The goal of strategy is very simple: you have to find a source of unfair competition which results in making excess profits. Regulators and competitors should hate you for this, but without it, you fail.
Every firm needs to make “excess” profits somewhere to stay alive: this profit sanctuary will help to pay for all the projects which go wrong, for investments which take time to mature, to offset the impact of competition, customers, taxpayers and staff who always seem to want more and give less.
You can only make excess profits if you have a source of unfair competition somewhere. All successful businesses have some form of unfair advantage, which other competitors find it very hard to copy. For instance, you may have:
- A licence to drill oil in a low cost oil field: Exxon, Petrobas, Shell
- The best location on the high street: McDonalds, Starbucks
- Own copyright or patents: Disney, Dyson, hi tech firms
- Be the first to move into a new market and dominate it: Google and paid search, Microsoft and desktop operating systems
- Have a powerful brand: P&G, Unilever, Nike etc
- Have a global network which is hard to copy: McKinsey and Goldman SachsOwn a unique resource: Heathrow landing slots
So if you and your firm talks about “points of differentiation” be worried, be very worried. That is weak form competitive advantage. Your goal is to have a thoroughly unfair advantage which allows you to make large amounts of money. The problem with a fair fight is that you might lose it: make sure the competitive fight is as unfair as possible.
What is your source of unfair competitive advantage?