7.4: What is Competitive Advantage

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Competitive Advantage

What does it mean when a company has a competitive advantage? What are the factors that play into it? Michael Porter in his book Competitive Advantage: Creating and Sustaining Superior Performance. writes that a company is said to have a competitive advantage over its rivals when it is able to sustain profits that exceed the average for the industry. According to Porter, there are two primary methods for obtaining competitive advantage: cost advantage and differentiation advantage. ^[3] So the question for I.T. becomes: How can information technology be a factor in one or both of these methods?

The following sections address this question by using two of Porter’s analysis tools: the value chain and the five forces model. Porter’s analysis in his 2001 article “Strategy and the Internet,” which examines the impact of the Internet on business strategy and competitive advantage, will be used to shed further light on the role of information technology in gaining competitive advantage.^[4]