Competitive Advantage

Competitive Advantage

This describes circumstances wherein one party has significantly more experience, knowledge, or resources than a competitor.

Scenario 1: A great empire has won countless wars using military tactics that they have refined over generations. When confronted by an enemy that has access to more advanced technology than them, they tap into the reservoir of knowledge they’ve gained from centuries of battle to create an innovative solution that can overcome their enemy’s advanced weaponry.

Scenario 2: A child challenges his father to a game, expecting to win easily. His father has never played the game, so one would think his chances of success are slim. Yet, once the game starts, the father scores immediately. It quickly becomes clear that, while the child may have more experience playing this particular game, his father’s broad general experience offers him an unbalanced advantage.

Definition

The term competitive advantage refers to one’s ability to perform at a higher level than others in the same space. Competitive advantage is developed through experience over time, and it is not a static measure of ability.

For example, someone may be highly competent in their field, offering them a significant advantage compared to most of their peers. But that competitive advantage fades into obscurity when that talented person is compared to someone who has more relevant experience and therefore more applicable knowledge.

To maintain a competitive advantage, you must constantly assess your mental models and improve them when possible. By properly organizing your cognitive resources, you can position yourself better in the world and find greater success.

One way to gain a competitive advantage is by learning how to learn faster than other people. This will allow you to develop new skills and knowledge exponentially faster than others.

History

Competition is a cornerstone of business, and competitive advantage has been documented in some form for centuries. Historically, a competitive advantage could readily be seen in businesses that decided to build their stores in locations that later became heavily trafficked.

For businesses in most industries during the mid 19th century, the location of your business was critically important. If you opened a bar in the middle of the town’s business district, then your odds of success were much greater. A bar located 25 miles outside of town wouldn’t fare quite nearly as well under typical circumstances.

In those days, opportunities to gain a competitive advantage were rare, and companies that could retain such an advantage for an extended period were unheard of.

As technology continued to advance, it became easier for people to innovate, making a competitive advantage much easier to gain for the average individual. Today, there are countless avenues through which people and organizations can gain a competitive advantage.  

Deep Analysis

When planning your strategy, show a preference for paths that are best suited for someone with your distinct knowledge and resources. Creating a pattern of habits that allow you to navigate that path is the key to maintaining your competitive advantage after acquiring it. Consider this excerpt from a Future War Paper titled Sustaining Competitive Advantage: Mental Models and Organizational Learning for Future Marines:

Structure influences human behavior, and a person’s mental model is a major component of this. “Structure” here means the basic interrelationships that control behavior, including how people make decisions. (Example human structures include family ties, teacher-student interactions, police-to-motorist relations, etc.) Additionally, structure in human systems is subtle, normally implicit and therefore unacknowledged. This hidden substrate channels the possible outcomes of human activity into a predictable range. Achieving awareness of this structure lends the first step in breaking free from predictability and discovering novel solutions that provide power in a given situation. Against a thinking, motivated enemy, avoiding predictability and employing novel solutions confers competitive advantage.

To a certain extent, you can predict the outcomes of events that you have significant knowledge of. Therefore, someone who has a competitive advantage is effectively someone who can see a part of the bigger picture that is not apparent to the rest of the audience. With more information on hand, they are better equipped than their competitors, allowing them the opportunity to achieve greater success at potentially faster speeds than those who contest them.

Competitive advantage can also be developed across the mental model of an entire group.

Few Marines realize they rely on the hidden structure of mental models, and this provides a clue on how to leverage mental models in developing competitive advantage. To develop shared mental models and achieve alignment, the first step is to make them explicit. Revealing this tool of the mind will allow individual Marines and groups of Marines to manipulate them – change them by design –to achieve action that is more effective. To do this, Marines need to build relevant shared mental models explicitly and practice rapid, meaningful organizational learning. Marines could conduct this activity in a scalable manner, from the smallest team to the largest Marine Expeditionary Force. The leader at each level would also lead the construction of the shared mental model and ensure it nests with the shared model developed by his immediate superior. In a similar manner, leaders at each level would remain alert for single- and double-loop learning activities. Marines today practice many of these elements implicitly. The key to sustaining future competitive advantage lies in performing these functions explicitly.

How to develop a competitive advantage

There is no precise method of acquiring a competitive advantage, though, in the realm of business some would suggest that the advantage goes to whoever can provide the greatest value, at the lowest expense.  

It should also be noted that there is a difference between competitive advantage and sustained competitive advantage. To develop a competitive advantage, you must position yourself in a place where few others go, providing you access to a unique vantage point that puts you into a position of great strategic importance.

On the other hand, sustaining a competitive advantage requires well-timed adaptation to the world as it changes. By developing a competitive advantage in multiple fields, then sustaining them all at once, you can create a situation where the sum value of each part is actually greater than the whole. Each area where you hold competitive advantage impacts another, allowing you to amplify your effectiveness in all areas by improving yourself in just a single discipline.

Business & Investing

Understanding whether you have a competitive advantage or not can help you position your business for optimal success. Showing your team how to gain that advantage for themselves can help your entire organization gain a more preferable position. A team that practices and leans into its competitive advantage offers business leaders far greater outputs than those who do not.

Professional Sports

The teams that work the hardest often tend to win. That is just the reality of professional sports. When players push themselves to their limits in training, they test their boundaries and identify what they can and cannot deal with. This allows them to lean into their competitive advantage as they compete, making it possible to exert less effort than their competitor and still win.

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