Corporate Insights Fighting the fade:
Strategies for sustaining competitive advantage

Fighting the fade:
Strategies for sustaining competitive advantage

(1st Quarter 2017)

Themes

  • Corporate lifecycles reflect competitive advantage
  • Maintaining competitive advantage is vital to drive superior valuations
  • Allocating capital to growth is critical to sustaining or improving performance

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Introduction

Few would disagree that having a competitive advantage is a good thing – it is a vital barometer of success for all corporations, regardless of industry. Yet the notion of quantifying competitive advantage can be elusive. Is it economy of scale advantages, market share dominance, cost leadership, intellectual property, product differentiation, first mover advantage, brand power, or something else?

One thing seems certain about competitive advantage: superior market valuations accrue to companies that find the magic of achieving and maintaining it. As we will show later in this paper, those companies able to sustain or even improve upon a competitively advantaged market position earn about 10% better returns to shareholders than the broader market. Per year. With so many ways to define it, how do you really measure and compare competitive advantage? And – given the value associated with achieving that advantage – how can you change your competitive advantage?

In this, the latest in our ongoing series of Credit Suisse Corporate Insights, we examine competitive advantage in the context of the corporate lifecycle, and the value premium associated with achieving an advantaged position. We show how that competitive advantage is actually not just a binary notion; meaning it's not about whether you have it or not. It is more about how big an advantage you have and whether you can sustain that advantage in the face of competition. This is why a corporate lifecycle framework helps; it measures the relative size of a company's competitive advantage. Knowing that gap in performance – whether positive or negative – informs decisions about managing that gap. With the right tools, corporates can quantify their competitive position and then actively work to improve upon it, driving superior returns to their shareholders in the process.