Building Organizational Competencies for Competitive Advantage. (Business Credit Selected Topic)

By Sago, Brad | Business Credit, February 2003 | Go to article overview

Building Organizational Competencies for Competitive Advantage. (Business Credit Selected Topic)


Sago, Brad, Business Credit


The search for a competitive advantage has become businesses' version of the quest for the Holy Grail... and understandably so. Identifying and building organizational competencies can help businesses gain competitive advantage within their industries.

Competitive advantage... the term has been tossed around in meetings, boardrooms and mentioned in business plans for such a long time that it seems to have become just a cliche in many circles. However, businesses must view competitive advantage as more than just a phrase or concept. It is an essential asset to strive for, cultivate and utilize strategically.

It just does not happen

Competitive advantage occurs when a firm uses its resources and capabilities to develop organizational competencies that, in turn, create value for customers.

Some think that competitive advantages must be unique to a single firm. While that would be a wonderful achievement for any organization, holding such a singular position in the world of commerce is not mandatory or even the norm. The search for a one-of-a-kind variable to base competitive advantage on actually deters many companies from pursuing any competitive advantages at all. Finding a unique item can be such a daunting task that there just does not seem to be enough time and energy to devote to developing a competitive advantage. Management often already feels so overwhelmed and overworked that the concept of competitive advantage is not given much more than lip service.

Competitive advantage for its own sake is not the end. In Competitive Strategy (1980), Michael E. Porter identified various strategies and competitive advantages that could allow a business the opportunity to successfully implement. These strategies include: (1) offering superior customer value via product differentiation, and/or (2) operating with lower relative costs. Possible outcomes of these two positions include higher customer satisfaction and retention, greater market share, lower prices and more profitability.

It is the responsibility of management to develop an organizational outlook that recognizes the importance of finding ways to increase customer value through their offerings and make sure the determinants of competitive advantage are nurtured and carried out.

Qualifies of competitive advantage

* Competitive advantage is strongest when sustainable--i.e., difficult or very expensive for competitors to replicate.

* Competitive advantage does not mean a firm must hold this "ultimate" advantage over every competitor in the industry. The variable comprising the advantage might be held by more than one business in an industry. There is little argument that a competitive advantage held by a single business is to be prized. But consider that a competitive advantage shared by the businesses in the top 10 percent or upper third of an industry, while not unique, is far better than not having the competitive advantage and being one of the lower-tiered firms.

* Competitive advantage must be something that, whether recognized or not by consumers, ultimately creates increased value for customers. Competitive advantages must be proven beyond the beliefs held within a firm. Ultimately, they will be judged in the marketplace.

* Organizational competencies are the foundation of competitive advantage.

Resources and capabilities can lead to competencies

Organizational competencies are created through the strategic use of organizational resources and capabilities. Competencies can lead to competitive advantages.

Examples of organizational resources include financial, human, plant and location, patents and trade secrets, trademarks and copyrights, and brand image.

Organizational capabilities are dictated by how these resources are integrated and utilized. For example, combining a firm's human and financial resources might result in a high degree of marketing skill and capability.

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Building Organizational Competencies for Competitive Advantage. (Business Credit Selected Topic)
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