What is a competitive advantage and how do you build one?

by Michael W. Van Belle, Senior Vice President and Chief Financial Officer of The High Companies

A competitive advantage is the result of distinct competencies that allows an organization to be successful. These competencies allow the company to better serve the end customer and thus make the company the preferred choice of the market. In order for these competencies to be sustainable, they must be unique (not possessed my many), not obvious, and difficult to reproduce. Competitive advantages are based on a combination of resources (such as patents, proprietary knowledge, reputation, etc.) and capabilities (the internal processes and informal ways-of-working)-- provided these resources and capabilities allow a company to better serve the customer.

To build a competitive advantage, you must first fully understand your marketplace and customer requirements. No matter how well your internal processes perform or how many patents you hold, if the end result is not something desired by the customer you will not have a competitive advantage. The following article is a great example of understand what is important to the customer and using it to make a competitive advantage: "Great Service: The Ultimate Competitive Advantage."

Second, a company must fully understand its own abilities and opportunities to combine their efforts and effects in a way that is not a common practice. Lastly, there must be a way to protect the competencies developed. Often this is done through building relationships, patents, and trade secrets. A review of competitive advantage as defined by Michael Porter is available at this site.