Competitive disadvantage

A competitive disadvantage refers to a situation where a company or organization is at a disadvantage compared to its competitors in the marketplace. This could include factors such as inferior products or services, higher costs, or a lack of access to key resources or markets. Companies may try to overcome a competitive disadvantage by improving their products or services, reducing costs, or finding new markets.

Such a situation in a company may result from a large number of market factors. Inadequate conduct of business can lead to be far removed from the standards of other companies-competitors.

Examples of competitive disadvantages

Some examples of competitive disadvantages include:

• Inferior products or services: A company may have a competitive disadvantage if its products or services are not as good as those of its competitors. This could be due to outdated technology or a lack of innovation.
• Higher costs: A company may have a competitive disadvantage if its costs are higher than those of its competitors. This could be due to higher wages, higher rent or property costs, or higher costs for raw materials.
• Limited access to resources or markets: A company may have a competitive disadvantage if it has limited access to resources or markets compared to its competitors. For example, a company that only operates in one country may have a competitive disadvantage compared to a company that operates globally.
• Lack of reputation or brand recognition: A company may have a competitive disadvantage if it lacks reputation or brand recognition compared to its competitors.
• Lack of diversification in products or services offering: A company may have a competitive disadvantage if it only focuses on one product or service, and it is not diversified.
• Larger and more established competitors: A new entrant in the market may have a competitive disadvantage compared to larger and more established competitors who have more resources, experience, and brand recognition.

One of the most important factors influencing competitive disadvantages may be inadequate human resources management. To a bad human resources management belong:

• poor treatment of employees,
• inadequate training,
• lack of motivation.

These features can lead to serious convictions in the internal functioning of the company, which can lead into financial results. Workers must also feel well informed and properly involved in the workplace. Thanks to the right management skills and motivation, the following competitive disadvanteges can be exchanged into competitive advantages.

A serious problem in a company and its presence on the market may in some cases also be the underpayment of workers. Companies that offer a lower monthly salary for the same job than other competitors in the same market are considered as worse than them. This is a particular phenomenon that can be observed by an example of teachers in urban areas and rural areas. The salaries in the urban areas are quite higher than the salaries in the rural areas for the same workplace and the same request of experience.

Prevention of competitive disadvantages

Preventing competitive disadvantages can be accomplished through a variety of strategies, including:

• Continuously improving products and services: By regularly evaluating and improving products and services, a company can ensure that they remain competitive in the marketplace.
• Controlling costs: By implementing cost-saving measures and finding ways to reduce expenses, a company can lower its costs and become more competitive.
• Developing new markets: By expanding into new markets, a company can increase its customer base and reduce its dependence on a single market.
• Building reputation and brand recognition: By building a strong reputation and brand recognition, a company can increase customer loyalty and make it more difficult for competitors to gain a foothold in the market.
• Diversifying the product or service offering: By diversifying the product or service offering, a company can reduce its dependence on a single product or service, and be less affected by market fluctuations.
• Keeping an eye on competitors: By monitoring competitors’ activities, a company can anticipate changes in the market and respond quickly to potential competitive threats.
• Building strategic partnerships and alliances: By building strategic partnerships and alliances, a company can access new resources, technologies, and markets, and gain a competitive advantage.
• Investing in R&D: By investing in research and development, a company can create new products, improve existing products, and stay ahead of the competition.

Each company tries to function in the best possible way and lead its business in such a way that it generates the highest possible income. However, this is sometimes not possible because of the various factors, which are worse than those of they competitors. Research shows, that the best way to remove your competitive disadvanteges is to:

• radically change your current behaviour,
• take significant risks.

When a company is in a worse position than its competitors, it must find a way to become better than the other. It must find a thing or product that will make it stand out from the crowd. This may be for example:

• the use of newer technology,
• better information security,
• increased competence in the IT area.

VRIO model as a method of fighting competitive disadvantage

The VRIO model (Value, Rarity, Inimitability, Organization) is a framework that can help a company assess its resources and capabilities to determine if they provide a sustainable competitive advantage. The model can help a company identify and address competitive disadvantages by evaluating the value, rarity, inimitability, and organization of its resources and capabilities.

• Value: By evaluating the value of its resources and capabilities, a company can determine if they are providing a competitive advantage. For example, if a company has valuable resources or capabilities, it can create and capture more value for its customers and shareholders.
• Rarity: By evaluating the rarity of its resources and capabilities, a company can determine if they are unique and provide a sustainable competitive advantage. For example, if a company has rare resources or capabilities, they may be difficult for competitors to imitate or replicate.
• Inimitability: By evaluating the inimitability of its resources and capabilities, a company can determine if they are difficult for competitors to imitate or replicate. For example, if a company has inimitable resources or capabilities, it can create a barrier to entry that makes it difficult for competitors to enter the market.
• Organization: By evaluating the organization of its resources and capabilities, a company can determine if it is effectively utilizing and leveraging them to create and capture value. For example, if a company is effectively organizing its resources and capabilities, it can create and capture more value for its customers and shareholders.

By using the VRIO model, a company can identify its key resources and capabilities, and determine if they provide a sustainable competitive advantage. If a company finds that it has a competitive disadvantage in any of these areas, it can use this information to develop strategies to improve its resources and capabilities.

Footnotes

Competitive disadvantage — recommended articles

Competitive risk — Market development — Radical innovation — Sustainable competitive advantage — Benefits of innovation — Quality strategy — Dynamic risk — Organizational strategy — Global marketing strategy

References

• Barclay P., Mishra S., Lulumiere M., (2014), Competitive disadvantage facilitates risk taking, Elsevier Inc, p. 126-127
• Iverson R., Zatzick Ch., (2006), High-Involvement management and workforce reduction : competitive advantage or disadvantage?, Simon Fraser University, p. 999-1002
• Jimerson L., (2003), The Competitive Disadvantage: Teacher Compensation in Rural America. Policy Brief, Rural School and Community Trust, p. 10
• Massis A., Kotlar J., Frattini F., (2013), Is Social Capital Perceived as a Source of Competitive Advantage or Disadvantage for Family Firms?, SAGE, p. 16-21
• Pawlina G., Kort P., (2004), Real Options in an Asymmetric Duopoly: Who Benefits from Your Competitive Disadvantage?, p. 27
• Withman M., Mattord H., (2009), Principles of Information Security, Tohmson Course Technology, p. 116, 556

Author: Maciej Plęskowski