To be successful, how-to-win choices should be suited to the specific context of the firm in question and highly difficult for competitors to copy. P&G’s competitive advantages are its ability to understand its core consumers and to create differentiated brands. It wins by relentlessly building its brands and through innovative product technology. It leverages global scale and strong partnerships with suppliers and channel customers to deliver strong retail distribution and consumer value in its chosen markets. If P&G played to its strengths and invested in them, it could sustain competitive advantage through a unique go-to-market model.

With capabilities, again, winning is an essential criterion. Companies can be good at a lot of things. But there are a smaller number of activities that together create distinctiveness, underpinning specific where-to-play and how-to-win choices. P&G certainly needs to be good at manufacturing, but not distinctively good at it to win. On the other hand, P&G does need to be distinctively good at understanding consumers, at innovation, and at branding its products. When articulating core capabilities, you need to distinguish between generic strengths and critical, mutually reinforcing activities. A company needs to invest disproportionately in building the core capabilities that together produce competitive

advantage.

For Stewart Resnick, and now for me, a competitive advantage is interesting when one has insights into ways to increase its value. That means there must be things you can do, on your own, to increase its value.

Deepening Advantage

Start by defining advantage in terms of surplus—the gap between buyer value and cost. Deepening an advantage means widening this gap by either increasing value to buyers, reducing costs, or both…

Gilbreth’s lesson, still fresh today, is that incentives alone are not enough. One must reexamine each aspect of product and process, casting aside the comfortable assumption that everyone knows what they are doing…

Companies that excel at product development and improvement carefully study the attitudes, decisions, and feelings of buyers. They develop a special empathy for customers and anticipate problems before they occur…

Broadening the Extent of Advantage

Extending an existing competitive advantage brings it into new fields and new competitions…

Extending a competitive advantage requires looking away from products, buyers, and competitors and looking instead at the special skills and resources that underlie a competitive advantage. In other words, “Build on your strengths.”...

The basis for productive extensions often resides within complex pools of knowledge and know-how…

Creating Higher Demand

A competitive advantage becomes more valuable when the number of buyers grows and/or when the quantity demanded by each buyer increases…

Engineering higher demand for the services of scarce resources is actually the most basic of business stratagems…

Strengthening Isolation Mechanisms

An isolating mechanism inhibits competitors from duplicating your product or the resources underlying your competitive advantage. If you can create new isolating mechanisms, or strengthen existing ones, you can increase the value of the business…

When an isolating mechanism is based on the collective know-how of groups, it may be strengthened by reducing turnover.

Business leaders tend to see competition as a cleansing wind, blowing away waste and abuse. But the world is not that simple. If you invest in advertising or product development to take business away from a competitor, that may increase the corporate pie. But if you invest to take business away from a sister brand or division, that may make the whole corporate pie smaller. Not only are the investments in advertising and development partially wasted, but you have probably pushed down the prices of both brands.