Gaining, Maintaining & Losing Competitiveness (AQA A Level Business): Revision Note

Competitive advantage

• A competitive advantage is an attribute, or combination of attributes, that allows a business to consistently outperform its rivals by offering customers greater value than they can match

  • A genuine competitive advantage tends to be difficult, slow or costly for rivals to imitate

• It is usually achieved through one of two broad routes (see Porter's generic strategies)

  • Cost advantage

    • Achieved through economies of scale, highly efficient operations or access to cheaper suppliers or resources, allowing lower prices without sacrificing profit

  • Differentiation advantage

    • Achieved through unique product features, a strong brand, superior customer service or protected technology that rivals cannot easily copy

• Competitive advantage explains why some businesses consistently outperform their rivals

Example

Amazon's competitive advantage rests heavily on its enormous logistics and fulfilment network, built up over two decades

This allows delivery speeds that smaller rivals struggle to match even if they wanted to copy the model

• Strategic drift and other pressures explain why this advantage can be eroded or lost

Example

Debenhams used to be one of the UK's leading department stores, but over the 2010s it slowly lost ground as more shoppers moved online and cheaper rivals took its customers

Rather than making big changes to keep up, Debenhams only made small adjustments, and the pressure of high store costs kept building

This mix of slow decisions and external pressure eventually led to the company collapsing in 2021

• Understanding how competitiveness is gained, and why it is often so difficult to sustain, helps a business plan for the long term rather than assuming past successes will continue automatically

Reasons for losing competitiveness

Strategic drift

• Strategic drift is a gradual, often unnoticed, mismatch between a business's strategy and its changing external environment

• It is caused by making small, incremental adjustments to an existing strategy rather than fundamentally rethinking it when the market changes

Example

Blockbuster's strategy of relying on physical video and DVD rental stores drifted further from customer expectations as digital streaming emerged

The company turned down the chance to buy Netflix for $50 million in 2000, and its responses proved far too slow once streaming took over the market

Complacency

• A business that has been successful for a long period may stop innovating or investing, assuming its position is secure

• This allows rivals to catch up or overtake it

Example

In the 1970s, a Xerox research lab invented new technology, including the computer mouse and the first graphical computer screens we still use today

However, Xerox's bosses were too focused on their photocopier business and did not think this new technology mattered

Because Xerox never turned its own inventions into products, other companies, like Apple, used these same ideas to build huge success

Failure to invest in new technology or capabilities

• Competitors who adopt more efficient processes, or launch innovative new products, can leave a business behind if it does not keep pace

Example

BlackBerry dominated the smartphone market in the mid-2000s through its physical keyboard and secure email system, but was slow to invest in touchscreen technology

As Apple and Android devices rapidly improved, BlackBerry's failure to keep pace saw its global market share collapse within a few years

Rising costs relative to competitors

• If a business's costs rise faster than its rivals', for example through wage inflation or raw material costs, without matching productivity gains, its cost advantage can be eroded

Example

Thomas Cook struggled to compete as it continued to have to meet the high costs of maintaining hundreds of high street travel shops, while its rivals increasingly operated online with much lower overheads

These rising costs were a key factor in the company's collapse in 2019

Failing to adapt to changing customer needs

• A business that does not change its product offer as customer expectations change gradually becomes less relevant to its target market

Example

Toys "R" Us failed to invest enough in online retail as shopping habits changed, leaving it unable to compete on price or convenience with online retailers such as Amazon

Difficulties of maintaining competitiveness

• Sustaining a competitive advantage indefinitely is difficult, for several reasons

• Even a long-established competitive advantage can be difficult to maintain if internal standards slip

  • E.g. Boeing's dominant position against rival Airbus was seriously undermined by a series of quality and safety issues, including a series of 737 MAX crashes