Finding out what your Competitive Advantage is
David Ricardo, the famous British Economist, in his book ‘On the principles of Political Economy and Taxation’ published in 1817 introduced the theory of ‘Comparative Advantage’ of nations and the reason why trade was meaningful for all countries. He said that by definition every country has a relative advantage in some ‘goods’ and it makes sense to trade for that with other countries. In fact every country has an ‘Absolute Advantage’ and uncontested superiority to produce a particular good better than any other country.
What is the ‘uncontested superiority of a company to produce a good better? That is the ‘Competitive Advantage’ of the company. Do we know it? Do we recognize it and work towards strengthening it?
In the case of nations, if one nation has high unemployment and cannot manufacture goods due to low capital, by definition it must have low labor costs that it can exploit with the right governing infrastructure.
Similarly, if a company produces low volume widgets and is getting killed on price by high volume widget manufacturers, it can either improve its volumes to reduce its costs of production to compete (and thereby move into the ‘Red Ocean’ of intense competition) or deeply analyze its own business to find its own unique competitive differentiator that is available only to that company and improve that (and find its own ‘Blue Ocean’ for growth).
The driving axiom is that every company has a unique competitive differentiator that is available only to that company and ‘nobody else has it’. The call for management is to think deeply through their business and find that ‘unique’ differentiator. Finding that differentiator has two vectors, the services or products that you sell, and to whom you sell it to. At the intersection of the two there is a unique position that is open only to you.
To give a plebian example, you cannot be the best Hamburger maker in the world. But you can absolutely be the best Hamburger maker after crossing the bridge and before the town center (where you want to play) that serves Korean Hamburgers and has a driver through (doing things differently). Absolutely no reason why you cannot have an absolute advantage as this Hamburger place. Now, can you have enough volume of business to justify the segment selected is a separate analysis.
But every company must find its own unique Blue Ocean, it own Absolute advantage where it has uncontested superiority in what it does for its customers.