Traditional Sources of Competitive Advantage
Posted on October 5th, 2008
As the economy has changed significantly over the past twenty years, traditional sources of competitive advantage have become obsolete. During the Industrial Age, which lasted from approximately 1938 through 1974, a company’s competitive advantage could be based on having a product that dominated the market, developing a proprietary technology to produce products or deliver service, or relying on the protection of regulated markets. In today’s Information Age, competitive advantage most often derives from knowledge, ideas, and technology.
Product life cycles are short and getting shorter. Companies can’t assume, as Xerox did in 1959, that a product can dominate the market for thirteen years. A better product often comes to market before a company has fully recouped its investment in the old one.
Technological superiority is also a tenuous base for building competitive advantage. Consider the handheld computer market. Palm created the handheld market—but by 2002 it found its market share shrunk to 36 percent. In 2003, facing tough competition from makers of smart devices that combine cell phones and handheld computers, the company announced plans to acquire a company with that capability. It chose Handspring, the company founded by the original founders of Palm itself.
Regulated markets, formerly a good source of competitive advantage to those within them, have just about disappeared in the United States—and other parts of the developed and underdeveloped world are not far behind. Deregulation in trucking, airlines, telecommunications, and financial services has made these industries more competitive, driving down prices and making it difficult for any one company to stand out.
Globalization has forced companies to seek new sources of competitive advantage. Firms that used to compete for customers locally now deal with competitors in every marketplace. Communication technology continues to fuel this growth in globalization by increasing consumers’ access to information about products and services around the world and by creating Internet-based marketplaces that facilitate e-commerce, the buying and selling of products and services without regard to physical location.
