Sustainable Competitive Advantage

A company that is more profitable than its rivals is exploiting some form of competitive advantage. To consistently make profits in excess of its cost of capital, the company must possess a sustainable competitive advantage.

A firm possesses a sustainable competitive advantage when it has value creating processes and positions that cannot be imitated by other firms and that lead to the production of above normal rents. A sustainable competitive advantage is different from a competitive advantage in that it provides a long-term advantage that is not easily replicated. Some companies may temporarily make profits above the cost of capital without a sustainable competitive advantage.

The source of the advantage can be something the company does that is distinctive and difficult to replicate, also known as a core competency.

There are three categories of sustainable competitive advantage: organizational and managerial processes; positions in technological, financial, reputational, and structural assets; and path dependencies.

Organization and managerial processes focus on coordination and integration, learning, and innovation. High levels of interdepartmental coordination and resource sharing to reach common goals creates value, while lack of coordination creates lethargy, cynicism, and self-interested power centers. Learning determines how a firm collects, distributes, interprets and responds to market-based information collection and changes in the environment. These changes could be customer-based, technological developments, or legal and governmental restrictions. The innovative capacity of a firm determines how it reacts and learns from market information. The more innovative a firm is, the greater its sustainable competitive advantage.

Positions are the assets of a company. They include technological assets, financial assets, reputational assets, and structural assets. The structure of a company can determine how it performs. The hierarchy of a company can influence its culture, procedure and routines.

Path dependencies are the trajectories that the company is following.  For example, the birth of a company is usually accompanied with certain orientations. The founder brings certain attitudes, values, and attributes to the enterprise that may stay with it for a long time. The path the company takes then determines the development of its competencies.

Likewise, technological capacity can determine how a firm exploits opportunities to form sustainable competitive advantage.

Underneath all of these elements of sustainable competitive advantage are people with values and beliefs, sexual orientations and experiences, political ideologies, and religious and spiritual practices and traditions. In each of the three categories of sustainable competitive advantage, the firms that can create the healthiest, most positive attitudes towards sex, politics and religion will optimize internal coordination and collaboration, make organizational learning a normative value, and unleash creative innovation.

Here’s what Boogaert & Noll say in Sex, Politics & Religion at the Office: The New Competitive Advantage:
 
“Why do we claim that these principles [describe earlier in the book] can provide a sustainable competitive advantage?  When you begin to attract the best employees and they begin to realize that they are working in a satisfying and healthy corporate culture, they will want to shape their workplace to fit their priorities. They will take an uncommonly active role in developing and maintaining the climate and conditions they work in. They will aggressively seek to shape their own future. Possessing a sense that we maintain control of our own future is one of the most highly prized aspects of corporate life, and one that will surely attract the best of the best.
In marketing, this kind of strategy – one that develops its own energy and direction - is considered a “viral” strategy. It is viral because it generates its own energy that drives and guides itself. This is the reason that some companies appear to “take off” while others languish, even though they hold the same technical advantages and disadvantages.
Highly functional and professionally satisfied employees will find ways to make things happen, while dysfunctional and frustrated employees will use any excuse to rationalize mediocre performance. The difference is corporate culture. The difference is developing a place that delights in healthy differences of opinion and values, utilizes core personal motivation and embraces our best performance – daily. The difference is that the best will want to stay with you and see your success and not be lured to the competition for a few extra dollars at the expense of a repressive, authority-based workplace. Thus, healthy attitudes towards sex, politics, and religion become viral—they infect your organization with a positive, creative power.”