"Sources of competitive advantage rarely yield added value that can be sustained over time."
The following essay is going to attempt to assess the above proposition and try to find if it is possible to add value continually over a period of time. I will first discuss what competitive advantage is and what it means to a firm. Then I will explain the sources of competitive advantage and how the distinctive capabilities of a firm allow it to sustain added value. The discussion is based on a number of viewpoints from different authors who will be clearly indicated and acknowledged. I begin with explaining what competitive advantage is.
So, what is Competitive Advantage? In a number of industries, the average
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The first condition is that the premium available for providing high quality is large relative to the cost of providing high quality. The second condition is the likelihood of repeat purchase. If the firm is unlikely to provide the service or product again, then there is little point to maintain a reputation. Once established, though, reputations can yield substantial added value. Innovation is the third primary distinctive capability. The process of innovation involves complex interactions between firms. Managing innovation is costly and risky. New products on the market can fail because of the lack of demand for them. Firm specific innovation usually is the application of generally available knowledge or technology in advance of, or more cheaply, than it's competitors. Sometimes, what appear to be the rewards of innovation are often the products of the firm's architecture. Some firms established an architecture which stimulates a continuous process of innovations. Others create an architecture which enables them to implement innovation particularly effectively. There was EMI who was one of the most effectively innovative companies which pioneered in television, computers and it's music business. Sir Clive Sinclair created a reputation for innovation by bringing products such as digital watches, personal computers and battery operated cars to the market for the first time.
Distinctive capabilities enable firms to