Tool for Diagnosing the Sustainability of a Business' Competitive Advantage

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Tool for Diagnosing the Sustainability of a Business' Competitive Advantage

🔥 There are many authors who have focused on how to achieve a competitive advantage. Porter's book published in 1998 is one of the most famous in this field. However, I have found that over the last couple of years that companies are facing new challenges in terms of economic downturns, consumer shifting behavior, new and disrupting technologies - and so many others that keep managers up at night –. So, I believe today's question for many traditional companies might not be how to ACHIEVE competitive advantage but how to SUSTAIN it.
Here is a very useful (and graphical) model for analyzing the sustainability of your competitive advantage: The Tetra-Threat Model by the Professors Pankaj Ghemawat and Jan Rivkin.

In this framework, the Added Value that you as a company provide to your chain of value, might be threatened by Imitation or Substitution while the value that you are able to capture as part of your participation in the mentioned chain of value might be threatened by Slack or Holdup"

• IMITATION happens when the resources and activities which provide your superior performance are no longer scarce and therefor the added value that you provide your customers might be diminished by others who can provide the same products/services increasing the industry rivalry.
• SUBSTITUTION happens when your customers can find ways to solve their problems by reaching others rather than you. Not to go any further, the introduction of new technologies facilitated the Netflix business model which led to former Blockbuster's customer to find a better way to watch movies. We all know how the story ended up.

Whereas the two mentioned threats which can be linked to two of the 5 Porter's forces and on a general point of view depend on the industry, the other two threats of this framework relate to the capability of the firm to use its resources and relationship with partners effectively and efficiently:

• SLACK occurs when a firm does not manage to appropriate the value resulting from his participation on the industry. In simple terms, slack refers to any type of inefficiency that reflects the inability of the company to perform better. Examples are: poor financial management, low-return capital investments, higher operating costs compared to the industry average, few (or no) market differentiators…
• HOLDUP refers to the threat in which interdependency is created between the firm and other business partners. If your only way to reach the market is through an intermediary and they go bankrupt, you go bankrupt as well. If the source of your differentiation comes from one single supplier, then if your competitor buys your supplier, your competitive advantage is gone. In simple words, as one of my teacher used to say "if you only have one client it's not your business, is theirs".

These four threats to competitive advantage analyzed from an industry point of view, but also from an internal organizational perspective, can help you diagnose the challenges you have with the sustainability of your competitive advantage. Use this model as a complement for Porter's Five Forces and you will have a powerful basis for your strategic analysis.
References
Ghemawat, P., & Rivkin, J. (2006). Chapter 5. Sustaining superior performance. In P. Ghemawat, J. Rivkin, D. Collis, & B. Cassiman, Strategy and the business landscape (pp. 95-119). Pearson/PrenticeHall.
Porter, M. (1998). Competitive Advantage: Creating and Sustaining Superior Performance. Free Press.
Porter, M. (2008). The Five Competitive Forces That Shape Strategy. Harvard Business Review(86), 79-93.

		Comments by date▼ Comments by rating Rating
		1 gonzalez Management Consultant, France
	Four Threats to Competitive Advantage Tool I am quite impressed by your topic, in the meanwhile, I am happy to learning something incredibly good in my creative side. Then I am frustated also because how I can use it in daily life for my company for developing and for strengthening my own sustainability. How I can transform it in a Excel file to express the maximum of this tool's strengths for company's development.

		0 Sarkis Yaralian Director, Saudi Arabia
	Sustainable Competitive Advantage I liked your topic and the concept of 4 threats to the competitive advantage. I have downloaded the book "Creating Competitive Advantage" by Pankaj Ghemawat & Jan W. Rivkin (2006). Thank you!

		1 Paramathmuni srinivas Kumar India
	Sustainability and Culture Wonder why Hinduism thrived for centuries irrespective of onslaught by many invaders for centuries? All that time India was ruled by many foreigners yet could retain their way of living though there is foreign influence on it. I think business can take cues from sustainability of point of view from the above-mentioned context. Cultural torch bearers play an important role in sustainability of organization in preservation of its culture by innovating the solutions to the needs of the hour.

		1 Panos Thymianides Strategy Consultant, Greece
	Sustainable Competitive Advantage is not Feasible Any More I would like to suggest that most of the models that we have been using for strategy development and decision-making are obsolete and do not have any applicability to actual outcomes or useful ways of positioning a company versus its competition and its potential customers in the 21st Century. The nature of markets and Industries has changed, the speed of evolution of each market and Industry has been multiplied by digitalization which creates new and hybrid markets to replace the old ones. I would suggest that you follow strategy from an evolutionary perspective - not a stationary one (i.e., a model explaining everything). The emergent strategy approach (per Mintzberg) is worth exploring further.

		1 jop van Oort Innovation Consultant, Netherlands
	Resourced Based View (Hamel& Prahalad) in Combination with Industry Based View (Porter) Quite interesting to see this combination of the two principles and the discussion that is being held. By maintaining the VRIO position in resources and competencies (Valuable, Rare, Inimitatable and Organisation) a company can be at the forefront of innovation. But doing so is difficult and often costly.

		2 Helen Strong Business Consultant, South Africa
	Add Environment to the Ghemawat and Rivkin Model The model by Ghemawat and Rivkin points to an extremely important aspect which looks at defining and maintaining a company's appeal to their market. it helps the user to identify what are the relevant...

		1 Warren D. Miller, CPA, CFA Strategy Consultant, United States
	Evolutionary Perspective to Competitive Advantage @Panos Thymianides: To a substantial extent, I disagree with your assertion that "most of the models that we have been using for strategy development and decision-making are obsolete and do not have a...

		2 Dr. Winston Lynch Director, United States
	Sustainable Competitive Advantage in Context Both Porter's model and the Tetra-Threat model put forth by Professors Pankaj Ghemwat and Jan Rivkin are insightful and compelling frameworks for us to continuously assess and evaluate the development...

		1 Warren D. Miller, CPA, CFA Strategy Consultant, United States
	Re: Sustainable Competitive Advantage in Context (Dr. Winston Lynch) @Dr. Winston Lynch: Thank you for your comments, Winston. I found them interresting. In particular, I thought your observations about Walmart were spot-on. I want to make an improvement suggestion to...

		1 Dr. Winston Lynch Director, United States
	Porter's Five Forces Model @Warren Miller, CPA, CFA: We should bear in mind that there are competitive forces that shape every industry. Porter's Five Forces is a model that identifies five such competitive forces that shape th...

		0 Panos Thymianides Strategy Consultant, Greece
	Market Structures Have Changed - Strategy Development Models Cannot Stay the Same @Warren Miller, CPA, CFA: My assertion is based on the empirical data I have been collecting. They show that market structures have changed significantly from the 20th to 21st Century. Today, markets ...

		0 Warren D. Miller, CPA, CFA Strategy Consultant, United States
	Re: Market Structures Have Changed - Strategy Development Models Cannot Stay the Same Thank you for a most interesting and thought-provoking post, Panos. I really appreciate it, and I trust that anyone who is following our dialogue will, too. My comments follow: 1. I agree with you th...

		1 Jaap de Jonge Editor, Netherlands
	Tetra-Threat Model for Threats to a Sustainable Competitive Advantage (Ghemawat and Rivkin) @Panos, @Warren: You have both explained your point of view well. I suggest we now refocus again on the original forum topic: The Tetra-Threat Model for analyzing threats to the sustainability of a bu...

		0 Dr. Winston Lynch Director, United States
	The Tetra-Threat Model Jaap I do agree with you. We should focus more on looking at the Tetra-Threat Model. However, there is always the tendency to pivot in other areas. Once we have made our contribution to the topic in q...

		0 Warren D. Miller, CPA, CFA Strategy Consultant, United States
	Porter's Book - 'Competitive Strategy' For the record, the above book by Porter was originally published in 1980, not 1998. The only difference between the original version and the one that came out in 1998 was that the latter had a new 'F...