Neela, I have given some thought to this problem as well. I would like to
ask you a few questions.
First, I would like to see a precise measurement of both terms.Some think
that terms like these refer to qualities that adhere to firms and only
secondarily to actual performance. I am in the latter camp, but I may be a
minority.
CA seems easier to measure as it implies doing better than one's industry.
But that only introduces new problems -- by what criteria, for how long,
and what is the industry, as industry itself is in need of definition. CA's
roots are in Porter's work and maybe earlier. If we add the term sustained
competitive advantage and deal with shareholder performance as I do in my
book Big Winners and Big Losers (Wharton School Press, 2005), then we might
say that sustained competitive advantage or SCA is perhaps 10 years of
doing better than some industry benchmark with regard to shareholder
returns. All of this is a bit arbitrary but maybe there is no other choice.
In my book, a winner is a firm that outdoes its industry for 10, 3, and 1
year intervals and does twice as well as the industry for 5 years. A loser
is the opposite. From 1992-2002 using these criteria and appl.ying them to
the largest 1000 U.S. firms I found 32 winners and 64 losers. So by this
criteria SCA is rare but others would disagree I am sure. Some may just say
that SCA is survival or doing better than half the firms in one's industry.
By these criteria, the number of firms that achieve SCA is very large
indeed.
A question I then have that I have been working on is what is the
relationship between CA or SCA -- however defined -- and I have tried
different defintions -- not just those in my book -- and absolute
performance.
Think of it in the following light. A firm by my criteria can achieve CA or
SCA, but because it is in a weak industry actually perform relatively
poorlly with respect to all other firms. On the other hand, a firm might
achieve sustained competitive disadvantage by my criteria but actually
perform well in comparison to all other firms. In the former case, the firm
is brought down by its industry. It is winner within in its industry but
not absolutely. In the latter case, the industry drives the firm's
performance. It is a loser when it comes to its industry but not in
relation to all other firms.
I am trying to unravel this in my recent research (not yet ready for
publication). It is not so simple as I relate above since most of the
statistical analysis we have run (my co-authors are Adam Fremeth and Mazhar
Islam) show a strong and significant relationship between competitive
advantage and absolute performance, but the relationship certainly is not
total or complete. Thus, there are instances of relatively poor performing
firms that dominate an industry and relatively strong performing firms that
are laggards within their industry. What we find very interesting is our
finding that it is easier for a firm to dominate a weak industry and
achieve SCA or CA in that industry rather than a strong one. It can
achieve SCA or CA in a weak industry and still do very well in terms of
absolute performance. All of this brings us back to the most fundamental of
questions in strategy of what drives performance industry or firm specific
characteristics, which is something we are trying to look at (again, for
there is quite a robust lit on this topic).
Your concept of strategic advantage might help. Maybe by strategic
advantage you mean absolute performance and not performance relative to an
industry. If that is so, then it would be useful l in dealing with the
problem I raise above.
But that still begs the question, for your definition is in terms of firm
qualities or attributes that are hard to measure. What verifies that a firm
has achieved strategic advantage? How would you operationalize and measure
it? I would suggest that absolute performance is not a bad direction to
take. In my case, this what I am doing.
But still this is only a start for if you look at SMJ articles in the last
decade or so, the measurements for performance are all over the place, a
veritable smorgasboard of accounting and shareholder data are used which
makes cumulation of findings very difficult. Personally, I like the
shareholder return criteria since I basically buy into agency theory that
firms exist legally as entities meant to serve shareholder interests, but
clearly there is little consensus on this issue.
I would love to hear more from others and I look forward to additional
discussion.Hope this helps. Thanks for bringing it up.
Alfie Marcus
Spence Professor of Strategy and Technological Leadership
Carlson School of Management
Neela Sinanan
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Hi all,
I am trying to properly distinguish between the terms Competitive Advantage
and Strategic Advantage. Based on some valuable inputs received from Prof.
Avi Meshulach and Kurt Christensen I have been able to come up with the
following distinction:
STRATEGIC ADVANTAGE AND COMPETITIVE ADVANTAGE
In making a distinction between the terms strategic advantage (SA)
and competitive advantage (CA), it could be inferred that the two are
close to each other in meaning but differ somewhat in terms of the
following factors: scope; time; business advantage; resource
deployment; and synergy.
CA, is narrower in scope. It refers only to the competitive arena and
only to the set of competitors, not the full set of strategic
players. In other words, it looks only at the firm's advantage over
its competitors. In relation to the time element, it is concerned
with ensuring competitiveness through the optimisation of current
resources in the existing market framework. In terms of resource
deployment, it is limited to the organisation's (current) competitive
resources, for example, the firm's unique product, unique
technological capability, supportive culture, strong market
positioning, or superior service reputation. These contribute to the
achievement of the firm's superior competitive positioning vis-à-vis
other competitors. CA, in this sense, is not only more specific
than SA but strictly speaking it does not have to be strategic. It
may refer to a competitive advantage that is temporary or otherwise
limited in scope and impact.
SA is the broader concept. In terms of scope, it considers the wider
macro-environment together with all stakeholder interests. SA
describes a situation in which the firm has a meaningful and
sustainable (strategic) advantage over other players in achieving its
strategic goals. The other players are not only competitors since the
firm could have SAs also over its suppliers, customers or
competitors. The term tells us that because vis-à-vis other players
the firm has an advantage, it is better positioned to achieve its
strategic goals. In terms of the ' time' element, SA is concerned
primarily with protecting and exploiting existing resource strengths
while at the same time considering how to derive unique areas of
value added in the future. In addition, SA is concerned with the
deployment of both competitive resources and strategic resources –
the latter being any unique resources of an organisation which when
introduced create a gap that cannot be bridged by the competition.
Synergy, the last element, is common to both CA and SA. Here, it
could be argued that SA (with its broader scope) impels us to expend
greater effort in synergising between scope decisions and the
deployment of resource stocks. In the case of SA this would include
both competitive resources and strategic resources.
I would appreciate any inputs or clarification as it relates to the above.
Regards
Neela Sinanan
Email:
neela.sinanan@gmail.com
--
Neela Sinanan