive financial returns than alternative investment vehicles available
    • Being more attractive in the stock market drives up stock price
    • Being more attractive in the credit market increases access to capital and lowers the cost of capital
  • Talent
    • The competitors are other employers that require the same skills, experience, and knowledge that a firm requires.
    • The other employers can be from similar, adjacent, or different industries.
    • Competitive advantage includes providing a more attractive work environment, richer total compensation (salary, benefits, wealth creation), and other elements that make a firm a “great place to work”
    • For example, firms like NetApp (Fortune’s 2009 “Best Place to Work”) have an advantage in attracting the best talent.
  • Extended value chain or value network
    • The extended value network includes business partners on both the supply side and the demand side: suppliers, service providers, channel partners, and so on.
    • Good partners are in short supply and a firm gains advantage by being a more attractive partner than other players in the market.
    • Example, Dell is one of the leading channel partners for hard disk drives. Drive manufacturers constantly compete to have their drives picked for the next PC that Dell assembles.
  • Community
    • A firm can gain competitive advantage over others by demonstrating stellar corporate social responsibility.
    • Communities desire firms with a strong sense of CSR.
    • Firms can realize significant tax benefits from state and local governments.
    • CSR also impacts other dimensions such as talent (the feel good factor).

An effective and sustainable improvement approach must be directed towards continually gaining competitive advantage along the 5 key dimensions. A firm can never rest nor ignore others in its ecosystem. The firm must marshall its employees and those in its extended value network to execute strategies for Full Force Improvement.