Competitive Advantage
Competitive advantage is the ability to develop and implement value-creating strategies not simultaneously being implemented by current or potential competitors. A sustainable competitive advantage is a competitive advantage that others cannot easily duplicate. Therefore, this category of the AgbizSMART Evaluator® draws attention to the firm's functional state, i.e., resources that ensure its ability to implement value- creating strategies that are not easily duplicated.
Internal resources include all assets, capabilities, organizational processes, firm attributes, information, knowledge and others that are controlled by the firm to enable it to implement strategies that improve its chances of gaining market share profitably. These resources are classified into the following four groups:
1. Physical resources include physical technology, plant and equipment, access to raw materials and logistics infrastructure, geographic location, etc.
2. Financial resources include available cash and near-cash assets as well as access to cash.
3. Human resources include the training, experience, knowledge, judgment, intelligence, relationships and insights of the firm's employees, including management.
4. Organizational resources encompass the firm's structure, formal and informal control and coordinating systems, relationships among people and within groups as well as between the firm and its environment-suppliers, customers, regulatory agencies, etc.
In assessing the strategic relevance of these resources, the investor is looking at their uniqueness, scarcity, value, ease of substitution and degree of duplicability. Value-added initiatives should focus on developing strategies that encompass strategic resources that exhibit these characteristics to ensure that their competitive advantage is sustainable. If a company has proprietary technology production processes that are uniquely efficient, then it can enjoy a competitive advantage until a competitor figures out how to copy or duplicate the technology. Similarly, a firm with a strategic relationship with a major input supplier can sustain a competitive advantage over incumbents or new entrants. However, such a major input supply relationship should create efficiencies that allow the firm to differentiate its value proposition in the marketplace. For start-up companies, securing committed relationships with the supply chain, especially distribution, is a critical strategic resource since it can effectively shut out a competitors' access to the same channels. AgbizSMART Evaluator® prompts investors to assess the depth and breadth of strategic resources that are in place in the company and evaluate their uniqueness and ease of duplication or substitution. It also draws investors' attention to assess how existing or impending regulations may influence the sustainability of the firm's competitive advantage.
Figure 1 illustrates the approach to evaluating the firm's competitive advantage and its ability to sustain it from a resource-based perspective. Investors assess how the firm's resources combine to create sustained competitive advantage at each process node - inbound logistics, production operations, etc. The objective is to assess how the firm organizes its resources to create a causal ambiguity for its competitive advantage, i.e., how it combines the individual characteristics of its resources to enhance their total value.
Because of its unique impact on a start-up company's success, the availability of committed relationships along the supply chain is treated as an indicator in its own right. Investors will be assessing how the proponents of the business built support and commitment for their products and services within the marketplace to provide the firm with smooth access to inputs and customers. Investors should request further information on any process node whose competitive advantage is unclear in the business plan to help investors make sensible decisions.
Figure 1: Evaluating Competitive Advantage Using Characteristics of Resources
