Strategy’s biggest blind spot: Erosion of competitive advantage

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Do you know what your competitive advantage is? Are you sure?  Competitive advantage is the most critical yet misunderstood facet of strategy. It’s more than a company’s strengths—it’s the reason customers choose its offerings over its peers’ or why it is able to deliver higher returns than its peers through capital efficiency, price premiums, or lower costs. Competitive advantage comprises unique operating models and hard-to-replicate assets such as intellectual property and customer access that enable a company to build superior value over time.

That foundation is shaky for many businesses today, the authors’ analysis shows. To identify shifts in competitive advantage, the authors looked for changes in market position using a metric they call the “shuffle rate”—an industry-level marker that measures the speed of change in the positions of market leaders and laggards. The study found that the shuffle rate has accelerated for more than 60 percent of industries in the past decade. This pattern suggests that the defining elements of competitive advantage are in flux, the degree of differentiation between market players is narrowing (causing more frequent positional changes), or both.

The result is an increasing erosion of competitive advantage for some companies and a critical opportunity to capture greater market share for others. Businesses in a sector with a decelerating shuffle rate may find themselves stuck in lagging positions as the industry’s top performers deepen competitive moats around their leadership. Conversely, those in an industry with an accelerating shuffle rate could find opportunities to attract customers previously locked in by their competitors.

Yet despite the importance of acting on these shifts, recent research shows that most companies aren’t monitoring how their industry positions and competitive advantages may be changing.

With competitive advantage under pressure, business leaders need to actively protect their edge over peers. They can do so by following five rules:  Develop a granular view of competitive advantage.   Tailor the advantage to each market.  Don’t overinvest in areas that won’t improve competitive position.  Boost the return on competitive advantage by embedding it into strategic decision-making.  And track metrics that can signal changes in the competitive landscape.

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