We understand that one firm has competitive advantage over its rivals when it earns (or has the potential to earn) a higher rate of profit on a sustainable basis. There is a chance to obtaining competitive advantage when change occurs. This change may have differential impact on different companies, mostly based on each firm´s ability to respond to it, which ultimately enables the “best adapted” to gain advantage over its competitors. The leader will try to defend its position by establishing obstacles of diverse nature to imitation, which the followers will try to erode by overcoming those obstacles or by generating innovation (mostly product-centered) that produces new competitive advantage for themselves.
Within this frame, Michael Porter defined the three generic competitive strategies: cost leadership, differentiation, or focusing on a single market segment.
This has basically been the name of the game during the last 30 years.
What´s new?
The very basic concept – the need to achieve comparatively higher profitability on a sustainable basis – remains completely valid, if no more than in the past. On one side, we could say that today´s scarcity of capitals (mostly for developed markets) makes this element more relevant than before, as the funds would be allocated to the best performers……only. On the demand side, the increasing polarization is mimetized in terms of the portion of profits that the leaders capture compared to that of followers.
If change is the source of competitive advantage opportunities, this is terrific news (especially for the winners)¡ Both the speed of change and the magnitude of change itself has increased in an exponential way, and the trend does not seem to mitigate.
But the scenario of non-stopping, radical change could lead to wrong conclusions. Some say that strategy definition is an useless exercise, as when completed has already become obsolete. On the contrary, is in this scenario of high-speed change and related uncertainty that having a clear idea of who we are, where we envision to be in the future (maybe with a shorter term scope than before, but still future) and how to get there is more needed than never before. We could say that the clearer the competitive strategy definition, the better we´ll know how to make the right decisions along the way, even when facing not forecasted scenarios.
But is the magnitude of change that questions the traditional strategies to achieve competitive advantage.
Let me first dare to question Michael Porter´s 3 generic strategies (at this point is when you decide that you have better things to read than this post¡¡). I reckon that nowadays differentiation is the only possible strategy in 99% of cases (leave the 1% for commodities in trading markets who compete on price….only?). Even those players in any industry that apparently compete on price, end up following differentiation strategies among them. When you decide to fly low cost, you are looking for price, but you might end up not choosing the cheapest alternative among RyanAir, Easyjet, Transavia, Vueling and the like (I only fly RyanAir when I have absolutely no low-cost alternative). So cost becomes just the differentiation factor for the segment, but not within the segment. (I do not forget about niches. Briefly, in the internet times, niches are no longer the safe heavens they used to be.)
So if differentiation is the only possible strategy, the key question is on which basis it can produce solid, sustainable advantage. (Will continue…)
Radical Advantage 
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