Competitive Advantage vs. Business Model

Competitive advantage is not necessarily the same as a business model.

Harvard Professor Michael Porter proposed the theory of competitive advantage in 1990. His competitive advantage theory suggests that all businesses should pursue policies that create high-quality goods to sell at the highest possible prices.

Competitive advantage happens when companies acquire or develop a combination of attributes that allow it to outperform its competitors. These attributes might include access to natural resources, such as high grade ore or inexpensive power, or access to highly trained and skilled personnel human resources. Other advantages could include better use of technology, etc.  Wikipedia definition of competitive advantage.

A business model is more encompassing.  In fact, competitive advantage is a sub-component of a business model under the Business Model Institute definition.  A business model takes 8 areas of a business into consideration including the area of competitive advantage.

For instance, Porter’s model does not mention branding.  Does Starbucks Coffee have better natural resources or technology than other competitors or does it simply have a more powerful brand?  The true competitive advantage of Starbucks is the brand.  Granted, this brand encompasses many things, so long as this brand remains strong, Starbucks will have competitive advantage.

Was IBM’s superior salesforce a competitive advantage during its heyday?  I believe so.  This too is not included in competitive advantage metrics.  A portion of IBM’s business model included starting with competent people and training them extensively in the IBM way of selling.  This translated to a better business model and competitive advantage in the area of sales.  However, this advantage was created by IBM, not discovered or mined.

Although competitive advantage is critical, it is only one of the eight key areas of a business model.  Competitive advantage has a role in many of the eight areas.  However, analyzing the strength of a business based only on competitive advantage would not paint a complete picture.

Instead, look at all eight components of the business model, including competitive advantage.

See the eight areas of a business model