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TheGeometryofCompetitionByBruceChewAformerbusinessschoolprofessorreflectsonthemeaningandexistenceofcompetitiveadvantage.Hisfinding:Competitiveadvantageisveryrare,competitivepositionisveryreal.Identifying,building,andtalkingaboutadvantagehavebeenattheheartofmyworkbothasaconsultantandabusinessschoolprofessorforalmost20years.YettoomuchofthetimeI’vefoundmyownandothersanalysesofadvantagetobelikethefamousSupremeCourtwritingonpornography:“IknowitwhenIseeit.”AndtruthtotellIdon’tseeitveryoften.ConsiderameetingIhadrecentlyoverseaswithagroupofmanagerswhomadeanindustrialproduct.ForthefirstpartofthedayI’dtalkedatlengthaboutthesourcesofcompetitiveadvantage.DuringtheafternoonIleadabreakoutsessiononstrategywherethequestiononthetablewas:Whatisyourcompetitiveadvantage?Itquicklybecameclearthattheywerenotthelowcostproducer.Wellthenwemustbedifferentiated.Well,maybe,buthow?Onemanagerresponded,“wehaveagoodreputation.”Towhichthegroupreplied,thatisnotreallyacompetitiveadvantage.Anothersuggested,“Ourproductshavefeaturesnoneofourcompetitorshave.”“Yeah,buttheywillsoon,”saidanother.Wehavegoodcustomerrelationships.Yes,butthatisnotacompetitiveadvantageeither.Finallyinaveryseniormanagerjumpedupandshouted“Wedon’thaveanyfreakingadvantage—gotit?Haseverybodygotthat?Noadvantage.None!”HediditwithafairamountofvolumeandprofanitydisplayinghisfrustrationbornenotfromhiscolleaguesbutfromhissheerinabilitytomakehisbusinessfitwithintheframeworksIhadsoeagerlytaughtearlierintheday.Andthatlessonhasstoodthetestoftime.Mostcompetitorsdonothaveacompetitiveadvantage.Thatdoesnotmeantheydon’tdothingswell.Theymayhavegoodproducts,goodcustomerrelations,andsomeexcellentcapabilities,butthosethingsdonotadduptoacompetitiveadvantage.Trulydominatingamarketplaceorevenamarketsegmentisanexperienceenjoyedbyonlyafewfirms.Andperhapsbecauseitishardtopointtointhemarketplace,ithasbecomefashionabletoarguethatcompetitiveadvantageisnolongerrelevantintheneweconomy.Thatitisn’tachievableorthatitissimplytoostaticaconceptforthedynamicworldoftoday.Idisagree.InsteadIwouldsuggestthatcompetitiveadvantagehasbeenmisunderstood.Bydefiningitinthewaywehave,we’veactuallymadeitalmostimpossibleforallbutafewtocreate.Aoncerigorousacademicdefinitionhasbecomeafairlystatic,self-referentialnotionofcompetitiveadvantagewhichcanbetranslatedinthefollowingway:“Managerscangainsuperiorfinancialreturnsbyachievingadvantagedpositions;advantagedpositionsarethosethatenablemanagerstoearnaboveaveragereturns.”TheGeometryofCompetitionBruceChew©2000,MonitorGroup.Donotreproduce.Donotdistributewithoutpermission.2Perhapsthebiggestissueinthewaywehavedefinedcompetitiveadvantageisthatitisfairlyone-dimensional.Youeitherhaveitoryoudon’tandtotheextentthatyouhaveit,itcomesinoneoftwovarieties—low-costordifferentiated(withafocusedflavorforsubsetsofthemarketplace)—bothofwhichareextremelyrareintheirpurestformandtotheextenttowhichtheydoexistarelikelytorepresenttheoutcomeorbundlingofasetofcapabilitiesandofferingswhicharedynamicinnature.Ourolddescriptorstendtobedescriptionsofoutcomes;notnecessarilythethingsmostcloselylinkedtothecreationofagoodcompetitiveposition.Theyfailtoisolateformanagersthethingstheymustdo,thewaystheymustorganize,and,aswewillsee,theyfailtotalkaboutthearrayofproductofferingstheymustproffertothemarket.Nowonderpeoplehavearguedthatitisanunnecessaryrelicfromanothercompetitiveera.Tomoveforwardweneedtoreformulateourdefinitionofcompetitiveadvantageinawaythatfocusesonabroaderunderstandingofcompetitiveposition.Inthisway,competitiveadvantagecanbecomenotonlymoreeasilyunderstood,butalsomoreachievableandmorerelevanttomanagersatalllevels.Ourconventionallabelswhichpurporttoshowus“strategicpositions”suchas—low-costanddifferentiated—arereallynotaboutcompetitivepositionsatall.Theyidentifyalternatepathstooutperformingtheindustryaverage.Thelowcostproducerhasacostsavingsgreaterthanitspricereduction.Thedifferentiatedproducercommandsapricepremiuminexcessofitsaddedcosts.SeeChartOne.020406080100120140CostLeadershipDifferentiationMarginFullCosts(IncludingCapitalCosts)PercentofIndustryAverageRevenueandCostChartOneWhat’straditionallymasqueradedasstrategicadvantageisactuallyadepictionofoperatingresultsIndustryAveragePriceIndustryAverageCostTheGeometryofCompetitionBruceChew©2000,MonitorGroup.Donotreproduce.Donotdistributewithoutpermission.3However,thesearenotdescriptorsofposition.Theyareaboutthefinancialreturnsthatgoodpositionsbring.Thelabelsareonelevelremovedfromthingsthatmanagersactuallymanage.Anewlanguageisneeded.Anunambiguouslanguagethatfocusesdirectlyoncompetitiveposition,whateveritmaybe,andfocuseslessontheabilitytofinanciallyoutperformanindustry.Competitiveadvantageusedasashorthandhasfallenshort.Asaframeworkitshouldgivesomeguidancetowhatproductsorserviceswemustsell;whereIshouldbeabletooutperformthecompetitors;whichsetsofcustomersandwhichcapabilitiesIshouldbuildovertime.Butitdoesn’t.WhenourmodernlanguageofstrategywasfirstdevelopeditwasintendedtodemonstratethattherearesuccessfulstrategiesthatdonotlooklikeFord’sModelT.Thebiggestplayerdoesn’tautomat