It might be time to re-write the textbook--competitive advantage is on the way out.

As anyone who attended business school learned, competitive advantage is measured by the extent a company produces more products than competitors in its industry, such as if a software company makes more money than another software company. But according to Rita McGrath, a professor at the Columbia Business School, competitive advantage as we know it doesn't exist anymore. It's all part of the future of work and the changing face of where and how business operate.

There are a lot of factors that contributed to this change, but here are three of the biggest players.

Competition crosses industries

One of the biggest flaws in the traditional definition of competitive advantage is that it had to be compared to a company in your industry. However, the lines are blurring as to where the competition actually lies. For example, from the iPhone's launch in 2007 to 2014, average family spending on telecommunications was way up, but spending on restaurants, movies, clothes, and more was way down. A movie theater and a clothing store aren't in the same industry, but they had to fight for the same money of discretionary spending. In today's world, you don't know where your competition could come from, and you could be fighting for an advantage over all sorts of companies across multiple industries.

Start-up economy

It used to be that only corporations could get things done, and it was incredibly difficult for individuals to get their ventures off the ground. Today, hundreds of start-ups are launched each month, which puts more power into the hands of entrepreneurs and takes away from traditional conglomerates. Start-ups are changing the way we think about competition because they tend to have more access to resources and can tap into things like freelancers and crowdfunding. Individuals can do things it used to take a company to do, which means the competition is more diluted than it once was.

Digitalization

Technology has changed how we do business. The more things are digitized, the easier they are to copy, which means it is harder to hold onto an advantage. If a company puts its label and plans up on the Internet, anyone could take it down and use it as a reference for their own venture, which means the original company no longer has a competitive advantage.

Instead of focusing on "competitive advantage", Rita recommends focusing on "customer advantage" or the forces that draw customers to your business. By innovating and constantly updating what you do and how well you do it, you can compete with a variety of companies, no matter the label.

How does your company create an advantage?

Published on: Sep 20, 2016
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