Searching for an all-encompassing definition of competitive advantage?  You may not have found it at Emory University’s Goizueta Business School’s inaugural Atlanta Competitive Advantage Conference (ACAC) last year.  Although not a new subject (studies date back several decades and you’d be hard pressed to find a modern day manager without a strategy for achieving and sustaining competitive advantage), there is no singular definition of competitive advantage—or an established course of action to acquire and sustain it. 

An academic research conference co-chaired by Georgia State University and Georgia Institute of Technology, and with corporate sponsorship from BrightHouse, the 2004 ACAC featured several panel discussions and over 40 research study presentations on different aspects of competitive advantage. Although professors from nearly three dozen different business schools and universities—including Stanford, Columbia, INSEAD, and Dartmouth—came armed with his or her unique definition, the group did agree that research regarding competitive advantage is maturing and there is much to be optimistic about.

“Research in competitive advantage is incredibly healthy.”

 

At the close of the conference, a panel of professors highlighted possible directions for future competitive advantage research.  Russ Coff, associate professor of organization and management at Emory University’s Goizueta Business School, opened the final panel by referring to a survey the presenters had completed online.  Entitled “Which scenarios depict a firm with a competitive advantage?” survey-takers where asked to decide whether or not a firm had a competitive advantage given specific scenarios. 

 

The survey results were anything but conclusive.  “If we can’t come to agreement in a highly empirical situation, what are we doing in our research?” asked Coff.

 

Jay Barney, professor of management at Ohio State University, offered an optimistic response to Coff’s question.  “We hear that we don’t even have a definition of competitive advantage—like shame on us, how can we study competitive advantage without a clear definition,” said Barney, the author of Gaining and Sustaining Competitive Advantage.  “Research in competitive advantage is incredibly healthy.  The quality of the work, overall, is exceptionally high.” 

 

Barney argued that as an academic field evolves, it’s not surprising to have multiple related definitions.  “Go to the academic literature in economics,” Barney challenged.  “Basic terms like ‘rent’ or ‘equilibrium’ are part of the unspoken culture in economics and we all know what they mean… kind of.”

 

For the record, a definition lifted from ADVFN’s Financial Glossary, states that competitive advantage is a “condition which enables a company to operate in a more efficient or otherwise higher-quality manner than the companies it competes with, and which results in benefits accruing to that company.”

 

A go-to definition, according to Barney, isn’t really necessary.  “Whatever the various definitions, the theory makes the same prediction,” Barney said.  The prediction is that the company with the competitive advantage will do better than the company without it.  Over time, Barney believes a consensus will emerge regarding competitive advantage and that it’s not as far off as some might think. 

 

As evidence, Barney noted the emergence of a search for stylized facts (carefully analyzing large data samples prior to implying a certain theory) in competitive advantage research. “Research on competitive advantage has evolved dramatically,” he said. “The current work is driving the field forward.”

According to Anita McGahan, Boston University professor and chair of the department of Strategy & Policy, research in how companies sustain competitive advantage is ripe for the picking.  “There’s an enormous opportunity… [to explore] how competitive advantage emerges in the first place and how it’s related to sustainability,” said McGahan, the author of How Industries Evolve: Principles for Achieving and Sustaining Superior Performance. “It’s a potential grand slam.”

 

McGahan was also intrigued by the interaction between competitive advantage and competition.  Specifically, how the context of competition reflects decisions firms make in terms of how they manage their capability development in certain industries.

 

During the discussion, Dartmouth College’s professor of strategy and technology Constance Helfat circled back to the definition of competitive advantage and added a competition component.  The knee-jerk answer to “What is competitive advantage?” explained Helfat, is that competitive advantage is whether or not you’re doing better than the next guy or guys.  “But the real issue is what do we mean by being better and who are the next guy or guys?” she asked. 

 

An interesting strategic management question, suggested Helfat, would be “What precedes competitive advantage?”  Is it, as she posited, merely survival in an industry?  Helfat was also intrigued by the notion of whether competitive advantage must be either short or long-lived.

 

Joe Mahoney, professor of strategy at the College of Business, University of Illinois at Urbana-Champaign submitted that “What is competitive advantage?” is the wrong question to ask.  “The two fundamental questions in economics are how do you create value and what determines the distribution of value?” said Mahoney.  “In other words, how do we increase the size of the pie and how do we distribute the pie?”

 

Mahoney advised his fellow professors to keep the “stakeholder idea” of the firm in mind when discussing competitive advantage.  “What do we mean by better?” asked Mahoney.  “Can we think in a way where all stakeholders are equally well off and some are better off?”  He’d like to see researchers keep property rights—and the interaction between property rights, transaction costs and resourced-based theories—in mind when conducting their studies.

 

Margaret “Margie” Peteraf, associate professor of business administration at Dartmouth College, wasn’t bothered by the fact that there’s no clear definition of competitive advantage.  “I like the fact that there’s room for multiple definitions,” she said.  “We’ve still moved from thinking about competitive advantage in financial terms to something much more specific.”

 

“I thought I knew what competitive advantage was,” said Patricia McDougall, professor of strategic management, Indiana University.  “This conference showed me what I didn’t know.”  McDougall asked the group gathered for the final panel discussion a rhetorical question:  “Was this conference needed?” she asked.  “Clearly, yes.”

 

Setting the bar for ACAC 2005

 

According to Richard Makadok, an associate professor of organization and management at Goizueta Business School who chaired the conference, three themes emerged from the inaugural ACAC.  The first focused on “getting a grip” on competitive advantage research.  According to Makadok, that meant asking the questions “Are we doing the basics right?” and “Are we thinking about competitive advantage in precise, rigorous, economic terms?”

 

The second theme studied the interaction of competitive advantage and governance, and a third dealt with how competitive advantage can be created via innovation, technology, and entrepreneurship.

 

The recipient of the conference’s best paper award, “A Demand-Based View of Sustainable Competitive Advantage: The Evolution of Substitution Threats, Resource Rents, and Competitive Positions” (written by INSEAD associate professor of strategy and management Ron Adner and associate professor of strategy Peter Zemsky), used a rigorous economic model to take a look at competitive advantage.

 

“It is an economic modeling paper,” said Makadok, “in which they raise an important practical point.”  That point being that competitive advantage isn’t affected only by what goes on inside a corporation and among its competitors, but that it can also be affected by consumers, or by the demand side.

 

As the authors state, “We are concerned with how consumers’ relative willingness to pay for competing product and service offers changes as these offers improve over time.”

 

For example, a decade ago, consumers welcomed improvements in microprocessors as each improvement meant a better, faster computer.  Currently, microprocessor speeds double every 18 months.  “But how fast do you need it to be?” asked Makadok.  “As a product gets better and better over time, consumers care less and less about each new performance improvement—as economists say, they get diminishing marginal utility from product performance.  The really insightful point that they (Adner and Zemsky) make is to show how that change in consumers' preferences affects the relative competitive advantage of companies in an industry.”

 

Over the course of three days, 40 plus paper presentations, and several panel discussions, researchers shared cutting-edge research, ideas, and theories like those included in the best paper winner.  Makadok is hopeful that collaborative research efforts will result from this past summer’s ACAC.  On a scale of 1-5, with 5 being the highest, 2004 ACAC attendees gave the conference a mean score of 4.7 for “overall quality.”  The 2005 conference is expected to continue the momentum.