Competitive advantage necessary, but not sufficient
Ghemavat study on PIMS data shows convergence of high ROI and low ROI business units, over time, to mediocre ROI. Some drop in high ROI anticipated due to limited availability of high ROI opportunities. But pace and degree of convergence unexpected – article delves further into assessing reasons behind the rapid loss of competitive advantage. Threats to sustainability
Conditions for maintaining competitive advantage: (1) Scarcity needs to be preserved and (2) Appropriability needs to be tackled. Threats to maintaining Scarcity: (1) Imitation – Actual and potential competitors copy superior position, (2) Substitution – Actions by competitors that may undermine the firm’s competitive advantage without copying it (e.g. by changing consumer preferences) Threats of Appropriability: (1) Hold-up – Diversion of the scarcity value to other players, (2) Slack – Dissipation of the scarcity value by complacency and related factors. Imitation
Process innovation and product innovation both likely to be copied. Different types of early mover advantages can be used to build deterrents to imitation Substitution
Substitution usually results from indirect competition rather than direct competition. Substitution effects most likely against the backdrop of rapid environmental changes (e.g. technology changes, rapid market changes, etc) Holdup
Results from dependence on complementors for sustained superior position Degree of holdup influenced by prevailing contractual agreements, patterns of dependence, norms and posturing possibilities Slack
Shrinks the overall size of the pie (dissipates the scarcity value) Mostly irreducible – cannot be eliminated
Building Sustainable Competitive Advantages...