Module 2

Internal Environment
Internal Environment of Firm: Core Competence as the Root of Competitive Advantage,
Sources of Sustained Competitive Advantage, Business Processes and Capabilities- based
Approach to Strategy
Definition: Internal environment is a component of the business environment, which is
composed of various elements present inside the organization, that can affect or can be
affected with, the choices, activities and decisions of the organization.
It encompasses the climate, culture, machines/equipment, work and work processes,
members, management and management practices.
In other words, the internal environment refers to the culture, members, events and factors
within an organization that has the ability to influence the decisions of the organization,
especially the behaviour of its human resource. Here, members refer to all those people
which are directly or indirectly related to the organization such as owner, shareholders,
managing director, board of directors, employees, and so forth.
Factors Influencing Internal Environment
The factors which are under the control of the organization, but can influence business
strategy and other decisions are termed as internal factors. It includes:

1. Value System: Value system consists of all those components that are a part of
regulatory frameworks, such as culture, climate, work processes, management
 practices and norms of the organization. The employees should perform the activities
within the purview of this framework.
2. Vision, Mission and Objectives: The company’s vision describes its future position,
mission defines the company’s business and the reason for its existence and
objectives implies the ultimate aim of the company and the ways to reach those
ends.
3. Organizational Structure: The structure of the organization determines the way in
which activities are directed in the organization so as to reach the ultimate goal.
These activities include the delegation of the task, coordination, the composition of
the board of directors, level of professionalization, and supervision. It can be matrix
structure, functional structure, divisional structure, bureaucratic structure, etc.
4. Corporate Culture: Corporate culture or otherwise called an organizational culture
refers to the values, beliefs and behaviour of the organization that ascertains the way
in which employees and management communicate and manage the external affairs.
5. Human Resources: Human resource is the most valuable asset of the organization, as
the success or failure of an organization highly depends on the human resources of
the organization.
6. Physical Resources and Technological Capabilities: Physical resources refers to the
tangible assets of the organization that play an important role in ascertaining the
competitive capability of the company. Further, technological capabilities imply the
technical know-how of the organization.
Internal environmental factors have a direct impact on a firm. Further, these factors can be
altered as per the needs and situation, so as to adapt accordingly in the dynamic business
environment.
External Environment
Definition: External Environment refers to the part of the business environment which
comprises all the outside elements or forces that affect the business operations. As a
business cannot survive in isolation, it has to act or react effectively to every happening, just
to keep the business going.
Therefore, the external environment has the capability of influencing the internal operations
and objectives of the business and its strategies as well.
Types of External Environment
The external environment is divided into two categories:
Micro Environment
Microenvironment, as its name suggests, covers a very limited area and consists of all those
components which can have a direct impact on the company’s operations. It indicates the
immediate ambit of the organization, which can continuously influence or be influenced by
the choices and decisions.
An alternative term for microenvironment is the task environment or operating

environment.
1. Customer: Customers are the persons or organizations who pay money, for buying
the company’s product or services.
2. Suppliers: A supplier can be a person or a firm that supplies raw materials,
equipment, tools and services to the organization. The suppliers can affect the
company’s cost structure with their bargaining power.
3. Market: The place where the business operates, is called the market. Price
sensitivity, market maturity, demand and supply forces, etc. can influence the
business.
4. Competitors: Competitors are rival organizations, which can be market leaders or
followers. These are the firms that compete with the business entity for market
share, resources, etc.
5. Intermediaries: Intermediaries can be any party who serves as a bridge between the
manufacturer and customer, such as departmental stores, online stores, retailers,
etc.
 6. Organization: It covers the members of the organization such as shareholders, Board
of Directors and employees, that has the capability of influencing the business.
7. Media: Media is also one of the important elements these days which can make or
break an organization. A positive public image is very important for increasing the
customer base, while one negative comment can ruin the reputation of the company.
Media also helps the company in promoting the company’s products and services.
Macro Environment
The macro-environment covers general factors, over which the organization has no control.
It refers to the portion of the external environment which is purely external to the business
entity.
The success of the firm depends on how well a company tunes itself with the dynamic macro
environment. The strategies adopted by the firm can influence by the environment, and the
changes in the macro environment can also influence the business operations to a great
extent.
An alternative term for macro-environment is the general environment or remote
environment.
Types of Macro Environment

1. Demographic Environment: Demography indicates the characteristics of the

population such as race, age, income, education, employment status, gender, etc. in
a specific geographical area. The factors that can influence the business are sex ratio,
 educational attainment, geographic shifts in population, growth rate, ethnic mix,
income distribution, etc.
2. Technological Environment: Nowadays, technology is playing a key role in changing
the lifestyle of human beings, by changing how they travel, communicate or do
business. It can be an opportunity for a business firm if it can take advantage of the
latest technological changes, or else it can be a threat. The factors can be emerging
technologies, Research and Development, technological advancement, reduced
communication costs, etc.
3. Socio-Cultural Environment: In the socio-cultural environment, societal values,
lifestyle, culture, social concerns, beliefs, traditions, the standard of literacy, role of
women in society, ethical standards, social attitudes, etc. are some of the major
factors that can have an impact over the business enterprise. These factors are
common to all similar organizations.
4. Political and Legal Environment: This environment is somewhat common to all
similar firms and somewhat specific to the individual firm. It consists of three main
components, i.e. government, legal and political. Political stability, law and order
situation, level of political morality, the political ideology of the ruling party,
corruption, bureaucracy, extent of government intervention in the industry, etc.
5. Economic Environment: Economic environment encompasses the overall nature of
the economy, in which the business operates and competes. Several factors in the
economic environment can greatly affect how the business operates; these are
economic conditions, economic system, globalization, economic change, inflation
and interest rates, economic policies such as monetary and fiscal policy, Exim policy,
industrial policy, etc.

Core Competencies in Business:

Finding a Competitive Advantage
What Are Core Competencies?
Core competencies are the resources and capabilities that comprise the strategic
advantages of a business. A modern management theory argues that a business must
define, cultivate, and exploit its core competencies in order to succeed against the
competition.
Key Takeaways
 Core competencies are the defining characteristics that make a business or an
individual stand out from the competition.
 Identifying and exploiting core competencies is seen as important for a new business
making its mark or an established company trying to stay competitive.
 A company's people, physical assets, patents, brand equity, and capital can all make a
contribution to a company's core competencies.
 The idea of core competencies was first proposed in the 1990s as a new way to judge
business managers compared to how they were judged in the 1980s.
 Examples of companies that have core competencies that have allowed them to
remain successful for decades include McDonald's, Apple, and Walmart.
Understanding Core Competencies
A successful business has identified what it can do better than anyone else, and why. Its
core competencies are the "why." Core competencies are also known as core capabilities
or distinctive competencies. Core competencies lead to competitive advantages.
Core competency is a relatively new management theory that originated in a 1990
Harvard Business Review article, “The Core Competence of the Corporation.”1 In the
article, C.K. Prahalad and Gary Hamel review three conditions a business activity must
meet in order to be a core competency:
 The activity must provide superior value or benefits to the consumer.
 It should be difficult for a competitor to replicate or imitate it.
 It should be rare.1
The article pointed out the contrast of how businesses operated in the 1980s versus how
they should operate in the 1990s. The article asserted that in the 80s, business managers
were "judged on their ability to restructure, declutter, and delayer their corporations. In
the 1990s, they'll be judged on their ability to identify, cultivate, and exploit the core
competencies that make growth possible."1
The core competencies that distinguish a business vary by industry. A hospital or clinic
may focus on excellence in particular specializations, while a manufacturer may identify
superior quality control.
Core Competencies in Business
A business can choose to be operationally excellent in a number of different ways. Below
are common core competencies found in business:
 Greatest Quality Products. This core competency means the company's products are
most durable, long-lasting, and most reliable. The company will likely have invested
in the strongest quality control measures, technically proficient workers, and high-
quality raw materials.
 Most Innovative Technology. This core competency means the company is an
industry leader in its sector. The company will likely have invested heavy amounts of
capital into research & development, holds many patents, and hires experts in
respective fields.
 Best Customer Service. This core competency means customers have the greatest
experience during (and after) their purchase. The company will likely have invested in
training for staff, large numbers of customer service representatives, and processes
to manage exceptions or issues as they arise.
 Largest Buying Power. This core competency leverages a company's economy of
scale. This company will likely have invested in mergers or acquisitions and have built
up strong relationships with vendors to gain favourable pricing or service.
 Strongest Company Culture. This core competency promotes the internal
atmosphere of the business. The company aims to attract the best talent by investing
heavily in employee recognition, development, or collaborative, fun events.
 Fastest Production or Delivery. This core competency means the company is able to
make or ship items the fastest. The company will likely have invested in connected
software systems as well as production processes and distribution relationships.
 Lowest Cost Provider. This core competency means the company charges the lowest
price among comparable goods. The company will likely have invested in the most
efficient processes the reduce labor or material input.
 Highest Degree of Flexibility. This core competency allows the company to quickly
pivot in response to business opportunities or challenges. The company will likely
have invested in cross-training across employees or nimble software solutions.
Core Competencies in Individuals
A variation of the principle that has emerged in recent years to pivot towards individuals
looking for a new job. The variation recommends that job seekers focus on their personal
core competencies in order to stand out from the crowd.
These positive characteristics may be developed and listed on a resume. Some personal
core competencies include analytical abilities, creative thinking, and problem resolution
skills. The notional of individual or personal core competencies gives an individual a
platform during interviews (i.e. a candidate can identify themselves as the most
experienced, most creative, or most technically sound candidate).
How to Identify Core Competencies
Some core competencies develop naturally, while other core competencies must be
consciously and strategically formed over time. Whether a company is yet for form or
has existed for a while, here are ways for organizations to identify what their core
competencies are or could be.
Review the company's mission statement, value statement, or slogan. If a company has
invested time and effort into developing a brand, chances are it has already put some
effort into considering what it wants to be known for. A company's mission statement,
value statement, or other branded content may identify what the company wants to be
or how it wants to seen by customers.
Compare the company to its competitors. A core competency is a unique element that
can not be easily replicated by other companies. Therefore, a company can identify its
core competencies by thinking through how the company is different from other
businesses. This includes differences in products, processes, market areas, delivery
customs, pricing, or employee base.
Interview internal staff or major customers. Different key stakeholders of a company
may have insights into its strengths (or weaknesses) of a company. In some cases, the
day-to-day staff may have a better sense of what the company excels in. In addition,
primary customers that have the most real-world experience with the company's
products or services may yield feedback as well.
Brainstorm what benefits the company provides customers. Core competencies often
relate back to the product or service the company provides. For example, is the product
the lowest cost, most user-friendly, or highest quality? If customers gain a benefit from
the company's goods (i.e. they pay the lowest prices), that can often be leveraged into a
core competency.
Understand the processes required to make goods. In addition to considering the
specific products, a company should review what it takes to make the products. This
includes the labor, materials, knowledge, processes, equipment, or research that must
be refined in advance.
Identify unique aspects of the company. If all else fails, it may be simplest to just
consider what about the company is unique. This may relate to the company's history,
certain benefits it can give its employees, the industry it resides in, or what it aims to
achieve in the world.
Consider hiring an external consultant to evaluate your company's framework to
determine what your core competencies are or could be.
Why Core Competencies Are Important
Core competencies allow a company to better understand how to allocate its resources.
For example, it may make sense for a company to outsource certain tasks if it does not
care to develop those tasks into company strengths. This also includes stronger direction
on the staff to hire and what training to incur.
Core competencies also reduce a company's market risk. By being exceptional or
proficient in specific areas, a company can rely on these areas to maintain consistency
and reliability in operations. For example, companies with strong internal cultures will
experience less employee turnover, training expenses, product deficiencies due to lack of
knowledge, or unhappy workers.
As companies determine what they are best at, customers may often recognize and
associate the company with that core competency. Therefore, core competencies help a
company develop a stronger brand image or market presence. For example, many
consumers associate Apple products with being the most cutting-edge and innovative.
Last, core competencies may help create stronger relationships between a company and
its employees or customers. Both employees and customers may associate with a
company better, knowing its strength or identity; in the example above, employees may
take pride in creating the most innovative products, while customers gain satisfaction
knowing they possess the most creative solutions.
Some core competencies do expire. Consider Sears' long-term dominance as the major
retailor due to their catalog. Now, that core competency has faded, and an in-home
printed catalog may no longer be viewed as a strength.2
Advantages and Disadvantages of Core Competencies
Advantages
Core competencies are difficult to imitate. It often takes a long period of time (or large
sums of capital) to develop core competencies. Once a company has achieved a core
competency, it often has a major advantage over its competitors in the marketplace.
Core competencies may also be transferrable across different industries or product lines.
For example, with a platform of being an incredibly innovative company, Apple has
expanded into new product lines, different sectors, and varying geographical regions. An
advantage of a company may be able to be applied widely.
Last, core competencies naturally enhance the marketability of a product. Spirit Airlines'
core competency of offering the cheapest flights on average is not only its strength, it
doubles as a company slogan. Though this may mean some consumers are naturally
adverse to the company, it also means Spirit's brand image is clearly defined and
recognizable.
Disadvantages
Just as difficult as a core competency is to create, it may be equally as difficult to change.
This may inadvertently cause the company's brand image to falter and be confusing. For
example, McDonald's was once known for indoor playgrounds and Ronald McDonald.
Though the company has shifted away from this culture, long-time consumers may still
associate the brand with old core competencies.
Core competencies also naturally limit the flexibility of a company. Consider a low-
price retailer such as Wal-Mart. The company may struggle to launch high-end, more
expensive product lines with greater margins because consumers may not appropriately
associate the product with the company.
A company may also "lose the forest among the trees" if it gives too much attention to
developing a core competency. The ultimate goal of a company is not to possess core
competencies; its purpose is to generate revenue through the sale of products.
Therefore, companies may spend tremendous amounts of time or capital without an
overarching strategy that makes sense.
Core Competencies
Pros
 Are not easily replicable since they take long or large investments
 Is often difficult for competitors to overcome once a core competency has been
achieved
 May be able to be translated to different products, sectors, or business opportunities
 Enhances the company's brand image and may make marketing endeavors more
easily understood
Cons
 May result in a company being tied to an outdated, no-longer-used core competency
 May reduce the overall flexibility of a company
 May require large time or capital requirements
 May result in a company focusing too heavily on core competencies instead of a
single cohesive strategy
Real-World Example of Core Competencies
Part 1 of Amazon's 2021 annual report discusses the nature of the company's
business.3 The company strives to "be Earth's most customer-centric company." As
much, it discusses the following business activities:
 Amazon has a core competency of operating scale as their stores "enable hundreds
of millions of unique products to be sold by us and by third parties".
 Amazon has a core competency of advanced technology as "customers can access
our offerings through our websites, mobile apps, Alexa, devices, streaming, and
physically visiting our stores".
 Amazon has a core competency of being a budget-conscious option as it seeks "to
offer our customers low prices, fast and free delivery, easy-to-use functionality, and
timely customer service".
 Amazon has a core competency of flexibility and product diversification as it serves
"developers and enterprises of all sizes including startups, government agencies, and
academic institutions" though a broad set of technology services.
 Amazon has a core competency of self-reliance as it serves authors with its own
publishing company (Kindle Direct Publishing, Amazon Publishing) to yield products
in its own store (Kindle Store) for use on its own physical devices (Kindle).
 Amazon has a core competency of innovation as it regards "our trademarks, service
marks, copyrights, patents, domain names, trade dress, trade secrets, proprietary
technologies, and similar intellectual property as critical to our success".
What Are the Main Types of Core Competencies?
Core competencies in business often relate to the type of product delivered to a
customer or how that product is delivered. For instance, the main types of core
competencies include having the lowest prices, best reliable delivery, best customer
service, friendliest return policy, or superior product.
How Does a Company Develop Core Competencies?
A company should internally assess what it does best, and it should also assess how its
competition approaches the market. Then, a company should evaluate where it feels it
has the best chance to be industry leader. Though these areas may not currently be a
company's strength, it can make capital investments and process changes to develop
core competencies over time.
What Is the Best Type of Core Competency?
One type of core competency is not necessary better than the rest. However, some core
competencies may be more difficult for other companies to overcome. For example,
consider the Coca-Cola brand. The company's core competency of brand recognition may
be very difficult for a new beverage company to overtake. However, Coca-Cola's
approach to customer service or company culture may be easier for a competing
company to overtake.
Why Do Core Competencies Matter?
Core competencies lead to operational excellence which leads to superior products,
happier customers, and/or greater profitability. When a company is able to doing part of
the sale process exceptionally well, it gains a positive reputation for its core competence.
This reputation may lead to stronger sales, happier employees, and better business
operations.
The Bottom Line
Core competencies are the advantages that one company has over its competitors. It's
the areas of business that the company excels at, and it's often what the company is
known for. Ranging from yielding the highest quality products to having the best
customer service to being the low-cost provider, core competencies define a company's
identity and guide its operational strategy.

Competitive Advantage Definition with Types and Examples

Competitive advantage refers to factors that allow a company to produce goods or
services better or more cheaply than its rivals. These factors allow the productive entity
to generate more sales or superior margins compared to its market rivals. Competitive
advantages are attributed to a variety of factors including cost structure, branding, the
quality of product offerings, the distribution network, intellectual property, and
customer service.
Key Takeaways
 Competitive advantage is what makes an entity's products or services more desirable
to customers than that of any other rival.
 Competitive advantages can be broken down into comparative advantages and
differential advantages.
 Comparative advantage is a company's ability to produce something more efficiently
than a rival, which leads to greater profit margins.
 A differential advantage is when a company's products are seen as both unique and
of higher quality, relative to those of a competitor.
Competitive Advantage Areas
To build a competitive advantage, a company can use one of three main methods:
 Cost: Provide offerings at the lowest price
 Differentiation: Provide offerings that are superior in quality, service, or features
 Specialization: Provide offerings narrowly tailored to a focused market
How to Build a Competitive Advantage
To build a competitive advantage, a company must know what sets it apart from its
competitors and then focus its message, service, and products with that difference in
mind. Here are several strategies companies use to build a competitive advantage:
 Research the market: Market research helps a company identify and define its target
market, which can guide it in developing the most effective advantage.
 Identify strengths: A company can find its unique strengths, especially relative to
competitors, by reviewing products, services, features, positioning, and branding.
 Evaluate finances: Companies can take a close look at their financial performance to
spot profit centers and areas of stability, using financial statements and ratios.
 Review operations: How efficient is a company's operations? Where is it effective,
and where is there room for improvement? Consider customer service as well as
production and supply chain management.
 Research and development (R&D): Securing intellectual property prohibits
competitors from using processes or know-how that the company can use to produce
products competitors can't legally copy.
 Consider human resources: The talent a company can attract as employees and
leadership can make an important difference in the success of the business.
Evaluating company culture, hiring, and staffing practices can help.
 What Is Sustainable Competitive
Advantage?
Sustainable competitive advantage is achieved when a business
consistently outperforms other businesses in the same industry or field.
Businesses with this kind of advantage provide their clients with value
that is better than the competition.
When this advantage is achieved, your business will stand apart from
others in your industry in one or several aspects. It is one of the best ways
to ensure your company’s continued growth.

Types of Sustainable Competitive

Advantage
Small businesses need to do everything they can to learn about the
competition and set themselves apart. From the smallest detail to getting
the entire sales team away for a weekend rally, setting your brand
apart from the rest in your industry is a full-time job. To help you
understand it better, we have outlined the types of sustainable
competitive advantage below.
1. Differentiation
Differentiation means tailoring a business strategy in several ways that
make it advantageous to use that company over its competitors. These
areas may be strategic assets, high-quality products, unique branding,
intellectual property, or innovative marketing strategies.
One of the most sustainable examples of differentiation is customer
experience. When consumers know that you will treat them well, you
enjoy the benefits of improved customer loyalty. This is especially true
when they know they will have a better experience with you than your
competitors.
Let’s say you own a business selling and repairing appliances. You can
differentiate yourself from the other appliance stores by offering unique
services like pick-up and drop-off services or extended service warranties.
It is one way of establishing a sustainable competitive advantage
over your competition.
Another example is when a car dealership decides to expand by offering
commercial vehicles. Differentiation occurs when the other local
dealerships don’t offer these vehicles. It is an excellent way to make your
business stand out and get more attention from potential customers.
2. Cost Leadership
When a business can lower the price for their customers by lowering their
overhead or other costs, their clients have pricing power. Many customers
admit freely to shopping around for the lowest price. When your business
can offer this by cutting costs without affecting the quality of its products
and services, you will see an advantage over the competition.
This is a comparative advantage, which means that when a company has
lower supply chain costs, its sales margins increase. With this advantage,
the customer and the company both win. The customer gets to save
money, and the company sees its bottom line increase. The tricky part is
that your business needs a strong cash flow if you want this advantage to
be truly sustainable.
3. Focus
When a company has a focus advantage, it means they target services,
products, or marketing in the desire to work with a smaller subset of their
original target audience. They want to focus their efforts on a smaller
demographic within their client base.
The focus strategy creates companies that segment their most reliable
consumers into niche sub-segments to service them more directly. For
instance, if you own a furniture business, you can focus on upscale
furniture for vacation homes. In your product research, you might find that
this area is underdeveloped and has room for new products to meet
consumers’ established needs.
This strategy can create greater brand loyalty through customer
satisfaction. For this to be a sustainable competitive advantage,
companies must do their research and keep an eye on changing consumer
demands. One excellent way to conduct this research is with surveys. This
can lead you to products or services your potential clients wish were
available.

6 Inspiring Examples of Sustainable

Competitive Advantage
Understanding what a sustainable competitive advantage is means
getting a closer look at it in action. There are many methods businesses
use to establish growth and develop their brand. We’ve listed different
sustainable competitive advantage examples below:
1. Continuous Innovation
Continuously innovating new technology is an excellent way of building a
sustainable competitive advantage above other companies in your
industry. This is when your product development initiatives are ahead of
what other companies are doing. Whether you come up with a product
that is cheaper or an item that lasts longer, staying ahead of the curve will
help to establish your business as a leader.
This can be seen at work with the well-known company Apple. As one of
the biggest tech brands in the world, the company continuously aims to
make faster smartphones with advanced cameras, more powerful
computers, and high-tech watches. The company has built its brand
around the fact they are known for having the most up-to-date
technology. People feel they can trust the brand and are confident that
the Apple products they buy are the most sought-after and most
advanced in the market.
2. Exceptional Customer Service
One great way for a company to set itself apart is through superior
customer service. This is done by consistently providing your clients with
the best experience each time they interact with your business. You
should be able to answer their questions and meet their requests
whenever possible. If there’s something you don’t currently have an
answer for, simply let the customer know you will find out.
Prompt answers lead to problems solved and, therefore, customer
loyalty. Listen to any concerns about your products and services and
implement changes so your customers are more satisfied with your
business. When companies address customer needs right away, they start
to gain the trust and loyalty of their customers.
Make sure to offer training programs for all team members who interact
with customers. Emphasize being pleasant and encourage a “the
customer is always right” mentality. Train your team to look at
themselves as the solution to a customer’s issue instead of seeking
someone else to resolve it. This will significantly improve the customer
service levels your business provides.
You can also improve your customer service processes by automating
some customer interactions with chatbots and other AI services. The
more easily you can be reached through online chat, phone, or email,
the better customer relations you will have. The quicker customers get a
response, the more satisfied they will be. This will go a long way to
building your brand and establishing it as one that offers excellent
customer service.
3. Talent Development and Expertise
One great way a company can help develop a sustainable competitive
advantage is to develop the skills and expertise of its team members.
Make sure to provide educational opportunities for everyone on your
team. Cultivate an atmosphere of team spirit and the desire to gain better
skills. You can offer in-house training sessions and integrate gamification
to motivate your employees and make the experience more engaging.
It’s also useful to look into third-party certifications your employees can
get. The money you spend on continued education will return to your
business in droves. As each team member grows and develops, so will
your company.
4. Economies of Scale
When companies start to scale, they gain a production capacity capable of
manufacturing products for a significantly lower cost than the
competition. One excellent example of a company that benefits from
economies of scale is Walmart.
Walmart has leveraged economies of scale to differentiate itself and
become a leader in its industry. It started as a small grocery store and has
expanded to a business that is responsible for employing thousands of
people and finding new ways to introduce low-cost products to the
market.
5. Proprietary Technology
Creating technology that is copyrighted to your company is a fantastic
way of creating a sustainable competitive advantage. Leverage AI and
other assistants to understand what problems your industry has that a
new product or service can assist with.
Once you’ve developed such products or services, make sure you get
them patented and licensed so they are proprietary to your business. This
is another opportunity for your company to set itself apart from others
and see increased profit margins.
6. Supply Chain Efficiency
When a business has solid partnerships with its suppliers, it can get better
prices and source raw materials faster. This gives them an advantage over
other companies. This can be seen in the auto industry, where
automakers with solid connections get supplies quicker and at a better
price point.

Benefits of Sustainable Competitive Advantage

When running a company, you need to be detail-oriented and ready to do your research.
There may be times when you feel overwhelmed on the path to making your company stand
out. This is why we have gathered some crucial benefits of having a sustainable competitive
advantage.
1. Long-term Profitability
One of the benefits of maintaining a sustainable competitive advantage is that it allows
ample opportunity for more profitability in the long run. You are focusing your efforts on
growth, which will be more evident as your business sees higher profits.
When you establish your brand to be separate from the rest through differentiation, it is
easier to charge higher prices. Gourmet or organic products are a great example of this.
Building your brand in this direction will take effort, but the profits will pay off in the end.
2. Higher Barrier to Entry
Sustainable competitive advantage gives you the chance to raise the barriers to entry into
your industry. With higher barriers to entry, entrepreneurs will find it more difficult or even
impossible to penetrate the market. This helps reduce competition in your industry and
helps protect your market share and profit margins.
3. Resilience During Economic Fluctuations
When you build a solid company that has developed a sustainable competitive advantage,
you increase your company’s profitability. This is often done over several revenue streams.
Once you start making more money and saving this money for a rainy day, your business
becomes more resilient during economic fluctuations.
4. Investor and Stakeholder Confidence
When you create a sustainable competitive advantage, your stakeholders and investors can
feel more confident in your company. This means you can continue to count on stakeholders’
support for different business-growing ventures, like opening a car dealership in a new
location or a new branch of your furniture store.
How to Achieve Sustainable Competitive Advantage
Learning what sustainable competitive advantage means and getting it implemented are two
different concepts. We’ve gathered some useful tips to help you grow your business and stay
ahead of the competition.
1. Understand your market and competitors.
One of the best ways of achieving a sustainable competitive advantage is to make sure you
research your target market and your competition thoroughly. Collecting data on your
target clients is one of the best tools in a small business’ toolbox. It can help you gain a
deeper understanding of your customer’s pain points and how you can solve them.
Doing competitor research also reveals successful strategies your competitors use to
maintain their share of the market. It might even give you an idea of what their next move
will be.
More importantly, you may be able to leverage being the first company to access new
markets because of your in-depth market research.
2. Leverage core competencies.
Is your company succeeding at taking care of customers? Do you deliver on your promises to
leads and clients? What areas does your business succeed in?
These are the areas you need to focus on and build from. Once you focus on the core areas
you’re confident in, you can get a better idea of where you can build a sustainable
competitive advantage.
3. Innovate and differentiate.
When you are told to keep an eye on the competition and do research on them, you don’t
want to start looking like your competitors. You need to innovate new products and lines of
services to set your business apart from the rest of the industry.
You don’t want to follow their lead, but you want to lead the way in terms of product
innovation.
4. Ensure continuous improvement and adaptation.
Investing in new products and developing technology will help in keeping your business
ahead of your competitors. You need a steady cash flow to be able to do this for your
business.
When new products become available, you can expect the market to be flooded with similar
products from your competitors. To maintain your competitive advantage, you need to be
able to push product development and innovation regularly.

Business Processes and Capabilities-Based Approach to Strategy

Definition:
This approach emphasizes leveraging a firm’s business processes and capabilities to create
and implement effective strategies. Business processes are the workflows and systems that
allow the firm to deliver value, while capabilities are the skills and expertise that make these
processes effective.
Business Processes:
1. Operational Processes: Core activities that directly deliver value (e.g.,
manufacturing, logistics).
o Example: Ford’s assembly line process ensures high efficiency and scalability.
2. Support Processes: Enable operational processes, such as HR, IT, and procurement.
o Example: Walmart’s data-driven inventory management system supports
efficient supply chain operations.
3. Management Processes: Focus on planning, monitoring, and controlling the
business.
o Example: Starbucks’ strategic planning ensures consistent global expansion
and customer experience.
Capabilities-Based Approach:
1. Identification of Key Capabilities:
o Assess which capabilities are critical for delivering customer value and
achieving strategic goals.
o Example: Zara’s ability to design, produce, and distribute new clothing styles
quickly.
2. Leveraging Capabilities for Strategy:
o Align capabilities with strategic objectives to gain a competitive edge.
o Example: Microsoft uses its software development capabilities to dominate
enterprise solutions like Office and Azure.
3. Enhancing and Expanding Capabilities:
o Invest in training, R&D, and technology to develop new capabilities or
enhance existing ones.
o Example: Amazon Web Services (AWS) expanded its capabilities in cloud
computing to lead the industry.
4. Integration Across the Organization:
o Ensure collaboration between departments and seamless integration of
capabilities to avoid silos.
o Example: Apple integrates its design, hardware, and software capabilities to
deliver cohesive products.
Importance of Internal Analysis in Strategy
Understanding the internal environment allows a firm to:
1. Identify its unique strengths and capitalize on them.
2. Address weaknesses that may hinder performance.
3. Align resources and capabilities with external opportunities.
4. Build resilience against competitive pressures.
5. Develop and sustain a competitive edge through innovation, efficiency, and
adaptability.