Advances in technology can bring benefits to companies, but also can affect the board’s attention to and maintenance of a company’s competitive advantages, claims Professor Andrew Kakabadse of Henley Business School.
Technology will bring more data and analytics to boards, but boards need to be careful to not let advances in technology narrow their mindset to one of conformity and compliance and distract them from the bigger picture of their company’s success, warns Professor Kakabadse.
“You can have all of the latest technology available to your board but when it comes to doing business in Bucharest, if you don't know who the relevant minister is, you won’t win the contract.”
This reaffirms that investors are highly interested in understanding what a company’s competitive advantages are and how they are being maintained. Reporting and communicating on this effectively will be important for establishing credibility and investment appeal with analysts, shareholders and investors.
Communicating the competitive advantages of a company is best done in a description of the business model. Using the resource-based view (RBV) is the best framework for considering and defining a company’s competitive advantages. The resource-based view argues that a company’s success is based on a complementary set of resources and capabilities, allowing them to pursue a strategy over the long term.
Resources are both the tangible and intangible assets of the firm, while capabilities are the processes through which resources are combined and coordinated. A core assumption of RBV is that the critical difference between organisations are their resources and capabilities, which can be evaluated to determine their competitive advantage.
There are three main characteristics of resources and capabilities which, together, help create a sustainable competitive advantage: valuable, rare and difficult to imitate.
- VALUABLE: Is the company able to exploit opportunities or neutralise threats with the resource/capability? Does the resource/capability contribute to providing value for customers? Does the resource/capability enable the company to operate part of their value chain more efficiently? Does it increase revenues or reduce costs?
- RARE: Is the resource/capability only present in a few companies within an industry? Ideally, the resource/capability would be unique to the company. If all companies within an industry have an asset, then it is probably better characterised as an entry barrier, rather than as a competitive advantage.
- DIFFICULT TO IMITATE: Is the resource/capability difficult to imitate, and will there be significant cost disadvantage to a firm trying to obtain, develop, or duplicate the resource/capability?
Resources and capabilities that have all three characteristics will form the basis of the company’s long term competitive edge, and, therefore, its ability to succeed in the future. The description of the company’s business model should be built around these resources and capabilities, in order to make the communication of the business model compelling to investors.
For more information on how best to communicate your business model, you can download our latest guide. Alternatively, you can talk to our team.