Expand: date=June 2008 Competitive advantage is, in very basic words, a position a firm occupies against its competitors.

According to Michael Porter, the three methods for creating a sustainable competitive advantage are through:

1. Cost leadership - Cost advantage occurs when a firm delivers the same services as its competitors but at a lower cost;

2. Differentiation - Differentiation advantage occurs when a firm delivers greater services for the same price of its competitors. They are collectively known as positional advantages because they denote the firm's position in its industry as a leader in either superior services or cost;

3. Focus (economics) - A focused approach requires the firm to concentrate on a narrow, exclusive competitive segment (market niche), hoping to achieve a local rather than industry wide competitive advantage. There are cost focus seekers, who aim to obtain a local cost advantage over competition and differentiation focuser, who are looking for a local difference.

Many forms of competitive advantage cannot be sustained indefinitely because the promise of economic rents invites competitors to duplicate the competitive advantage held by any one firm.

A firm possesses a sustainable competitive advantage when its value-creating processes and position have not been able to be duplicated or imitated by other firms,. Sustainable competitive advantage results, according to the resource-based view theory in the creation of above-normal (or supranormal) rents in the long run.

Analysis of competitive advantage is the subject of numerous theories of strategy, including the five forces model pioneered by Michael Porter of the Harvard Business School.

The primary factors of competitive advantage are innovation, reputation and relationships.

Competitive advantage occurs when a organisation acquires or develops an attribute or combination of attributes that allows it to outperform its competitors. These attributes can include access to natural resources, such as high grade ores or inexpensive power, or access to highly trained and skilled personnel human resources. New technologies such as robotics and information technology either to be included as a part of the product, or to assist making it.

References

Further reading

• Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter
• Creating Competitive Advantage: Give Customers a Reason to Choose You Over Your Competitors by Jaynie L. Smith

Using MIS by David M. Kroenke pages 71-77

External links

• Competitive advantage definition and explanation in simple terms