How Can a Company Measure Its Competitive Advantage?

Topics: Strategic management, Porter five forces analysis, Management, Complementors / Pages: 3 (609 words) / Published: Nov 15th, 2012
How can a company measure its competitive advantage?

Warren Buffett, one of the world's greatest investors, says that the trick is to look for firms that already have competitive strengths and that operate in areas that are not susceptible to big changes:

|"You will see that we favor businesses and industries unlikely to experience major change. The reason for that is |
|simple: We are searching for operations that we believe are virtually certain to possess enormous competitive |
|strength 10 or 20 years from now. A fast-changing industry environment may offer the chance for huge wins, but it |
|precludes the certainty we seek." |

More than anything, Buffett looks for companies that have a sustainable competitive advantage. Here is what he says in the December 1999 issue of Fortune Magazine:

|"The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, |
|but rather determining the competitive advantage of any given company and, above all, the durability of that |
|advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards|
|to investors." |

Balanced Scorecard: A Tool for Measuring Competitive Advantage


A generic corporate strategy map is provided below to illustrate the “Strategy Map” concept.


Fig. 2. Example an ideal balanced scorecard


Outline porter’s five forces model of industry competition

The strength of each one of the five forces is a separate function of the the industry structure, but considered together affect prices, levels of investment for competitiveness, market share, potential profits, profit margins, and industry share. The key to success in an industry is to

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