© UCT/GetSmarter

MODULE 2 UNIT 2
Competitive advantage
and strategic initiatives
Table of Contents
1. Introduction ................................................................................................................. 3
2. What is competitive advantage? ................................................................................... 3
3. How sustainable is competitive advantage? .................................................................. 4
4. The impact of the new competitive environment .......................................................... 5
4.1 The effect on organisational structure ............................................................................ 5
4.2 The effect on people ....................................................................................................... 8
5. Competitive advantage and high-performance organisations ....................................... 9
5.1 Competitive advantage through organisational capabilities .......................................... 9
5.2 Competitive advantage through core competencies ...................................................... 9
5.3 Competitive advantage through human capital.............................................................. 9
6. Summary ................................................................................................................... 10
7. References ................................................................................................................. 11

Page 2 of 11
LO3: Discuss the effects of the contemporary competitive environment.

LO4: Describe how competitive advantage can be gained through strategic initiatives and
other means.

1. Introduction
It is a commonly accepted notion that for a typical business to be and remain successful, it
needs to achieve, and maintain, competitive advantage. This unit will explore the changing
nature of competitive advantage, and how organisations can gain competitive advantage
through various means, specifically through the implementation of strategic initiatives.
Finally, this unit will look at how the pursuit of competitive advantage affects an
organisation and its employees.

2. What is competitive advantage?

Competitive advantage can be defined as the favourable position in which a business finds
itself when it is able to generate higher value (in revenue or market share) or to retain more
customers than its competition. A business with competitive advantage effectively has the
advantage over its competitors in its market sector.

Figure 1: Gaining competitive advantage can be a challenging but rewarding pursuit for businesses.

Maintaining competitive advantage over the long term is important if a business wants to
stay ahead of its competition. However, very few businesses manage to sustain their
competitive advantage, and the ways in which to achieve such sustainability have been
called into question.

Page 3 of 11
3. How sustainable is competitive advantage?
Many traditional strategy theorists understood competitive advantage to be something that
a company can achieve and sustain, provided that it meets certain requirements. Michael
Porter’s (1991) competitive strategy framework identifies five industry forces:

1. The intensity of industry rivalry;

2. The threat of new entrants;

3. The threat of substitutes;

4. The bargaining power of suppliers, and

5. The bargaining power of customers.

According to Porter, an organisation has to assess these forces and determine how it can
defend itself against them or influence them to its advantage as a means of increasing its
own profitability level. Porter argued that a firm that can influence industry forces to reach a
position from where it can command higher prices than rivals and enjoy lower costs than
rivals would ultimately have the competitive advantage. As long as the firm can hold its
influence and thereby keep its position, according to Porter, it will be able to sustain its
competitive advantage.

From Porter’s theory it’s clear that competitive advantage is traditionally understood as
being sustainable for a company as long as the company remains stable and seeks consistent
growth within the structure of its given industry.

Combatting this notion, Rita Gunther McGrath (2014) argues that in today’s business
environment, competitive advantage is no longer sustainable. According to McGrath, a
business should strive to achieve competitive advantage not by shielding its strategy from
disruption, but rather by incorporating innovation, flexibility and agility into its strategy.

Innovation: A change in the way something is done to achieve a better outcome. According
to business author Scott D. Anthony, innovation does not require a complete
transformation. Quite simply, he says, an innovation is something new that creates value.

Flexibility: The ability to adapt to rapidly developing trends and changes in market
conditions.

Agility: Agility is similar to flexibility, but extends to include the ability to anticipate change
in an environment and to alter strategy – proactively, if possible – in order to meet the new
expectations or requirements.

Source: https://leadershipcircle.com/flexibility-agility-innovation/

In her book, The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast
as Your Business, McGrath writes that competitive advantage is no longer sustainable, but

Page 4 of 11
rather transient, or temporary. She gives several reasons for why businesses are struggling
to maintain their market dominance, including:

 Globalisation. Competition today can come from anywhere in the world, and it’s
becoming increasingly difficult for businesses to keep tabs on all those who
threaten their market share.

 Less rigid regulation. Entering into industries is becoming easier, which means the
barriers to entry that once protected well-established companies are falling.

 Digitisation. The flow of information is now instantaneous, and when attractive

business opportunities arise, these are visible to more players, many of whom may
have the resources to pursue these opportunities.

As a result of these trends, the competitive environment for businesses is no longer marked
by long periods of stability between disruptions. Fast changes in competition are now
commonplace. Therefore, for competitive advantage to remain viable, businesses need to
adapt their thinking around strategy and innovation, and possibly consider integrating these.

Importantly, businesses that integrate strategy and innovation can achieve even better
outcomes when this integration is extended to include the implementation of strategic
project management. As explained in Unit 1 of this module, implementing projects at a
strategic level, i.e. in alignment with broader business strategy, can help drive business
value, which is a main contributing factor towards achieving competitive advantage.

The next section will explore how this shift for a business could impact its organisational
structure, its strategic initiatives, and the people that make up the business.

4. The impact of the new competitive environment

4.1 The effect on organisational structure
In order to be innovative, agile and flexible enough to remain competitive, organisations
should avoid allowing their systems or structures to settle or become fixed. While too much
stability is dangerous, regular re-organisation (or periodic shakeups) are vital, since getting
too settled in one way of working can make it difficult, sometimes even impossible, to
implement a new process or system. Importantly, the implementation of strategic project
management for competitive value cannot be done successfully if the required tools,
processes and techniques remain unchanged.

Page 5 of 11
 Figure 2: Being stuck in a set structure with little moving room will keep a business from leveraging
new opportunities.

According to McGrath (2014), there are several reasons why organisations today are able to
be more agile, innovative and flexible to achieve and maintain competitive advantage.

 It’s becoming easier for businesses to assemble the assets they need for a project
and then disassemble them once they’ve achieved the project objective.

 The competitive environment is changing, and as a result, businesses are no longer

competing only in their own industry, but rather in a far broader arena with far
more players. For example, while the University of Cape Town is in competition
with other universities (in the same industry), other significant competition may
come from elsewhere, like the online gaming industry where people are testing
innovative ways of educating through games.

 More businesses today are able to disengage from certain areas of their business
and re-allocate resources to other areas, as and when the need arises. This
requires businesses to have different management systems for different areas of
their business, for example, for its core business and for any new opportunities it
wishes to explore. Kodak is one company that failed in this regard. Years ago
Kodak’s inability to disengage from their film-based business model to focus on the
digital market caused them to lose their competitive advantage. Many businesses
today however, are working on being agile enough to respond to new
opportunities.

Implementing these three ideas may bring about certain challenges. For example, if an
organisation decides to constantly adapt in order to leverage new opportunities, this will
result in the need for more organisational change management. Similarly, a company that
wants to successfully implement strategic project management for competitive value, will

Page 6 of 11
need to try out new tools, processes and techniques, from time to time, which can be a
challenging prospect for some organisations.

In the video below, McGrath explains some of the obstacles to agility and innovation that
business typically find challenging.

Video 1: Rita Gunther McGrath on the obstacles to innovation in the new competitive environment,
(Source: https://www.youtube.com/watch?v=VGy2cjArD7A)

Given the challenges associated with the need for businesses to focus on innovation, it’s
important to remember that innovative thinking, and by extension organisational agility and
flexibility, should not come at the cost of instability within a business. At the same time,
changes that are made to improve strategic project management processes should be aimed
at adding value, and not be merely disruptive to an organisation.

Companies need to find a balance between stability and change. According to McGrath
(2014), this can be achieved by ensuring that:

 People are able to rely on their leaders and the values of the organisation;

 There is a common understanding of the organisation’s strategy;

 Lines of accountability are clear and plans are in place for the professional
development of staff;

 Organisational leaders push team members to avoid complacency and to embrace

new ways of doing things, and

 Team members are encouraged to constantly reevaluate their work efforts to

ensure that these remain in line with the corporate strategy plan.

Balancing the need for stability with the need for change will enable organisations to
effectively navigate the demands of the new competitive environment. Furthermore,

Page 7 of 11
maintaining this balance will guide organisations to find ways of implementing strategic
project management through innovative means without risking organisational stability.

The next section will look at how the changes in competitive dynamics are affecting the
people who work in organisations.

4.2 The effect on people

In an environment where new business units and project teams are assembled and
disassembled as and when new business opportunities arise, concerns around job security
over the medium-to-long term are a major factor. McGrath (2014) explains that the reality
of the new competitive environment involves fluctuating resource demands. To an extent,
this requires businesses to recruit and retrench people when the need arises.

McGrath (2014) argues, however, that while fears around job security are to be expected,
these shouldn’t overshadow the positive effects that are taking place. As a result of changing
resource demands within projectised businesses, people are able to have an active part in
broadening their professional experience. The opportunity to move in and out of new
working environments, and to gain exposure and develop skills on a variety of projects, is
empowering. Unlike traditional companies where permanent processes can hinder career
flexibility for their staff members, organisations that strive for continuous reconfiguration
can enable their employees to continuously develop their careers and stimulate their
skillsets.

Figure 3: The new competitive environment can positively affect the experiences of working
professionals.

Page 8 of 11
5. Competitive advantage and high-performance
organisations
While McGrath’s research suggested that competitive advantage is transient and not
sustainable, this does not mean that organisations should innovate, be flexible and leverage
new opportunities at the cost of allowing their normal business operations to stagnate.

Lawler (n.d.) says that apart from innovation in the development of new products and
services, businesses should also focus on creating high-performance organisations as a
means of gaining competitive advantage. A high-performance organisation, according to
Lawler, is one that creates and sustains organisational capabilities and core competencies by
focusing on human capital.

5.1 Competitive advantage through organisational capabilities

According to Lawler, companies can drive business value by ensuring that the appropriate
organisational designs and management systems are in place. Organisational capabilities
often rely on the effective coordination of individuals to achieve a culture that enables the
business to:

 Focus on customers;

 Operate on a global basis; and

 Keep costs low and speed up turnover times.

Achieving the goals stated above requires strong and trustworthy relationships between
members of staff. It is therefore important to recruit and develop talented human capital in
order to drive business value and gain the competitive advantage.

5.2 Competitive advantage through core competencies

The core competency of a company refers to its knowledge of or expertise in a specialised
area of business, e.g. Honda’s expertise in making gasoline engines or Sony’s competence in
miniaturising products. This type of core competence is what sets a business apart from its
competitors and can serve as a major driver for extra business value.

A company’s core competencies, however, often rest in the minds and skills of its
employees. This can create difficulty for companies in terms of protecting their core
competencies from rival businesses, as people often leave and take their skills and expertise
with them. It is therefore not advisable to rely solely on core competencies as a source of
competitive advantage.

5.3 Competitive advantage through human capital

It is important that companies recruit the right talent to help drive the business forward.
Once the right employees are recruited, the organisation should help employees become

Page 9 of 11
involved so they can actively contribute to the company’s pursuit of competitive advantage.
There are several ways to gain value through effective employee involvement:

 Ensure that all employees are informed about business strategy, processes, quality,
customer feedback, events and business results.

 Help team members to develop their knowledge of the work, the business and the
total work system.

 Empower staff to act and make decisions about the work they’re involved in.

 Implement an incentive structure to encourage better individual results and

improved team performance.

Implementing the above will help flatten an organisation’s managerial structure. By

involving employees in the creation and sustaining of organisational capabilities and core
competencies, a company will be in a better position to outperform its competitors and
drive its own growth. However, companies do not like to share their secrets, meaning that
employees must understand the importance of keeping broader strategies private.

6. Summary
The nature of the contemporary competitive environment means that companies need to
consider changing their strategies if they wish to create or sustain their competitive
advantage. Businesses today need to enable a culture of flexibility, innovation and agility in
order to achieve continued growth. While regular changes or shakeups pose certain
challenges, companies should prioritise the need for change without risking instability in the
organisation.

The successful implementation of strategic project management is a known driver of

increased business value and competitive advantage, although project management
processes need to remain flexible if this value is to be gained.

Finally, competitive advantage can also be achieved by developing organisational capabilities

and core competencies, which requires highly talented human capital.

Page 10 of 11
7. References
Investopedia. N.d. Porter’s 5 Forces. Available:
http://www.investopedia.com/terms/p/porter.asp. [2015, April 24].

Kinni, T. 2014. The Thought Leader Interview: Rita Gunther McGrath. Strategy+Business
magazine, Issue 74.

Lawler, E. E. 2005. Designing high performance organisations. Asia Pacific Journal of Human
Resources, 43(1), 10-17.

McGrath, R. G. 2013. The end of competitive advantage: How to keep your strategy moving
as fast as your business. Harvard Business Review Press.

Project Management Institute. 2010. The value of project management. PMI.

Page 11 of 11